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“Finally, The End of Software is here.” – Marc Benioff, 2008
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
If you’re just looking at futures on the major indices, things look a lot worse than they seem. That’s because a 15% decline in Salesforce (CRM) following its earnings results after the close yesterday makes its presence felt, especially on the Dow (more on that below). Outside of that report, investors remain defensive following a surge in rates earlier this week. Rates are lower this morning, but until we get through this week’s inflation data, it will be hard for investors to breathe any easier. In Europe this morning, stocks are generally higher led higher by Spain while the overnight tone in Asia was weaker with both the Nikkei and Hang Seng down over 1%.
A lot of economic data just hit the tape including GDP, Personal Consumption, PCE, and Jobless Claims. Overall, there were no major surprises, and on a positive note, the inflation aspects of the data were generally lower than expected.
Earnings season may have unofficially ended two weeks ago when Walmart (WMT) reported earnings on 5/16, but there have still been plenty of notable reports. Yesterday’s report from Salesforce (CRM) may have been one of the most notable. While the company reported better-than-expected earnings, it had a rare revenue miss and lowered guidance. The revenue miss was the first time the company missed since 2006! That was enough to send the stock plunging after hours, exacerbating what has already been a steady downtrend since its peak in early March. With the stock down over 15% in the pre-market, CRM is poised to close the gap higher from when it reported earnings late last November.
Within the S&P 500, CRM’s weight is just under 0.60%, so even with a decline of 15% in the pre-market, its impact on the index will be a negative hit of around 0.1%. Where CRM’s decline hurts, though, is on the performance of the Dow where its 4.6% weighting will cause a negative hit of around 275 points, or around 0.7%. As we noted yesterday, the DJIA is already underperforming the S&P 500 by a historically large margin YTD, so today’s move will widen the gap even more.
With today’s decline, CRM is also on pace to have its second-worst one-day reaction to earnings as a public company. The worst drop occurred in response to an earnings report in August 2008. Furthermore, the stock has only declined by 10% or more in reaction to earnings four other times in the last 20 years.
While it is not uncommon to see smaller companies react poorly in reaction to earnings, it’s unusual among large-cap companies in the S&P 500. Since the start of April, CRM will be just the 24th S&P 500 company to decline more than 10% in reaction to earnings and just the tenth to fall more than 15% if its current declines hold into the close. Of those companies listed below, though, CRM would be just the fifth to gap down more than 15% on its earnings reaction day.
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