Morning Lineup – Revenues Revving
Yesterday morning, we noted that the earnings results weren’t kicking off the week on a positive note. Thankfully, that trend changed since the close yesterday. Not only have results in Europe, and more importantly the reactions to those earnings, been encouraging, but here in the US the tone has been positive as well. Of the nearly 60 companies that have reported since the close yesterday, over two-thirds (67%) have managed to exceed EPS forecasts and an impressive 62% have topped revenue estimates.
In economic data today, the focus will be on housing with the FHFA House Price Index at 9 am eastern and then Existing Home Sales at 10 am. Already this morning, though, earnings from Pulte (PHM) were positive and the stock is trading up 1.5% on the results. Also at 10, we’ll get the July release of the Richmond Fed and see if that will show the same type of rebound that we saw in the Empire and Philly Fed Manufacturing reports.
Read today’s Morning Lineup to get caught up on news and stock-specific events ahead of the trading day including a discussion of earnings results from the US and Europe overnight and economic data out of Japan.
Bespoke Morning Lineup – 7/23/19
As noted in this morning’s commentary of the Morning Lineup, the dollar is trading higher for the third straight day today and appears to be showing signs of breaking out of its May-July downtrend. With the dollar’s strength, we would expect to see companies with international exposure underperforming. As shown in the chart below, though, that hasn’t been the case in the last few days. While our index of S&P 500 Domestics (red line) is about 1% off its recent high, the Internationals Index (blue line) has been moving sideways and remains right near its highs.
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The Closer – Cyclical Breadth, Chicago Fed, FX Activity, Ag Alert – 7/22/19
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Looking for deeper insight on markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at the very strong breadth of the cyclical GIC Level 3 Industry Groups so far in 2019. Then turning to economic data, we cover the Chicago Fed’s National Activity Index which is consistent with slower growth. Next, we show some developments in the foreign exchange markets including EURJPY sitting at support, the plunge of GBP since May, and the coiling of USDMXN. One final note covers the very slow pace of corn exports this year.
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Netflix: Red is the New Black
Last Thursday was a really bad day for Netflix (NFLX) when the stock fell more than 10% after reporting weaker than expected subscriber growth in Q2. The stock hasn’t really been able to re-gain its footing since then either as it also traded lower on both Friday and Monday. While it’s no surprise that NFLX has been weak since its earnings report, the stock was also weak heading into the report with a losing streak of five trading days. In total, NFLX has traded lower on each of the last eight trading days. Over this time period, the stock has seen an intraday peak to trough decline of over 20%, which is significant even for a volatile stock like NFLX.
As far as eight-day losing streaks are concerned, they don’t come often for NFLX. Since the company’s IPO in 2002, there have only been five other losing streaks of eight or more days, and the most recent was more than five years ago in March 2014, and that was also the longest losing streak in the stock’s history at 11 days. Besides that period, there has only been one other streak that lasted more than eight trading days, so if Netflix finishes in the red today and tomorrow, it will truly be one of the stranger things that have happened in the stock’s history.
In the table below, we have listed each of the prior eight-day losing streaks for NFLX in its history. For each period, we have listed the eighth day of the losing streak and then how the stock performed over the following one week, one month, and three months. The only time that NFLX saw a negative one week return was following the streak that lasted eleven trading days, and the overall average one week return was a gain of 11.9% (median: 8.2%). One month later, the stock saw an average gain of 16.4% (median: 26.9%) with gains three out of five times. Finally, three months after the eighth day of the losing streak, NFLX was higher all five times for an average gigantic gain of 63.2% (median: 46.6%). One note of caution here, however, is that with a market cap of $135 billion, Netflix is not the same company or stock it was fifteen, ten, or even five years ago. While it is still volatile now, it is nowhere near as volatile as it once was, so don’t expect anything in the vicinity of a 63% (or even a 46%) move in NFLX over the next three months. NFLX shareholders would willingly take a quarter of that at this point. Earnings season is about to get really busy, so stay on top of the latest trends and moves by starting a two-week free trial to Bespoke Institutional to access our interactive Earnings Explorer and receive ALL of our premium equity research.
Chart of the Day: Unlucky Seven for Chicago Fed NAI Index
Biggest Winners and Losers of Earnings Season So Far
The two charts below are available to our subscribers on our Earnings Explorer page. They show the rolling 3-month earnings and sales beat rates for US stocks reporting earnings. Monitoring these charts is a good way to track how companies are doing relative to expectations over time. As shown, the earnings beat rate has bounced a bit over the last month after trending lower over the prior 10 months dating back to the middle of 2018. The sales beat rate hasn’t bounced as much, but it has stabilized around its long-term average of 56.45%. Start a two-week free trial to Bespoke Institutional to access our interactive Earnings Explorer and receive ALL of our premium equity research.
Last week, 123 companies reported their Q2 earnings results, and 70% of them reported stronger than expected EPS. But while the bottom-line beat rate was strong at 70%, the top-line sales beat rate was much weaker at 56%.
The average stock that reported last week traded well in reaction to the news, gaining an average of 0.56% on its earnings reaction day. There were 20 stocks that gained more than 5%, and we have provided a snapshot of them from our website below. Seattle Genetics (SGEN) was the biggest earnings winner last week with a gain of 19.11% last Wednesday. CrowdStrike (CRWD) was the second biggest winner with a gain of 14.8% last Friday. Skechers (SKX), Gentex (GNTX), and Marten Transport (MRTN) round out the top five with one-day moves of more than 9.2%. Other notables on the list of last week’s biggest earnings winners include Cintas (CTAS), Philip Morris International (PM), State Street (STT), and Union Pacific (UNP).
Eagle Bancorp (EGBN) was last week’s biggest earnings loser with a one-day decline of 26.75% on Thursday. ADTRAN (ADTN) was second worst with a decline of 23.32%, followed by Ericsson (ERIC) and Insteel Industries (IIIN). Netflix (NFLX) was the 5th biggest loser on earnings last week with its one-day drop of 10.27%. CSX and Limelight Networks (LLNW) were the other two stocks that fell more than 10%. (Subscribers can use our Earnings Explorer to see the list of biggest earnings winners and losers over any time frame.)
Key Earnings Reports This Week — AMZN, GOOG, FB — 7/22-7/26
As shown in the chart below of the number of companies reporting earnings by day over the next month, the next three weeks will be the busiest of the Q2 reporting period. (This chart is updated daily at our Earnings Explorer page. Our Earnings Explorer shows upcoming report dates and key earnings stats for all US companies set to report over the next 30 days. To access the Earnings Explorer, start a two-week free trial to Bespoke Institutional.
Below we’ve compiled a list of the most volatile large-cap companies (>$28 billion market cap) set to report earnings this week. Each of the stocks listed has historically experienced an average one-day price change of more than +/-3.25% on its past earnings reaction days. For each stock, we include its expected report date, market cap, and year-to-date performance (%). We also include its historical earnings and revenue beat rate (% of time it has beaten consensus analyst estimates) as well as the percentage of the time it has raised guidance. Finally, we show its average one-day share price reaction to earnings reports throughout history and its average absolute one-day price change (earnings volatility).
There are no big reports scheduled for today, but tomorrow we’ll hear from Texas Instruments (TXN) and Visa (V) after the close. Visa (V) has one of the strongest EPS beat rates at 95.6%. Visa has historically averaged a one-day gain of 1.07% on its earnings reaction day (which would be Wednesday this week given that it reports Tuesday after the close).
Wednesday and Thursday will be extremely busy, led by Facebook (FB) and Tesla (TSLA) on Wednesday after the close and Amazon (AMZN), Alphabet (GOOG), and Intel (INTC) on Thursday after the close. Twitter (TWTR) reports Friday morning ahead of the open.
Along with Visa, both Facebook (FB) and Twitter (TWTR) have historically beaten EPS estimates more than 95% of the time. Atlassian (TEAM), PayPal (PYPL), and ServiceNow (NOW) are the three stocks on the list with the strongest revenue beat rates. ServiceNow (NOW) has also raised guidance more often than any of the stocks listed.
In terms of share price reactions, Facebook (FB) and ServiceNow (NOW) stand out as they have historically averaged a one-day gain of more than 3% following earnings. On the downside, Twitter (TWTR) has historically averaged a decline of 2.94% on its earnings reaction days. TWTR is also the most volatile of the stocks listed with an average absolute one-day change of more than 12%.
The stocks above are the most volatile of the large caps reporting earnings this week. Below is a list of the large caps that are the least volatile on their earnings reaction days. This list is littered with Dow 30 stocks including Coca-Cola (KO), Travelers (TRV), United Tech (UTX), Boeing (BA), 3M (MMM), and McDonald’s (MCD).
Tomorrow morning we’ll hear from Biogen (BIIB), Coca-Cola (KO), Lockheed Martin (LMT), Travelers (TRV), and United Tech (UTX). On Wednesday we’ll get reports from Boeing (BA), Northrop Grumman (NOC), AT&T (T), and UPS all ahead of the open. Hershey (HSY), 3M (MMM), and Raytheon (RTN) are a few of the big names reporting on Thursday, and then McDonald’s (MCD) will be the biggest of the least volatile blue-chips reporting on Friday morning. Start a two-week free trial to Bespoke Institutional to access our interactive Earnings Explorer and receive ALL of our premium equity research.
Morning Lineup – A Fresh Start
After a headscratcher of a week last week when it came to market expectations for the FOMC and the size of any potential rate cut at its meeting next week, thanks to a blackout on any further communications ahead of next week’s meeting, we won’t have to worry about any more conflicting headlines. It’s going to be a busy week for earnings, so make sure to check out our Earnings Calendar for a look at what’s on top. In terms of this week’s reports so far, results haven’t been particularly encouraging. Of the eleven companies reporting so far today, just over half have exceeded EPS forecasts while less than a third have topped revenue estimates. One notable loser today is Lennox (LII). Not only did the company miss top and bottom-line estimates but they also lowered guidance citing cooler weather int he quarter.
Read today’s Morning Lineup to get caught up on news and stock-specific events ahead of the trading day and a discussion of trade data out of Korea.
Bespoke Morning Lineup – 7/22/19
Now that the FOMC is in blackout mode, hopefully, the volatility related to expectations for the July meeting will start to subside. After all the ups and downs of the last week, markets are now pricing in a three-quarters chance of a 25 bps cut and a one in four chance of a 50 bps cut. This comes after Friday’s comments from Boston Fed President Rosengren on Friday that he doesn’t see the need for a cut at all.
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Bespoke Brunch Reads: 7/21/19
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
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Oversight Needed
The Border Patrol Hits a Breaking Point by Garrett M. Graff (Politico)
Many of the problems faced by CBP are not caused by current political assignments but are the inevitable consequence of years without consistent management, expansion too rapid to handle masses of new recruits, and the theory that money will solve all problems. [Link]
Pentagon fails its first-ever audit, official says by Idrees Ali and Mike Stone (Reuters)
The Department of Defense was given a comprehensive audit by an army of accountants since December. This was the first-ever audit for the Pentagon, despite a 1990 law requiring an audit of all federal agencies. [Link]
Kids These Days
American kids would much rather be YouTubers than astronauts by Eric Berger (Ars Technica)
The latest moral panic over the state of American youths is apparently related to career choice, with a five-choice survey across three countries showing American kids would rather be a “vlogger/YouTuber” than astronaut, the least favored choice. [Link]
Some thoughts on youth sports by Myles Udland (Tumblr)
Myles considers his own struggles and positive experiences with youth sports and the larger incentives that drive children to specialize and hyper-focus on sports at a young age. [Link]
Economics
Measuring Labor-Force Participation and the Incidence and Duration of Unemployment by Hie Joo Ahn and James D. Hamilton (NBER Working Papers)
Statistical biases – that are artefacts of consistent survey methodology, not some sort of political pressure – are responsible for presenting a skewed picture of the US labor market. [Link; 51 page PDF]
Infrastructure Costs by Leah Brooks and Zachary Liscow (Brookings)
A new paper seeks to identify the increased construction costs for basic infrastructure like roads. Contrary to popular perception, materials and even labor inflation aren’t the key drivers, but instead that rising “citizens voice” decision-making processes, higher incomes, and higher home prices explain the results. [Link; 88 page PDF]
Not What You Paid For
Safe Deposit Boxes Aren’t Safe by Stacy Cowley (NYT)
Storing valuables is hard even when you outsource it to a location that should be secure: a bank. Cautionary stories on why your safe deposit box isn’t as safe as you think it ought to be. [Link; soft paywall]
Searches for ‘Canceling Amazon Prime’ Spike on Prime Day by Spencer Soper (Bloomberg)
Advertising doesn’t always work the way it’s intended to, and in the case of Amazon Prime paying customers sometimes forget that they’re paying until Prime Day reminds them. [Link; soft paywall, auto-playing video]
The women who win hundreds of sweepstakes per year by Zachary Crockett (The Hustle)
A unique online culture features a hunt for the ubiquitous sweepstakes, which can yield tens of thousands of dollars per year in winnings for the most dedicated prize hunters. [Link]
Europe
Swedes are getting implants in their hands to replace cash, credit cards by Lee Brown (New York Post)
Small RFID chips are being implanted in Swedes who use them to pay at the store, unlock doors, and monitor health metrics. [Link]
Older Employees Breathe New Life Into Europe’s Labor Market by Tom Fairless (WSJ)
Almost 90% of employment growth in the Eurozone between 2012 and 2018 came from workers aged 55 to 74, a function of both an aging society and rigid labor markets. [Link; paywall]
Tinseltown
‘The Town Hall of Hollywood.’ Welcome to the Netflix Lobby. by Brooks Barnes (NYT)
Where can you see Dolly Parton, Leo DiCaprio, John Kerry, Cindy Crawford, David Letterman, Beyoncé, President Obama, Alfonso Cuarón, Jay Leno, or studio heads? Waiting to pitch or be pitched by the biggest content budget in LA. [Link; soft paywall]
IPO Flops
Why Budweiser and Bankers Failed to Sell the King of IPOs by Thomas Buckley, Vinicy Chan, Crystal Tse and Bruce Einhorn (Yahoo!/Bloomberg)
Global brewing behemoth AB-InBev was all set to list its APAC businesses in a massive Hong Kong IPO, but the $10bn listing had to be pulled due to lack of investor interest. [Link]
Laugh More, Live Longer
You’re Not Laughing Enough, and That’s No Joke by Pamela Gerloff (Psychology Today)
Toddlers burst out laughing hundreds of times a day, but adults – especially those later in life – are much less frequent to giggle. But laughter reduces stress hormones and releases endorphins which can improve quality of life. [Link]
Long Reads
Apollo 11 Had a Hidden Hero: Software by Robert Lee Hotz (WSJ)
The story of the code behind the moon landing, and how it helped jump-start the role of computers across industries and applications more broadly. [Link; paywall]
A Carolina Dog by Cy Brown (Bitter Southerner)
The fascinating story of a dog breed which has been wandering around North America with and without human companions for the past 14,000+ years, and has rooted itself in the swamps of the rural south. [Link]
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Have a great weekend!
The Bespoke Report — 7/19/19
This week’s Bespoke Report newsletter is now available for members.
In this week’s newsletter, we try and digest market expectations for rate cuts amid strengthening economic data. We also provide a full rundown of this week’s earnings reports and what’s on tap for next week. Three of the four FANG stocks (FB, AMZN, GOOGL) report next week. To read the Bespoke Report and access everything else Bespoke’s research platform has to offer, start a two-week free trial to one of our three membership levels. You won’t be disappointed!
The Closer: End of Week Charts — 7/19/19
Looking for deeper insight on global markets and economics? In tonight’s Closer sent to Bespoke clients, we recap weekly price action in major asset classes, update economic surprise index data for major economies, chart the weekly Commitment of Traders report from the CFTC, and provide our normal nightly update on ETF performance, volume and price movers, and the Bespoke Market Timing Model. We also take a look at the trend in various developed market FX markets.
The Closer is one of our most popular reports, and you can sign up for a free trial below to see it!
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