Chart of the Day: Dollar Independent
Morning Lineup – Earnings Begin in Earnest
What was looking like a positive day has taken a turn south as a weak earnings report from JPMorgan Chase (JPM) has put investors in a more defensive mood. This afternoon’s Brexit vote in the UK is also likely to cause volatility as we approach the close. In economic data, PPI for December came in weaker than expected while Empire Manufacturing for January also missed. Read today’s Bespoke Morning Lineup below for major macro and stock-specific news events, updated market internals, and commentary.
Bespoke Morning Lineup – 1/15/19
We’ve gotten a handful of high profile earnings reports this morning, and the pace will only pick up as the week goes on. Of the companies reporting this morning, though, the results have been mixed. While Delta (DAL) and UnitedHealth (UNH) both exceeded forecasts on the top and bottom line, JPMorgan Chase (JPM) came up woefully short in terms of both earnings and revenues. The more important thing to watch, though, is how the stocks react, and given the size of JPM’s miss, the reaction could have been worse. As of this writing, it is trading down just 2%.
As with every earnings season, one of the most important metrics to watch is not necessarily how the companies report relative to expectations or even guide, but how their share prices react to earnings. So far this earnings season, the results haven’t been great.
The chart below shows the one-day share price reactions for S&P 1500 companies reporting YTD (through Monday). It’s a relatively small sample size (22 companies), but the median returns of companies reporting have been negative. While the stocks have collectively seen a modest (and we mean modest) pop of 0.08% at the open, the median change from the open to close has been a decline of 1.67% for a median one day drop of almost 2%. This isn’t a very encouraging start, but at this point in the last earnings season, the median one-day decline of stocks reporting EPS was closer to a decline of 4%. So, it could be worse.
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Chart of the Day: Netflix (NFLX) Q4 Earnings
Bespoke’s List of the Most Volatile Stocks on Earnings
Earnings season (Q4) started up today with Citigroup’s (C) report ahead of the open. As you can see below, though, this week is still a relatively slow one on the earnings front. Next week things start to really pick up with more than 50 reports scheduled on both Wednesday and Thursday, and then after that, there are multiple days in the following weeks where over 100 companies will report each day.
As we do at the start of each earnings season, below is our list of the most volatile stocks on earnings. These are the stocks that have historically experienced the biggest moves (on an absolute basis) on their earnings reaction days (the first trading day following a quarterly release).
The first list below only includes stocks from our Earnings Screener (available to Bespoke Institutional members) that have at least 10 years worth of earnings reports (40 quarters or more). The names that made the list have all experienced an average one-day change of more than +/-10% on their earnings reaction days over a 10+ year period. That’s big volatility!
Infinera (INFN) ranks at the top of the list with an average move of +/-15% on its earnings reaction days. In second is Netflix (NFLX) with an average one-day change of +/-13.12% on earnings. NFLX’s earnings volatility is remarkable because it has by far the largest market cap ($145 billion) of any stock on the list. The next closest is Align Tech (ALGN) with a market cap of just $15.7 billion.
Travelzoo (TZOO), YRC Worldwide (YRCW) and Town Sports International (CLUB) rank 3rd through 5th, while other notables in the top 10 include iRobot (IRBT), First Solar (FSLR), and Nutrisystem (NTRI). Other volatile earnings stocks that you might recognize include Stamps.com (STMP), Crocs (CROX), Weight Watchers (WTW), and Akamai Tech (AKAM).
As you’ll notice, most stocks on the list are from the Technology and Consumer Discretionary sectors. If you own or follow any of these names, buckle up for their upcoming earnings reports in the coming weeks!
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The list above only includes stocks that have at least 10 years of quarterly earnings data, but there are even more volatile stocks on earnings if we narrow the cut-off to just 2+ years of earnings reports. Below is a list of the most volatile stocks on earnings that currently trade for more than $10/share that have at least 8 quarters of earnings reports.
The Trade Desk (TTD) ranks at the top of this list with an average one-day change of +/-18.78% on earnings. Impinj (PI) ranks a close second with an average one-day change of +/-18.57%. Other notables on the list include LendingTree (TREE), Twilio (TWLO), Wayfair (W), Twitter (TWTR), Acacia (ACIA), Tableau Software (DATA), and Etsy (ETSY).
Bespoke CNBC Appearance (1/11)
Bespoke Co-Founder Paul Hickey appeared on CNBC’s Power Lunch on Friday (1/11) to discuss markets and the next possible catalysts following the rally off the Christmas Eve lows. To view the segment, please click on the link or image below.
Bespoke CNBC Appearance (1/11)
This Week’s Economic Indicators – 1/14/19
Last week was pretty quiet for economic data with only 10 releases scattered throughout. ISM Non-Manufacturing kicked off the week with a decline and a miss that was actually fairly benign on its own but added to the significant decline in the composite ISM index. Tuesday saw small business optimism beat while the JOLTS report saw a modest pullback. Consumer credit also released later that day lower than the previous period but above expectations. The weekly mortgage applications data from the Mortgage Bankers Association was the sole release on Wednesday which showed a significant expansion. Thursday was again a light day with just two weekly indicators (jobless claims and consumer comfort). CPI capped off the week with a release in line with forecasts for both the headline and core numbers.
Turing to this week, activity picks back up with the heaviest week so far this year. Granted, that is assuming the government reopens and allows all of these indicators to see the light of day. If all goes as scheduled, there will be no releases today but tomorrow morning we will get Empire Manufacturing and further inflation data with PPI for December. Despite weak ISM and regional Fed data recently, Empire Manufacturing is expecting an uptick. Wednesday will be the busiest day of the week with 12 releases scheduled. Retail sales will be a widely watched indicator to get a read on this year’s holiday sales; though this too will likely be delayed due to the government shutdown. Continuing Wednesday’s slew of data will be import/export prices, the NAHB homebuilder sentiment, Fed’s Beige Book, and Treasury TIC flows. Thursday we will get further housing data with housing starts and permits. Whereas starts are expected to decline, permits are forecast to come in slightly higher from last month. The Philly Fed’s Business Outlook will also release that morning, and much like Empire Manufacturing is expecting a slight increase in activity. The week will end with industrial production data and preliminary University of Michigan sentiment; both looking to come in lower.
If you haven’t been able to tell yet, one of the areas the government shutdown has hit has been economic data. The current government shutdown is now the longest in history, and since it began on December 22nd, there have been 14 economic releases that have been delayed. Below we list out all of the indicators that were scheduled to come out since the shutdown began but have been delayed due to a lack of funding for the agencies in charge of the release. The shutdown of the Census Bureau has had the largest impact. With the exception of the monthly budget statement, which comes out of the Treasury, all of the below indicators are products of the Census Bureau.
As we previously mentioned, the shutdown has reached historic lengths, and as a result, has now gone on long enough to affect both preliminary and final data points. That is the case for trade balance, wholesale inventories, and factory orders/goods orders which were supposed to have their final versions released last week. As for this week, retail sales, business inventories, TIC flows, housing starts, and permits could all have the potential to join this list. Fortunately, government-independent agencies (such as the Fed and Bloomberg) along with some government organizations that have secured funding will continue to provide investors with data. For example, the Bureau of Labor Statistics is funded through September—which is why we have seen inflation data—so government data is not completely absent for the time being.
Trend Analyzer – 1/14/19 – Still There
It has been a week now and most of the ETFs tracking the major indices in our Trend Analyzer have held in their neutral trading range. Despite small declines Friday, last week saw solid gains for each of these ETFs. Midcaps and Small Caps continued to outperform with the Russell 2000 (IWM) outperforming last week. Along with the Core S&P Small-Cap ETF (IJR), all the mid-cap focused names saw gains of over 4% on the week. This group is also very close to breaking out above their 50-DMAs; 6 of the 14 are within a percentage point of the moving average. With futures lower this morning, bulls aren’t going to see a break above this resistance level at the open. A breakout from these levels would certainly be a positive signal for these indices, but until that happens, the bears remain in control with long-term downtrends still solidly in place.
Morning Lineup – Weak Chinese Data Weighs on Markets
Weakness in overnight trade data out of China plus a number of tweets from the President over the weekend are weighing on sentiment to kick off the trading week. Citigroup (C) kicked off earnings season on a sour note this morning as revenues came in light pushing the stock modestly lower. It’s a quiet day for data today, but things will pick up throughout the week, especially tomorrow when the British Parliament is scheduled to vote on PM Theresa May’s Brexit bill. Read today’s Bespoke Morning Lineup below for major macro and stock-specific news events, updated market internals, and commentary.
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Bespoke Brunch Reads: 1/13/19
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.
While you’re here, join Bespoke Premium for 3 months for just $95 with our 2019 Annual Outlook special offer.
Ambition Restrained
Self-Driving Cars Will Always Be Limited. Even the Industry Leader Admits it. by Paris Marx (Medium)
During the mid-2010s, the breathless hype about the advent of self-driving cars was everywhere. We’ve taken a much more skeptical view of the prospects for the deployment of the new technology, for instance in our Industry Insight report (link). Now, self-driving car industry leaders are moderating the outlook. [Link]
Polaroid. Walkman. Palm Pilot. iPhone? by John D. Stoll (WSJ)
Cautionary talk about the outlook for the world’s most profitable electronics business, which will never see the risk of being replaced go away; the same also extends to other Silicon Valley businesses. [Link; paywall]
SoftBank to slash planned WeWork investment by Eric Platt and Arash Massoudi (FT)
The $100bn Vision Fund is getting cold feet about how much capital it should commit to office rental startup WeWork, cutting its planned $16bn investment to less than 15% of that number. [Link; paywall]
Emergency Powers
GOP in the dark as Trump weighs emergency declaration by Eliana Johnson, Burgess Everett, and Heather Caygle (Politico)
Members of Congress aren’t involved in the President’s plans to use emergency powers in order to construct a wall on the Southern border, under an extremely broad interpretation of the executive’s emergency powers. [Link]
It’s Not a National Emergency. It’s Also Not the Dawn of Dictatorship. by Matt Ford (The New Republic)
Calm and informed analysis of the long history surrounding the expansion of executive power, a trend in American political life that has been ascendant for nearly 100 years and is being thrown into starker relief by the recent proposal to use emergency powers in order to build a border wall. [Link]
Rents
The 30 Percent App Fees Are Too Damn High by Shira Ovide (Bloomberg)
The US Supreme Court recently heard arguments in a case alleging Apple is exercising a monopoly in its app store, a venue which takes a steep cut of all purchases inside apps. [Link; soft paywall]
How PhRMA finally lost: the inside story of the group’s biggest lobbying failure in years by Nicholas Florko (Stat News)
The story of a legislative surprise and the lobbying fight to stop it, a result that took the industry and its massive army of influence-peddlers completely by surprise. [Link]
Investing
What Amazon’s Rise to No. 1 Says About the Stock Market by Jason Zweig (WSJ)
A data-oriented review of Amazon’s rise to the top of the US market, and why what seems like a large degree of concentration in market value among a few stocks is quite the opposite. [Link]
National Mutual Life Assurance Society Company Meetings 1922-1937 (Google Drive)
A treasure-trove for investors: the comments economist and investor John Maynard Keynes’ on the economy and markets as the National Mutual Life chairman over the course of the Roaring 20s and Great Depression. [Link; 58 page PDF]
Tech Traps
The Subliminal Trick Netflix Uses to Get You to Watch Its Movies & Shows by Anthony Schneck (Thrillst)
Netflix’s algorithm isn’t just used to figure out what kind of movies you want to watch; it’s also being used to choose which thumbnail you’ll be most likely to click on when you’re browsing through the content library. [Link]
Older People Shared Fake News on Facebook More Than Others in 2016 Race, Study Says by Niraj Chokshi (NYT)
Whether by misunderstanding or malice, “news” stories that were total fiction found their biggest boosters in the ranks of senior citizens during the 2016 election. [Link; soft paywall]
Sports Analytics
You Called A Run On First Down. You’re Already Screwed. by Josh Hermsmeyer (FiveThirtyEight)
A statistical argument that the Seattle Seahawks’ obsession with establishing the run cost them wins in a year where those were in relatively short supply. [Link]
Science
Earth’s magnetic pole is on the move, fast. And we don’t know why by Jamie Seidel (news.com.au)
While the magnetic pole does tend to move but the recent pace of its shifts around the Arctic Circle have caught scientists by surprise. [Link]
How a Uruguayan town revolutionized the way we eat by Shafik Meghji (BBC)
One of the most ubiquitous ingredients in the history of home cooking was born on the banks of the Uruguay River, eventually becoming a global phenomenon from humble origins. [Link]
Incarceration
Where 518 Inmates Sleep in Space for 170, and Gangs Hold It Together by Aurora Almendral (NYT)
Jails in the Philippines’ have gotten so over-crowded that gangs behind bars are doing more to keep the piece than guards. [Link; soft paywall]
Mass Transit
Meme Weeding: Unions and Construction Costs by Alon Levy (Pedestrian Observations)
A deep dive on why transit in the United States costs so much to build, especially compared with other developed countries in similar environments. [Link]
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Have a happy New Year!