Rate debate. Stocks sold off yesterday on disappointing earnings and ECB ambiguity. Earnings misses after Wednesday’s close overshadowed positive ones in yesterday morning’s pre-bell procession and the ECB failed to provide true clarity on rates, causing markets to sell off.
MY TWO CENTS
- As if you didn’t know by now… earnings matter, especially in these fragile times. After Wednesday’s closing bell, both Ford and Tesla announced earnings and both missed the mark. Ford beat on the top line (AKA Revenue in analyst speak) but missed by -8% on earnings with losses in China and South America contributing to the slowdown. Tesla… same industry, similar challenge, but vastly different narrative. Tesla missed revenue estimates by -1.32% but missed earnings by -262.64% (ouch). Tesla’s unit sales slipped somewhat but they are tapping into foreign markets in which there is high demand for their vehicles. The challenge: selling cars overseas has proven to be costly, as reflected by Tesla’s lower margin and earnings miss. OK, so what does that mean. For Ford, the miss meant a -7.45% drop in yesterday’s session while Tesla investors gave up -13.6%. Why the distinction? Multiples and high hopes. Because Tesla is operating under a loss we can’t use earnings multiples to compare companies, but we can use revenue. Ford is trading at 0.4 times revenue per share compared to 2.02 times revenue per share. Based on forward guidance, the number gets a bit smaller (1.9 X for the next 4 quarters), but it is still 5 times that of Ford’s multiple, making it pretty expensive, relatively speaking. Investors who believe that great things are in store for a company are willing to pay a premium for a stock, and many investors believe that Tesla will deliver… at some time in the future. Interestingly, Ford which earned $0.28 per share, pays a dividend yielding 6.28%. If investors are waiting for something great to happen in Fords future, they will at least be paid while they wait patiently. Tesla does not pay dividends, so all of the upside is based on hope… pure hope. WHILE YOU COMMUTED, Google/Alphabet reported earnings with a beat by a solid margin. Google, like Tesla, does not pay a dividend, banking on future greatness. Googles shares are up around +8% in the pre-market… earnings matter… and it pays to deliver on that promise for future greatness.
- Actions speak louder than words… when it comes to interest rates. European Central Bank head Mario Draghi had a press conference to announce interest rate policy yesterday. He opened with a dire description of the Eurozone economy, even stating that fiscal stimulus may not be enough to counter the headwinds caused from trade problems. He went on to say that much fiscal stimulus would be needed and would have to include lower rates and perhaps increased bond buying. And…. nothing [crickets chirping]. Failing to actually make any solid policy changes, he left investors flat, causing a selloff in equities. Mr. Draghi has a long history of talk but at this stage with the EU economy faltering, investors are looking for action.
THE MARKETS
Stocks sold off in yesterday’s session, unable to shake off bad earnings from the night before. The ECB struck a dovish tone but neglected to provide details, weakening stocks further. The S&P 500 sold off by -0.53%, the Dow Jones Industrial Average traded off by -0.47%, the Russell 2000 dropped by -1.2%, and the NASDAQ 100 sank by -1.01%. Bond investors were not happy with a surprise +2.0% growth in Durable Goods Orders and sold, bringing 10-year treasury yields up by +4 basis points to 2.08%. Remember good news is bad news when you are banking on rate cuts. Currency traders liked what they heard, selling the Euro, causing the US Dollar to rise.
WHAT’S NXT
– This morning, the Bureau of Economic Analysis will release their advance quarterly GDP and it is expected to have grown at an annualized rate of +1.8%, down from last quarter’s +3.1% growth. Pay attention to the details of the release as many economists believe that the dip is temporary and the detailed numbers will qualify the headline number.
– Personal Consumption is expected to have grown by +4.0% compared to last quarter’s +0.9% growth.
– Twitter, AbbVie, McDonalds, Colgate-Palmolive, and Good Year Tire and Rubber will announce earnings before the bell.
– Next week is jam-packed with information including PCE deflator (inflation), Consumer Confidence, ISM Manufacturing, and the monthly employment numbers. The big news of the week however, is the FOMC meeting which will start on Monday and end with a policy announcement and press conference on Tuesday afternoon.
Have a great weekend!
IMPORTANT DISCLOSURES.
Muriel Siebert & Co., LLC is an affiliated broker/dealer of the public holding company, Siebert Financial Corporation, which also owns Siebert AdvisorNXT, LLC. Siebert AdvisorNXT, LLC is a registered investments advisor (RIA) with the SEC and with state securities regulators. We may only transact business or render personal investment advice in states where we are registered, filed notice or otherwise excluded or exempted from registration requirements. Investment Advisor products are NOT insured by the FDIC, SIPC any federal government agency or Siebert’s parent company or affiliates.
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