Slow burn

Slow burn.  Stocks were off yesterday on mixed earnings and another confusing development in the Brexit saga.  Earnings will continue to take center stage as tech companies begin to announce today.

 

MY TWO CENTS

 

1.  Zoom in for the facts.  Markets appear to have been largely driven by macro events lately.  After all, traders have an almost court-side seat to the oval office simply by following Twitter.  That aside, macro events such as the trade war and ongoing negotiations, eager-to-please central banks, negative interest rates, and a very sloppy divorce between the UK and EU are just a few of the many global issues pushing markets up and down daily… until earnings season.  Earnings season gives investors a chance to turn the volume down on what appears to be the same old news and focus on the health and prospects of individual companies.  I have said many times and will repeat it here again: long term investing pays off. Of course the caveat is that investors still need to be cautious in selecting and managing their investments and company announcements is where many smart investors start.  First, while a company beating its expected earnings per share is good, it does not provide enough information for long term investment.  Companies can and do manipulate EPS beats by setting low bars and stock buybacks.  To avoid confusion, investors should look at earnings and revenue growth.  Is it growing or is it slowing?  How does the growth compare to others in the same industry?  These are easy to find numbers (you can call me if you need help with this).  Beyond the basic homework, investors should either listen to the earnings call, read a transcript, or at a bare minimum, read current news on the company the day after the release.  Every Monday, I publish a calendar of major company earnings along with expectations and conference call numbers (you can call me for help with this as well).  If you are not up to all that, you can rely on analyst reports and recommendations.  Earnings season offers us a rare but timely view into the companies that make up the indexes that make up the overall stock market.  The opportunity to know more should not be missed.

 

2.  Anything but common.  I can’t even begin to describe all of the confusing details of the ongoing Brexit drama playing out in the UK, so I will keep it as high-level as possible.  I want to point out that the United Kingdom is the fifth largest economy in the world just behind Germany, so ignoring its impact on the global economy would be a mistake.  In a well publicized but highly misunderstood week of wrangling, Prime Minister Boris Johnson struck a deal with the EU which would detail the break up of the two.  That’s right, I said “break up”.  The current deal only covers how the UK will leave the EU and does not ponder how the two sides will work together beyond the deadline of October 31st.  With such a close vote in the referendum to leave the EU there are still many vocal supporters on both sides.  The Brexiteers want out ASAP regardless of how (Johnson is the lead Brexiteer).  Opponents of Brexit, who respect the vote, want to ensure that the divorce will have minimal impact on the UK economy.  Many opponents are doing everything they can to slow the process and even hope for a new referendum to possibly reverse the decision.  Yesterday, British lawmakers voted on Johnson’s proposed deal and agreed to it.  Before investors could actually figure out what all the cheering was about, the House of Commons took another vote and struck down Johnson’s proposed fast-track timeline which would allow Brexit to occur by the end-of-month deadline.  MP’s want time to consider and amend the terms of the deal before giving final approval – and that takes time.  The result?  Johnson has “paused” the legislation and has asked the EU for another delay.  In other words, the deal wasn’t really passed.  What does it really mean?  More confusion about the future for EU and UK businesses as they await real solid facts.

 

THE MARKETS

 

Stocks bounced around for most of yesterday’s session as mixed earnings were digested by traders.  A break came in the afternoon as British lawmakers approved PM Boris Johnson’s proposed Brexit deal but then voted to delay it further.  The news of the delay weighed on equities through the close.  The S&P500 dropped by -0.36%, the Dow Jones Industrial Average traded off by -0.15%, the Russell 2000 inched up by +0.05%, and the NASDAQ Composite Index pulled back by -0.72%.  Bonds advanced and 10-year treasury yields slipped by -3 basis points to 1.76%.  Crude oil had an interesting day climbing by +1.81% on news that OPEC is considering further production cuts as demand forecasts continue to decrease.  Today, Crude oil may be under pressure as an after the close API report showed an increase in US stockpiles.

 

 

WHAT’S NXT

 

– The Federal Housing Finance Agency will report its House Price Index, which is expected to have grown by +0.3% month over month compared to last month’s +0.4% growth.

– This morning Owens Corning and Eli Lilly beat estimates while Hilton, Anthem, and Caterpillar missed.  We will also hear from Freeport-McMoRan, Blackstone, General Dynamics, Waste Management, Boeing, and Norfolk Southern before the opening bell, amongst others.  After the close earnings will include Ford Motor Company, Spirit Airlines, eBay, Lam Research, PayPal, Tesla, and Microsoft.  After the close yesterday Texas Instruments missed estimates and gave a rather grim forward outlook, which will surely impact tech investing in today’s session.

– Facebook CEO Mark Zuckerberg will testify on Capital Hill today amongst increased scrutiny by lawmakers.

– The Treasury will auction $41 billion 5-year notes.

 

Best views in town

 

I will be meeting with clients in our New York and Jersey City offices all next week.  Please reach out and set up some time with me.

daily chartbook 2019-10-23