Fine tuning

Fine tuning.  Stocks ended the day slightly up as investors dealt with mixed earnings reports.  Ignoring the chatter out of Washington has been getting increasingly difficult but stock investors continue to look away.

 

MY TWO CENTS

 

  1.  What’s said is said.  Earnings calls took center stage yesterday, once again overshadowing the shenanigans in the nation’s capital.  I wrote about it yesterday, and I write about it just about every earnings season.  Pay attention to earnings if you want to know what is really going on.  I wrote in yesterday’s morning note that the release numbers can tell you something about the longer term prospects of a company.  I urged readers to listen to the conference calls.  I want to highlight that once again today with a few examples from yesterday’s announcements.  First, an obvious one.  Notorious Tesla announced earnings yesterday beating on EPS but missing on top line revenue.  Not easy to interpret that one, eh?  Listening to the conference call might have helped.  CEO Elon Musk announced that their Chinese Giga Factory was up and running, a new crossover model would be released ahead of schedule, and … here comes the biggie… the company expects to be cash flow positive going forward, meaning that they can fund their own growth without selling more stocks or bonds.  BINGO.  The stock traded up over +21% in after hours and is currently up around +18% before the open.  Listen to the calls!  Of course, it’s not always that straight forward.  Large equipment manufacturer Caterpillar is considered to be a bellwether for the industrial sector, expanding the business when the economy is growing and contracting when the economy is slowing.  They whiffed on earnings and revenues big time, missing analyst estimates by -7.38% and -4.85% respectively. On the earnings call, the company said that the global economic downturn and the trade war was to blame.  As one might expect traders initially pressed the “sell” button but the stock ultimately paired losses to close in the green, up +1.23% on the day.  Hmm, what gives here?  It’s tough to say, but perhaps investors read more closely into the release and realized that there were no real revelations: we know the global economy is slowing and that China, a big customer, is struggling a bit.  A long term investor may believe that the stock is cheap, as it has underperformed the index for an entire year.  Now on to beleaguered Boeing who announced that they missed earnings estimates by -33.06%.  But wait!  In the conference call it was announced that the company expects their now infamous 737 Max to return to service by year end.  The stock traded up by almost +4% in the session and ultimately closed up by +1.04%.  Perhaps investors were expecting the worst with the company’s recent travails so a big miss in earnings was overlooked and the real news that things may soon look up helped prop up the stock.  Once again, and rightly so, investors chose to take the longer term view.  There were many other similar stories like this yesterday and yet more will be made today as earnings season marches on.

 

  1.  Overseas relatives.  With all the focus on earnings this week, today’s economic releases may squeeze into the spotlight.  This morning, IHS Markit will release its PMI’s for the US.  A quick reminder, a purchasing managers index, or PMI, reflects a survey of key management on the current state of their businesses as well as forecasts for future growth.  That makes the surveys somewhat forward looking compared to, say, earnings or a GDP number which reflects what already happened in the past.  That is why economists and investors focus heavily on PMI’s. In the US, manufacturing PMI has been sending worrisome signals for some time as they have slipped for most of the year and remain just above 50, which is the demarkation between growth and contraction.  For this morning’s release economists are predicting that the number will come in at 50.9, down slightly from last month’s 51.0.  While these numbers are not great, remaining over 50 should offer some cold comfort.  In the Eurozone, there was no comfort, as PMI which was released WHILE YOU SLEPT, came in once again at 45.7 missing expectations and indicating a contraction.  Zooming into the Eurozone members, Germany is the only country registering a contraction at 41.9.  Germany has the 4th largest GDP in the world.  Today the ECB will meet to discuss policy and there have been a lot of dissenting views on the EU’s already accommodative policy.  This meeting will also mark Mario “whatever it takes” Draghi’s last meeting as ECB President.  He will hand the reigns over to Christine Lagarde, former IMF Chairman.

 

THE MARKETS

 

Stocks whipsawed throughout yesterday’s session dictated by mixed earnings.  The S&P500 climbed by +0.28%, the Dow Jones Industrial Average advanced by +0.17%, the Russell 2000 inched up by +0.13%, and the NASDAQ Composite Index traded up by +0.19%.  Bonds advanced slightly and 10-year treasury yields were unchanged at 1.76%.  Crude oil jumped by +2.48% after the Department of Energy announce a surprise decline in inventories.

 

WHAT’S NXT

 

– Durable Goods Orders are expected to have declined by -0.2% compared to last month’s growth of +0.5%.

– Markit Manufacturing PMI is expected to come in at 50.9 and Services PMI is expected to be 51.0 compared to last month’s respective readings of 51.1 and 50.9.

– The Census Bureau will release New Home Sales,  which are expected to have declined by -1.6% compared to last months +7.1% growth.

– This morning Dow, 3M, Southwest Airlines, Valero Energy, Northrop Grumman, and Raytheon beat estimates while Laboratory Corp and Twitter missed.  We will hear from Comcast, Brunswick, Serapta Therapeutics, American Airlines, and T Rowe Price.  After the bell earnings will include LPL Financial, Capital One Financial, VeriSign, Gilead, Amazon, Intel, Visa, and Alaska Airlines.

 

Kick the tires

 

A quick reminder that I will be meeting clients in our New York area offices and would love to meet you.  Check out my collection of screens and see our state-of-the art trading floor.  Please reach out and set up some time.

daily chartbook 2019-10-24

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