Winners Win

As a busy earnings season ramps up this week, analysts are beginning to worry about shrinking corporate profits.

According to a FactSet analyst survey, the S&P 500’s quarterly earnings dipped 1.9% compared to one year ago based on pre-earnings estimates and the results of those companies that have already reported.

If the trend holds, this will mark the second straight quarter where Wall Street has posted dwindling profits.

Make no mistake — earnings season has barely gotten off the ground. So far, the market’s reaction to early numbers has been muted at best. But we’re going to see some bigger names report this week, including Coca-Cola Co. (NYSE:KO), Snap Inc. (NYSE:SNAP), Boeing Co. (NYSE:BA), Facebook Inc. (NASDAQ:FB), Tesla Inc. (NASDAQ:TSLA), Amazon.com (NASDAQ:AMZN), and Twitter Inc. (NYSE:TWTR).

Earnings, trade war talk, and investors drooling over the possibility of a rate cut at the end of the month could all contribute to a little volatility as the averages rest just below freshly minted all-time highs.

Despite worries of a global economic slowdown, one strategy has remained effective.

Buying the market’s biggest technology leaders has led to consistent gains this year, with mega-cap tech easily topping the performance of the major averages.

Even as economic growth slows, richly valued tech stocks are attracting plenty of eager investors.

“Together, Microsoft Corp. (NASDAQ:MSFT)Apple Inc. (NASDAQ:AAPL), Amazon.com and Facebook Inc. have accounted for 19% of the S&P 500’s total return this year, according to S&P Dow Jones Indices data through Thursday,” The Wall Street Journal reports. “That rate is roughly in line with the contributions made by the biggest tech stocks in 2017 and much of last year, before a fourth-quarter reversal helped roil markets.”

Powerful Force

“Fears that trade tensions will slow global growth have kept many investors cautious, pushing them toward the FAANG stocks—Facebook, Amazon, Apple, Netflix and Google parent Alphabet—as well as Microsoft,” The WSJ continues. “Many view these firms as less dependent on economic activity and attractive because they tend to participate in hot areas for investment such as cloud computing and artificial intelligence.”

In short, winners keep winning. We’ll continue to trade big tech as long as these stocks churn out the gains — no matter what analysts and the financial media have to say about earnings and valuations.

Next up in today’s edition of Obvious News: Boeing needs to sell planes to make money.

The 737 MAX debacle has, predictably, not been kind to Boeing as it is set to lose $5.6 billion in revenue, reports MarketWatch. As it turns out, making faulty planes isn’t a great business model.

While Boeing works on a fix to make its fleet airworthy again, costs keep going up and the profit margin for the 737 MAX shrinks even more, MarketWatch notes.

BA

Despite the negative headlines, Boeing stock still managed to rally 4.5% on Friday. In fact, Boeing shares appear to have a date with a potential breakout at $380 as the company prepares to report earnings Wednesday morning.

Maybe Boeing has seen the worst of crash fallout. After all, it’s not likely that 737 MAX issues will kill Boeing as it continues to produce several other successful aircraft.

We’ll see how the stock responds to earnings on Wednesday.

Finally, the never-ending retail apocalypse strikes again.

beleaguered ancient retailer J.C. Penney (NYSE:JCP) is in serious trouble again. The company is $4 billion in debt and is considering restructuring, reports Reuters.

As it fights to stay relevant, JC Penny faces competition from essentially every retail store that isn’t in its death throes. It’s a wonder that giants like Amazon haven’t absorbed J.C. Penney like a black hole…

JCP

From its highest point in 2007, J.C. Penney shares have fallen more than 98%. I doubt closing a few stores and trying to become hip with all the online retailers will help much.

Let’s all observe a moment of silence.

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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