The Highs And Lows of Earnings Season

Stocks began the day in the plus column as investors appear to be taking it all in stride. Tech names FB and NFLX were weaker, dragging other names with it like SNAP, TWTR, and PINS. Energy names, HAL, SLB, XOM, CVX, EOG, DVN, and SM, were stronger. As you would expect during the earnings season, there were a slew of big names that reported leaving the investors, traders, and algos scratching their heads.

PG, UTX, HOG, CNC, FITB, GPK, PHM, DGX, JBLU, IPG, and SHW all reported better than expected. HAS, TRV, BIIB, and MCD missed and disappointed, sending a mixed message to the quant funds that employ high-speed computers that react to every headline for most of the day. The S&P traded above the flat line, weakening into the bell as the sister indexes continued to fail, ending the day down 10 points, or 0.36%.

The Dow struggled, rallied, struggled, rallied, and then struggled into the close, shedding 39 points or 0.15%. The Nasdaq opened stronger and weakened almost immediately, going negative at about 11:10 am to end the day down 58 points or 0.72%. The Russell, on the other hand, was weaker from most of the morning. But it surged just after noon and remained higher for most of the day, only to come under some pressure toward day’s end to end the day +1 point, or 0.05%.

As the day wound down, news that UK PM Bojo did not succeed in his quest to take the UK out of the EU by Oct 31 caused the algos to take some money off the table. But this is not a reason to bail on the market. Like I have said before, political news does cause headlines and does cause short term noise. This may cause some to make an emotional political decision, not the best strategy. Macro data and micro data (individual company reports) are ultimately the defining parameters that investors need to pay attention to.

So that being said, we have heard from nearly 20% of the S&P companies and have not been truly disappointed at all. Yes, there have been some misses. But currently we are running at about an 80% beat rate. That is above the usual 72% rate that we usually experience. BUT, there are still plenty of company reports to come and this could change the balance.

Many of you know that while I like the market, I still think it tests lower. Maybe the lows of October at 2860… and in yesterday’s note I said:

“This is a big week for earnings — MCD, PG, UPS, BA, TRV, WHR, CMG, UTX, CAT, LLY, WM to name just a few… Now look, all of these names are all fairly big names so you can be sure that there will be plenty of scrutiny. But with the market near all-time highs, the expectation is that they will not disappoint… So beware, because if they do — if these big names begin to miss or guide lower — then expect the market to follow suit as well.”

Now while we have heard positive news, we are starting to hear a bit of more negative news. HAS, TXN, TRV, (Dow name) and MCD (Another Dow name) have alerted investors, traders and algos that it’s NOT a bed of roses. After the bell, we heard from TXN and it wasn’t pretty… They sounded the alarm bell. It closed at $130.93 and is quoted down $14 (11%) at $116.75/$116.95 in the pre-market. This is taking the other semis with it. INTC, ADI, and MCHP all fell in sympathy in the afterhours session last night.

And this morning at 7 am, we heard from CAT, and boy was that ugly. $2.66/share vs. the expected $2.87/share. And this stock is quoted down 4% at $128.35 on news that they are concerned about trade and the pressure it is putting on the global economy. You can also expect that this report will hit the global industrial names today as well. Now much of how this report plays out will depend on the extent of the drama, the extent of the negative comments about the broader global economy, etc. So stay tuned…

Other reports due out today include:  ANTM, (miss), HLT, TMO, OC, LLY, MKTX, BSX, IVS. CLF, BX – ALL BEAT!  But we are still waiting on BA! All eyes on BA, as we can’t wait to hear what they have to say. Will the 737 MAX really take off again? (they will say YES – but what will the FAA say?)  What will pilots say? What will the consumer say? Expectations are for them to report $2.16/share… so tic toc, tic toc…

BA reports $1.45/SH…..WELL BELOW EXPECTATIONS…FREE CASH FLOW -2.9 BIL  (THAT’S A NEG NUMBER), the costs of the 737 MAX program goes up by $900 million to $3.6 billion. Guidance says that they expect the plane to return to the air by Christmas! (Good luck!)   The stock traded down $7 at $330 share and has now bounced and is trading UP $4 at $341/share. It needs to hold the August lows of $320/share to give anyone the sense that it is OK… A failure there would take it to the December lows of $282…..And also like I said yesterday:

“It feels like capitulation here — so let it hash out and then take a look… So it’s not a matter of if, but a matter of time. Typically, after such a break, you need to let 3 days go by before you really commit to taking a look at the name… You’ll have plenty of time to get in or add to a current position — but don’t react right now. Let this play out ‘til Thursday.”

US futures are now lower — but not getting crushed. The Dow is off by 93 pts, the S&P is down 8, the Nasdaq is lower by 14 and the Russell is down 3. But it is still the pre-market. Once the day gets started, we could see stocks move lower based on the conversations that happen today — conversations that will revolve around trade and the global economy… and if any of the brain trusts start talking “recession” then watch how fast it unfolds. I am not a believer in the recession story just yet (oh yes, it’s coming, but not now). Like I have said, look for the S&P to test the August lows at some point in the next 2 weeks… Remember that the FED is due to CUT rates on the 30th…

I suspect that we could see the S&P trade down to the 2950 level if it gets really negative – which I hope it does not. But we’ve got lots more earnings to go.

European markets are off a bit – nothing dramatic. The FTSE is the only one that is UP and that is more because BoJo is asking for an extension and the EU is most likely going to grant one.  EU Council Pres — Donny Tusk is agreeable to one and if they push it out ‘til the end of January — then expect BoJo to call an election to solidify his control.

Marky Mark (Zuckerberg) will be on the hill today defending his firm and his idea to launch a cryptocurrency, Libra. Expect to hear lots from him today as he tries to defend this blatant act of anarchy — as he and his cohorts try to undermine the US and global central banks.  Never mind privacy. There is so much to discuss — but having FB in control of the money supply is not one of them. Just sayin’…

Take good care.

Kp


T-bone

Sicilian Style T-Bone

1-inch T-bones, crushed garlic, olive oil, Fresh grated Parmegiana Cheese, Oregano, breadcrumbs, and pepper….(no salt as the cheese is salty enough).

Set oven to broil (high). Set the rack on the second level from the broiler. Begin by marinating the steak in garlic and olive oil, making sure to massage the steaks on both sides so that it is well coated.  Do not drown the steaks in oil — just enough to massage them.

Next, in a separate plate combine the breadcrumbs, cheese, pepper and oregano – mix well.

Now dip the T-Bones in the breadcrumbs on both sides and place on a broiling pan. Place in the oven under the broiler. Depending on how you like it, you want to cook the steaks turning once halfway thru — 10 mins for a med rare steak, 14 mins for a medium steak, and 20 mins for well done.

Remove and place on each plate and serve with a large mixed green salad and either a baked potato or roasted potatoes. Enjoy with a nice Chianti.

Buon Appetito.

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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