Earnings Season Is Upon Us Once Again

10:05 am, January 10th, 2020, the Dow tops 29,000! The S&P hits 3282, the Nasdaq 9235, and the Russell traded at 1666. The good times rolled on: easing geo-political tensions, signing of the Phase One trade agreement, coming earnings, and continued robust macro data all adding to the excitement.   Friday’s NFP (Non-Farm Payroll) reported that we created 145k new jobs last month, which was 14k jobs below the estimate. No one is really upset considering that last month we created 80k more than expected. Unemployment remains at 3.5% (50 year lows) while average hourly earnings grew 0.1% month/month bringing year/year growth at 2.9% just below the expected 3.1%. But that’s good because there will be less pressure on the FED to adjust rates at all at the next FOMC (Federal Open Market Committee) meeting on January 30th.

Now while it all seemed great, the market does appear to be tiring a bit, not failing just tiring. There is a difference. So after the indexes hit new highs in early trade, the bulls took a breather, allowing the bears a bit of a “win.” Stocks hit resistance across the board, which allowed just a bit of profit taking. By the end of the day, the Dow was down by 133 points, the S&P off by 9 points, the Nasdaq lower by 24 points and the Russell down by 7 points. Yet despite the Friday declines, stocks across the board put in another weekly high, suggesting that investors are still very bullish on stocks.

Now earnings season is upon us once again. Tomorrow, January 14th, the quarterly beauty pageant begins anew. Reports from JPM, WFC and C are the first ones down the runway. Expectations are high for earnings and expectations are high for what they say about the health of the consumer. Super Regionals and big money centers banks are expected to outperform. JPM is expected to report earnings of $2.35/share, WFC $1.10/share and C $1.85/share. Now while these numbers have been “adjusted” in the past couple of weeks, expect to hear a lot of “beat the street” commentary.

Overall, expectations for the quarter range from -1.6% to +3.2%. For the year expectations are running at 9% earnings growth, and that has helped fuel this rally. So unless the US economy does a 180 and enters a recession (doubtful), then the sense is that we can expect a strong year for earnings. The next three weeks will tell us. The key to watch in all of these earnings reports will be profit margins. Are they declining or not? If they are declining what is the plan? What will companies do to stop the bleed (if there is one)?

So, expect the tone of the conversation to turn away from Iran, etc. and focus on the broader macro (economy) and micro (earnings) in the next month. This week for sure will be historic for US/China trade while next week brings us to Davos, Switzerland for the annual “who’s who” boondoggle. Expect to see coverage from every media business channel across the globe. The final week of January brings us the first FED meeting of the new year. Expectations are high for the FED to do nothing, hold rates steady at 1.5% – 1.75%.

In the middle of all of this is our own political drama. Nancy Pelosi is expected to hand over the articles of impeachment to the Senate sometime this week. That will then allow the Senate to launch the “trial,” which is sure to drag on and on. In the middle of this will be the launch of the primary election season with Iowa coming to the polling stations on Monday, February 3rd to cast the first round of votes. As of the latest poll, Bernie is in the lead, with Joey, Lizzy and Petey not far behind. The field is beginning to cull itself. By super Tuesday, March 3rd the country and the world will have a better idea of who is up. And if no one comes to the top, then we will face a “brokered convention” over the summer. While this alone will not price stocks in the long term, we can expect some volatility until the outcome is clear and a challenger emerges. At that point, investors will begin paying attention to sectors that appear to be under fire: technology, financials, energy, and pharma to name just a few. Never mind the regulation that is sure to follow.

Overnight, Asian markets led the week off with gains across the board with trade being the lead story.  In Taiwan, elections there over the weekend saw current President Tsai Ing-Wen win overwhelmingly, beating her opponent Han Kuo-yu, who favors closer ties with Beijing. This could erupt into another “Hong Kong” issue as China continues to try and take control.

In Europe, markets there are up with only Spain and Italy showing any signs of stress. US/China trade on the top of the list as Middle-East tensions have subsided over the killing of Soleimani but have erupted over the downing of the Ukranian airliner which Tehran has admitted was a mistake. In the UK, watch as PM BoJo travels to Ireland to meet his counterpart, Leo Varadkar. In addition, look for a raft of economic data including readings on Manufacturing, Construction, trade balances and GDP for November.

As of 6 am – the FTSE is +0.49%, CAC 40 +0.33%, DAX +0.10% EUROSTOXX +0.12%, Spain -0.2%, and Italy -0.05%.  

US futures are higher, essentially taking back all of Friday’s losses. Dow +121 pts, S&P’s +12, Nasdaq + 45 and the Russell +7. The news will be all about trade and earnings. Middle-East politics will take a supporting role, which could flare up at any moment as protests in Iran over the downing of the Ukranian airliner builds. Tehran has been put on notice (by Trump via Twitter) to back off and not “kill the protestors.” So while one US/Iran thing has quieted down, there is another one potentially heating up, one that will not price stocks but will set the tone about what’s next. Expect the US to support the protestors in their fight for freedom of speech.

In DC, watch as the impeachment proceedings move along. Again, none of this will price stocks, but it will create plenty of drama as the Presidential election cycle gets under way.

Economic data: This week is full of data. Tomorrow we will get CPI (consumer price index) – exp of +0.3% month/month and 2.4% year/year. Wednesday brings us PPI (producer price index) exp of +0.2% month/month and 1.3% year/year. Later in the week, we will get Empire State manufacturing, Philly fed Survey, Fed’s beige book and retail sales to name just a few more.

Boston Fed’s Eric Rosengren will speak about the Economic outlook at an event today.

The S&P closed at 3265 and the momentum makes it feel like it wants to kiss 3300 before it stalls. My gut tells me that that will happen by Wednesday after we hear from some of the big banks and we get the trade deal done. From there, it’s anyone’s guess. If earnings and guidance continue to be positive, then look for the S&P to continue to move higher, as yields remain low and money continues to be pushed into stocks.

Oil, which collapsed on Friday as tensions eased and the threats of a supply disruption faded, is trading right back at trend line support. With international tensions lowered, expect oil to remain in the $55/$60 range.

Take good care.

Kp


veal

Pan Roasted/Oven Roasted Veal Chop

This dish is not difficult at all – but it does take some time … do not be put off… the end result is delicious. Professional cooks use this technique all the time… and for good reason… it’s great. If you are unfamiliar – this is really a two-step process – first you pan sear the meat, then you transfer to a very high temp oven to complete the process. The searing allows for the meat to cook faster (thus reducing time spent preparing) and it creates a beautiful caramelized crust on whatever it is you are pan roasting… read on…

You will need: thick cut veal chops on the bone, butter, shallot, leeks, beef stock, s&p, olive oil, fresh thyme…

***Preheat oven to 450 degrees. This is important so that the oven is ready to receive the chops once you have pan roasted them.

Remove the chops from fridge and let come up to room temp. Rinse and then pat dry with a paper towel. Season with s&p – set aside.

Prepare the leeks – by washing/rinsing very thoroughly… Leeks grow in sandy soil – fyi – and as a result – the soil gets trapped in the stalk… so – trim off the bottom – separate the stalks and rinse well. Now chop the stalks. Peel and chop the shallot.

Next in a heavy bottom pan – heat the about 1/4 stick of butter on simmer/med low heat… **very important*** you do not want to burn the butter –  add the leeks and the shallot… cook on this low heat for about 15 mins… this is called sweating. You do not want any color – you just want them to be soft and translucent. (*The process of “sweating” is used when you put some diced vegetables into a pan with a little oil and begin to cook them on a low heat. This causes the moisture to rise to the surface making the vegetables look like they are sweating. You may think that this is the same as sautéing… it is not. Sweating is done on a low heat while sautéing is done on a med/med high heat. Sweating is usually the first of a few steps while sautéing is usually the final step in the process.) Capisce?

Now – add about 3/4 cup or so of beef stock and turn up the heat to medium. Simmer for about 5 mins… then cover, turn off heat and set aside. The mixture should not very liquidy – it should be moist and thick…

In an oven proof pan sauté pan – heat the oil on med hi until you see it glisten… add seasoned veal chop and brown on all sides… Once browned and caramelized – put the oven proof pan in the oven and continue cooking for about 8 / 10 mins …depending on how you like your chop.

Next add about 1 tsp of fresh thyme to the shallot and leeks – season with s&p and heat. For the presentation – spoon out some of the mixture in the center of a warmed plate and place the veal chop directly on top. You can complement this dish with your favorite green vegetable – asparagus, or broccollini and a large mixed salad.

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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