Focus on Earnings

BREAKING NEWS:

Huanggang now joins Wuhan (epicenter of the coronavirus outbreak) as the second Chinese city to be in “lock down” mode in an attempt to control and contain the fast spreading coronavirus, with authorities shutting down all modes of transport into and out of these cities. No planes, trains, or automobiles! Now while this is “an issue,” investors and the markets are trying to put it in perspective. The news of this virus caused the markets to stumble on Tuesday (as concerns rose) and then rally on Wednesday morning (as it appeared that it was “no big deal”), only to see the markets back off as news of this virus spreading around the world began to hit the tape. Japan, Europe, Thailand, South Korea, and the US now all reporting cases of the virus. In China alone, there are now more than 570 reported cases, hundreds more suspected of being infected and at least 17 deaths all in the last week. Asian markets fell hard again overnight as the angst increases:

China falling 3.1%, Japan down 1%, Hong Kong off by 1.5% and Australia losing 0.61%.

So you ask: Why all of the concern? Because analysts are now trying to put a dollar value on what this virus might mean for the local and the global economy. While that might be difficult to assess, there are plenty of people who will choose to opine on it. Remember, yesterday I pointed out that the SARS virus in the early part of the century was one of the causes that saw the market drop nearly 12% before it came under control and the infections and deaths stopped. I suspect that we could see some of that, as the markets and investors deal with the ongoing news. In the end, this virus will NOT price stocks in the long term (unless of course it turns into the black plague (1347 – 1351), one of the most devastating pandemics in history. It resulted in the deaths of an estimated 75 – 200 million people in Eurasia, peaking in Europe in 1351 – just sayin’.)

Ok, back to yesterday’s action. The early gains in stocks saw the S&P kiss and pierce its latest high of 3329, as it opened at 3330, traded up to 3337, before stalling out. The concerns from Tuesday faded. Technology once again leading the way higher, as investors and algos appeared to be back in the RISK ON mode. But as the day wore on, you could feel the exhaustion set it, and see the momentum fade. By the end of the day, the Dow gave up 9 pts, the S&P ended flat, the Nasdaq was up 12 pts, and the Russell lost 2 pts. All very dramatic – NOT!

Earnings, economic data, and analyst commentary were the focus (as it should be). IBM ($143.89) surged by 3.4% after it reported a gain in revenues appearing to finally halt the negative sales growth!  CNBC Squawk Box featured CEO Ginni Rometty live from DAVOS to share the news.

Wedbush analyst Danny Ives ups the ante on Tesla, boosting his price target to from $370 to $550 (understand that TSLA was already trading at $547 – so he was behind the 8 ball to begin with) AHEAD of the earnings due out next week. This was just one of the reasons that the algos went nuts, taking TSLA up $22 or 4.1% to $569.56. Ok Danny, what’s next? The TSLA cult members are all in and they do not expect Musk to disappoint as the latest news out of Europe and China suggest that demand is STRONG. So sit tight.

Apple CEO Timmy Cook announced that his is taking steps to begin offering a new “lower cost” IPhone later this year. Think late summer/early fall as consumers get ready for Christmas 2020 (there I said it, Christmas again!)

On the economic front – Existing Home Sales exploded higher, beating the expected 1.5% increase by reporting a large and exciting surge in sales of +3.6%. With mortgage rates at historic lows and winter turning into spring, the housing market is HOT. While you will say that Mortgage apps were down 1.2%, don’t be misled. Recall that last month mortgage apps were UP 30.2%! Capisce? You need to have a mortgage before you can buy the house. Last month’s surge in apps was the signal that home sales would benefit. Friday will bring us NEW Home Sales. While the expectation is for an increase of 1.2%, yesterday’s Existing number suggests that NEW home sales should also benefit. Builders are enticing new home buyers with upgrades and landscaping to get them “in the door.” We are about to find out how successful that is.

As I noted at the top, Asian markets came under pressure as we await a decision from the WHO (World Health Org) about whether or not they will declare the virus as a global health emergency. China is preparing for the Lunar New Year. That begins tomorrow and runs for a week. Chinese markets will close early and then be closed next week as they celebrate. What is interesting, is that 2020 is the year of the RAT. Hmmmm, now there’s something to think about as we start to talk about Trade 2.0!

European markets are off to a weaker/mixed start as well, partly feeding off of the action in Asia and partly because Trump has threatened new tariffs on the EU (European Union). Now, does anyone really expect that to happen? Not really, but the algos don’t understand that (yet) and so they read the headline that sounds negative and then initiate SELL orders. It’s exhausting. On the other hand, earnings and estimates continue to roll out across the zone, some positive and some negative. (What else is new?)

FTSE is -0.19%, CAC 40 +0.17%, DAX -0.28%, EUROSTOXX 0.07%, SPAIN +0.19% AND ITALY +0.61%.

US futures are churning with the Dow down 23 pts, the S&P down 2 pts, the Nasdaq flat, and the Russell off by 1 pt. Nothing to get all worked up about at all. While the virus news is important, the focus today at home will be on earnings and economic data. And it is a big day for that.

KEY, BOOT, TRV, PG, JBLU, AAL, FCX, VFC, UNP, INTC, DFS, SWKS, ETFC to name just a few. Economic data includes Initial Jobless Claims of 214k, Cont Claims of 1.75 mil, and the Kansas City Fed Manufacturing report of -6.

The S&P ended the day at 3321, below the closing high of 3329. Once again feeling a bit tired. It feels like 3300/3330 is the range for now. Any additional increases in infections or deaths caused by the coronavirus will halt any advance for now.

Again, the trend line can only guide us as we are in uncharted territory. While we can identify support levels, it is only a guess as to where the next resistance level will be. Stay involved, stick with the plan, but don’t get caught up in the excitement. Do not make emotional decisions.

Oil is down 2% at $55.78, as the virus “casts a cloud over fuel demand.” REALLY? The argument being that IF the virus spreads around the world even more, then economic growth will stall and demand for oil will decline. I’m not sure that I can connect those dots right now. Will 17 deaths or hundreds of infections really put a dent in GLOBAL DEMAND? Think about it, really? The world does not stop spinning and the sun does not stop rising just because of this virus. Demand is demand, but if they say it enough, I guess it becomes reality.

“If you are perceived to be something, then you might as well be it because that’s the truth in people’s minds. There are things that are known and things that are unknown and in between are the doors of perception.” – Aldous Huxley

Oil has now broken all three trend line supports. So they might try to push it lower again just to see where the bodies lie. But I still think we are now comfortably back in the $55/$60 range.

Gold is down $4 at $1,551/oz, not doing much for the past two weeks, after the spike three weeks ago when geo-political tensions ran high. It still feels like we are in the $1550/$1600 range for now.

Take good care.

Kp


chicken

Lemon Roasted Feta Chicken

Start with thighs and legs (dark meat always juicier) – I make some skinless and leave the skin on others so that I get some of the juice from the skin… but either way is fine… whatever you prefer… take note:

Start with 6 pieces of chicken, 2 cloves crushed garlic, 1 large sliced onion and 3 potatoes that you have either cubed, or quartered or sliced… whichever way you prefer works just fine…

Place chicken, garlic, onion and potatoes in a glass baking dish… season with S&P.

Preheat oven to 400 degrees.

Next whisk together: 1 cup of chicken broth, 1/8 cup of olive oil, about 1/4 cup fresh lemon juice and some dried oregano. Pour over the chicken, cover tightly and let marinate for 20 mins.

Place in oven and roast for about 30mins – then remove cover and roast for 20 more mins… basting occasionally with the pan juices. Now turn on broiler and broil the chicken on each side until nice and golden brown. Careful not to burn the potatoes.

After broiling – add crumbled feta cheese over the chicken and potatoes and return to the broiler for a couple of mins- just so the cheese softens really. Once completed serve on a warmed platter with Chicken in the center surrounded by the potatoes – serve juice on side. Enjoy this dish with a steamed green vegetable- like asparagus, or broccoli. Season with S&P and a dab of butter.

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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