Focus On Earnings

So stocks did bounce yesterday, as global investors put any concerns over coronavirus onto the back burner, no longer fearful the way they were on Monday, when stocks got slammed. Suddenly, all of the fears of contagion suddenly disappeared, which goes to show you that so much of the action, both fear and euphoria, is driven by the mindless algos that can’t understand the implications of the headlines that drive so much of the action. Because on Monday, the headlines were much more negative, more crisis-like, yesterday, all of those concerns were put on the back burner and the headlines were not nearly as negative or “crisis-like” so the focus turned to the data (as it should). The data did not disappoint. Earnings continue to beat, with the exception of MMM (-5.7%) and PFE (-5.1%), which got punished appropriately, while the macro data also continues to show strength.

I mean look, what changed in terms of the virus? Nothing good. In fact, it got worse Monday night into Tuesday, while everyone is trying to do what they can to combat the spread. It is spreading, more than 132 deaths, and more than 5900 known infections. Remember, a person is contagious BEFORE he/she realizes that they are even sick. So this has a while to play out. Yet, it appears that the media is less concerned about it which took the pressure off.

Futures were up prior to the opening, as investors responded to the action in Europe, where markets were up, and to the earnings that hit the tape pre-open, that were mostly good. I guess the “losers” need to consider what the others do, force analysts to slash estimates three weeks before the reporting date (by the power of suggestion) and then “blow them away!” By now, you’ve heard Timmy Cook delivers once again, even shocking himself!

Now AAPL was supposed to report $4.55/share and they smashed it, beating the estimates by a good 40 cents/share, reporting $4.99/share. Revenues of some $91.8 billion versus the expected $88 billion in the quarter alone as IPhone 11 sales killed it and cloud services and wearables followed up the rear. Timmy said that even he was blown away by the numbers. Did anyone really expect Timmy to disappoint? It leaves you to ask: how did the analysts miss this? He and Jamie (Dimon – JPM CEO) went to the same school of quarterly reporting.

Now, Timmy did set up this current quarter for some caution due to the coronavirus, closing stores in China, limiting travel to the region and within the region, and letting the investment community know that this is a wild card going forward. This suggests that maybe suppliers in the region will suffer some. So he put that right out there, putting analysts/strategists on notice that he recognizes this could be an issue in April (next reporting season). Guiding revenue for the next quarter (typically the slowest) to be between $63 – $67 billion, a $4 billion window. Investors/traders/algos loved it, having no problem with it at all, as they took the stock higher, recouping all of the losses from Monday. And that might just prove to be the strategy for many more companies going forward: guide “wide,” blame the virus for such guidance (as is understandable) and let the markets decide. The fact is, we are living it, we understand it, so this is not a surprise at all. Analysts and strategists will take this into account and the market will accept it. I mean, the market has no choice. The virus is real and it is here, so expect so many of the companies with exposure to China to get hit. Tech, Energy, and Airliners might suffer the most. (as we now hear that the WH is allowing all airliners to cancel flights to the region and that will impact the bottom line). Financials, Utilities, Communications, Staples, Housing won’t suffer at all because of the virus directly but could suffer if the virus is now blamed for a global slowdown. (hmmmm – that’s a stretch really)

Once again, global markets are surging, as the focus remains on the data. I have been watching Squawk Box as I write this and I haven’t heard them once mention the virus in terms of the crisis it was on Monday. They are discussing what the impact will be on company’s guidance for the next quarter. And that makes more sense. Besides all of the earnings data we expect, today also brings us the first FED rate decision. Rates to remain unchanged. The talk will be more of the same. “We are looking at the data and will respond if the data changes…” Blah, blah, blah. My expectation is for rates to remain where they are all year. Recall, today is also the annual rotation of FOMC members. Four go out and four come in. The analysis seems to be that the committee this year will tend to be more dovish versus more hawkish. That is also helping to support the good mood.

In addition, the tone of the other economic data is positive so any piece of data that supports positivity will only ignite the algos. Already we’ve seen mortgage apps up 7.2% (positive), Pending home sales expected to be +0.5% month/month and +10.5% year/year.

Hong Kong re-opened today and shares there plummeted, falling 2.8%. But that’s just them playing catch up. In China, Xi Xi called on the country and the world to come together, saying:

“I believe that as long as we strengthen our confidence, help each other, adopt scientific prevention and containment measures, and persist in precise policies, we will definitely win the battle against this outbreak.”

European markets are all higher as the focus remains on earnings, and investors there brush the virus aside.

FTSE +0.20%, CAC 40 +0.45%, DAX +0.23%, EUROSTOXX +0.40%, SPAIN +0.69% and ITALY +0.52%.

US Futures are up as well. Dow futures are 94 pts, S&P’s are +12 pts, the Nasdaq is +43 and the Russell is +2 pts. It will be all about the data and just now BA reports. It wasn’t pretty, but it wasn’t unexpected. Although the costs of the 737 MAX being shut down are double the estimates. The stock falls $3 immediately after the news hit and within five minutes BA went positive. Investors expected big charges, so this is no surprise.

The S&P closed at 3276 and feels like it wants to take back 3300. My guess is that the momo guys will try to make that happen today. There are still lots of earnings to come, so stay tuned…

Take good care.

Kp


pork with apples

Seared Pork Loin Adorned with Apples

Olive oil, 1 (2-pound) boneless center cut pork loin, trimmed and tied, Kosher salt and black pepper, large Vidalia onion – thickly sliced, carrots, thickly sliced, celery, thickly sliced, 4 cloves garlic smashed, fresh thyme, fresh rosemary, half stick of butter, 2 apples, peeled, cored and cut into 8 slices, apple cider vinegar, apple cider, whole grain mustard.

Preheat the oven to 400 degrees F.

Now – in a large ovenproof skillet heat the olive oil over high heat. Season the pork loin generously with s&p. Sear the meat until golden brown on all sides, about 2 to 3 minutes per side. Transfer the meat to a plate and set it aside.

Next add the onions, carrots, celery, garlic, herbs plus about 2 tablespoons of the butter to the skillet. Stir until the vegetables are browned, about 10 minutes. Do not let them burn. Now add the sliced apples, sauté and then push the mixture to the sides of the skillet and place the pork loin in the middle of the skillet along with any collected juices on the plate.

Now put the ovenproof skillet in the oven and roast the loin for about 30 mins or so. When you insert an instant read thermometer into the center of the meat – it should register 140 to 150 degrees F.

Transfer the pork a cutting board and cover it loosely with foil and let it rest while you make the sauce. Arrange the apples and vegetables on a serving platter and set aside.

Remove and toss the herb sprigs. Put the skillet back on the burner and raise the heat to high add about 2 tbsp. of apple cider vinegar scraping the bottom with a wooden spoon to loosen up any browned bits. Reduce by half then add 1 cup of apple cider and reduce by about half again.

Now remove the skillet from the heat and whisk in the mustard, and 2 tablespoons of butter. Adjust the seasoning with s&p to taste.

Slice into 1/2-inch thick pieces and arrange over the apple mixture. Be sure to remove the string.   Drizzle some sauce over meat and serve the rest on the side for your guests.

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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