January 22, 2016
The logical construct was that better than expected corporate earnings reports would help support higher stock prices. So much for logic. Earnings reports have generally been better than the lowered consensus estimates. However, whether itâ€™s the algorithms that drive high frequency trading machines or the hedge funds or something else, stock prices continue to be driven almost exclusively by monetary policy and the price of oil.
Yesterdayâ€™s dovish monetary comments by European Central Bank President Mario Draghi rescued our market from another leg lower. This morning, oil futures are pricing the stuff at more than 31 bucks per barrel. Thatâ€™s higher by more than 5 percent, and that has the stock futures off on another tear.
This morning, shares of Starbucks, American Express and General Electric are all lower, in spite of the uptick in the futures. All three companies reported better than expected earnings for last quarter. The problems are in the forward guidance. American Express, for its part, is looking to open about 6 percent lower.
Japanese stocks rose almost 6 percent overnight. Stocks in Europe are about 3 percent higher.
Right now, adjusted for fair value, the S&P 500 futures are higher by 25 points, the Dow futures are up 181 points, but the NASDAQ futures are now 69 points above fair value.
Yesterday the stock market took us on another roller coaster ride that might make some want to stay out of the amusement park for a while. The Dow Jones Industrial Average traversed over 1,000 points on the day, at one point dropping over 560 points before finishing down 250.
This morning, it looks like weâ€™ll get off the roller coaster and on to the merry-go-round for at least the first half hour or so.
On the earnings front, insurer Travelers beat the 65 cent per share estimate by a full 25 cents. Verizon also reported a better than expected profit. Xilinx shares are indicated about 9 percent higher premarket on a good earnings report. United Airlines and BB&T disappointed on earnings. Weâ€™ll hear from Starbucks and American Express after 4 oâ€™clock this afternoon.
Asian markets were lower overnight.
European markets are higher on the order of about one half of one percent. Our futures have dug themselves out of an earlier hole. Right now, adjusted for fair value, the S&P 500 futures are flat, the Dow futures are down 7 points, but the NASDAQ futures are now 3 points above fair value.
Small capitalization stocks, as represented by the Russell 2000 Index and the Dow Transportation Index stocks have now entered a bear market. And while the bear hasnâ€™t yet entered the room as far as the S&P 500 and Dow Industrials are concerned, you can hear something scratching at the back door.
Yesterday morningâ€™s big rally disappeared by mid-afternoon. We finished relatively flat on the day, but this morning weâ€™re looking at a sea of red numbers.
Oil futures are now pricing a barrel at less than 29 dollars. For many years, oil prices and stock prices tended to move in opposite directions, but no more as concerns of a global economic slowdown have taken over.
No slowdown at Goldman Sachs. Last quarter Goldman made $4.68 in profit. That was $1.15 more than expected, yet even that news isnâ€™t boosting the stock in this morningâ€™s environment. Goldman shares are indicated about 2 percent lower.
IBM shares are almost 5 percent lower. Earnings beat estimates, but IBM guided lower for 2016, due to strength of the dollar. More than half of IBMâ€™s business is done overseas.
And, if anybody is concerned about inflation, at 8:30 weâ€™ll get the December CPI. Expect absolutely no change in the headline number.
Japanese stocks are now in a bear market after losing 4 percent overnight. Europe is down about 3 percent. Adjusted for fair value, the S&P 500 futures are lower by more than 35 points, the Dow futures are down 327, and the NASDAQ futures are now 79 points below fair value.
A report that a bunch of Iranian crude oil is about to hit the market due to the lifting of sanctions has sent the prices of both West Texas Intermediate and Brent Crude oil below 30 dollars per barrel this morning. Thatâ€™s a 12 year low for Brent. That news, another selloff in China and some less-than-wonderful earnings guidance has traders hitting the â€śsellâ€ť button this morning.
Last night Intel beat estimates on sales and earnings. However, the continuing slowdown in PC sales and a slowdown in the growth of their data business has Intel stock indicated about 6 percent lower pre-market. Analog Devices also lowered earnings guidance last night. That stock looking to open about 3 percent lower.
Still no big problems reported by the banks. Citigroup and Wells Fargo just reported earnings and revenue that beat estimates by a penny per share.
General Electric is reportedly taking another step in becoming an un-conglomerate. They are selling their appliance division to Chinese company Haier for more than 5 billion dollars.
European markets are lower by about a percent and a half. We may give up all of yesterdayâ€™s gains right at the open. Adjusted for fair value, the S&P 500 futures are lower by more than 35 points, the Dow futures are down 308, and the NASDAQ futures are now 91 points below fair value.
All right, tray tables down, seats in the upright and locked position and fasten your seat belts. Earnings season is about to land and most expect the crosswinds to make it a challenge. Not expecting a crash, mind you. But keeping it on the runway may be a challenge.
Expect that corporate profits declined almost 5 percent in the fourth quarter, with a lot of damage done in the oil and commodity sectors.
This morning, J. P. Morgan Chase showed us that no matter what the economy is up to, the bankers are doing just fine, thank you. Revenue and profit were both better than expected. Earnings of $1.32 beat the $1.25 estimate, although about 8 cents of that resulted from a reduction in reserves when Chase settled a lawsuit with less damage than expected.
The loser of the morning will likely be GoPro. Shares are down over 25% this morning on lousy Holiday sales and a disappointing outlook. Weâ€™ll find out a bit more of whatâ€™s going on in tech when Intel reports later on today.
Thereâ€™s nothing going in with interest rates in Great Britain as the Bank of England voted no change in rates this morning.
Chinese stocks reversed an early decline and finished two percent higher, but just about all other market overseas are losing ground.
Our stock futures have been all over the place this morning, but at this point are indicating a little bounce back from yesterdayâ€™s sharp losses. Adjusted for fair value, the S&P 500 futures are higher by 4 points, the Dow futures are up 38, and the NASDAQ futures are now 5Â˝ points above fair value.
General Motors just announced a 6 percent hike in their dividend, an increased stock buyback program and raised their full year guidance by 25 cents per share. GM shares are looking to open about 3 percent higher this morning. Ford Motor raised earnings guidance yesterday.
The normal M-O of big business is to get bigger. Unless, of course, getting bigger causes the Government to cause you too many problems. MetLife may have concluded that â€śbigger is NOT better.â€ť They are reportedly considering the spin-off of their U.S. life insurance business, thereby avoiding government regulation as a systemically important financial institution. Apparently, itâ€™s SO much easier to be systemically insignificant.
General Electric isnâ€™t getting smaller in Europe, but unemployment lines there will get bigger. GE will cut 6,500 jobs in Europe after acquiring a business there.
Supervalu stores just reported earnings that matched estimates, but the 4thquarter reports really accelerate starting tomorrow.
Oil futures dipped below 30 dollars per barrel briefly yesterday, although oil is a little more than 2 percent higher this morning, and that seems to be giving our stock futures a bit of a boost, although they were significantly higher than hour or two ago.
Mainland China stocks fell overnight, but just about everybody else is in the green after our late rally yesterday. At this point, adjusted for fair value, the S&P 500 futures are higher by 2 points, the Dow futures are up 5, and the NASDAQ futures are now 10 points above fair value.
Alcoa tipped off the fourth quarter earnings season yesterday with a report that can be best described as â€śmaking the best out of a bad situation.â€ť An overall GAAP loss of 33 cents per share became a profit of 4 cents if you throw out one-time charges and that kind of annoying stuff. That was two cents better than expected. Problem is that sales were down 18 percent as aluminum prices dropped 25 percent. In response, Alcoa is shifting focus into more profitable businesses and eliminating production in high-cost regions. Alcoa shares were initially up a couple percent after the announcement, but have since lost that gain and are now indicated about one percent lower than yesterdayâ€™s closing price.
Weâ€™ll hear from Sonic and Supervalu stores today, but the volume of earnings news will really pick up later this week.
Coca-Cola gets a broker upgrade this morning, while SABMiller takes a downgrade.
Oil futures were lower by another half-percent earlier this morning, putting the price at a new 12 year low of just over 31 dollars per barrel, although they are now slightly positive. More than one analyst says that the price of a barrel could be headed as low as 10 bucks.
Chinese stocks traded a bit higher overnight, but Asia overall was mixed. European markets are higher, as are our futures, which have again surged a bit during the past half hour.
Right now, adjusted for fair value, the S&P 500 futures are higher by almost 18 points, the Dow futures are now up 144, and the NASDAQ futures are now 49 points above fair value.
In a story weâ€™ve seen before, the Chinese stock market dropped another 5 percent overnight. And although Asian markets all suffered, Europe is a mixed picture and out futures are a little higher.
As you probably know by now, stocks here are off to their worst first week of the year ever. But this week, thereâ€™s something new to worry about. Alcoa officially kicks off the 4thquarter earnings reporting season today. Corporate profits have not impressed during the past two quarters now and with interest rates presumably on the rise, stock valuations could surely use a reversal in that trend.
Thereâ€™s another merger in the biotech space this morning. Shire and Baxalta have made their deal official. This is a combination almost six months in the making. Itâ€™s a 32 billion dollar cash and stock deal that values Baxalta at about 46 bucks per share, which is nearly a 40 percent premium to Baxaltaâ€™s price when the offer was first made public. Shire shares are about 3 percent higher, Baxalta shares about 6 percent higher pre-market.
Times are not the best for bricks and mortar retailers, and retailer Kohlâ€™s is reportedly undergoing a strategic review and may break itself up or take itself private. American Apparel IS going private for about 300 million dollars
Our futures are a little higher. They were slipping back toward even much of the morning, but started to trend higher at the top of this hour. Right now, adjusted for fair value, the S&P 500 futures are higher by almost 10 points, the Dow futures are now up 71, and the NASDAQ futures are now 23 points above fair value.
Howâ€™s 2016 working out for you so far? With stocks lower by about 5 percent in just four trading days, weâ€™re off to our worst start of the year EVER for the major indexes. Nevertheless, help may well be on the way.
Overnight, Chinaâ€™s Central Bank reversed course and moved to support the yuan and at the same time China scrapped the ridiculously tight circuit breakers they had put in place to try to control their stock market. Theyâ€™ve apparently learned that trying to control their adolescent stock market is a lot like trying to control an adolescent child. Holding on loosely can be a lot more effective that squeezing too tightly.
Hold on to your seat tightly this morning if you own shares of the Container Store. A lousy earnings report and lowered guidance has the stock almost 30 percent lower pre-market. Gap shares are indicated about 7 percent lower after cutting their earnings forecast and Bed, Bath and Beyond shares lowered guidance last night, but their shares are looking a little higher pre-market.
The Monthly Employment Report comes at 8:30 this morning. Keep an eye on the average hourly earnings component of that report for an early warning sign of future inflation.
China finished a little higher overnight. European markets are mixed. Weâ€™re looking for a little bounce at 9:30. At this point, adjusted for fair value, the S&P 500 futures are higher by about 14 points, the Dow futures are now up 128, and the NASDAQ futures are now 42 points above fair value.
It you enjoy a short work day, perhaps you should look into a job as a Chinese stock broker. Trading in China was halted about 15 minutes and shut down for the day after just 29 minutes this morning as the way-to-tight Chinese market circuit breakers kicked in and kicked off another world-wide equity sell-off.
So, do the gyrations in the Chinese stock market, which may or may not what is really going on in the Chinese economy, mean that the world economy is going down the proverbial drain?
Well, probably not. Then again, thereâ€™s no doubt that changes are in the works due to the Chinese evolution from a manufacturing to a consumption economy, the aging populations in many developed economies and the financial engineering of many Central Banks since 2007.
While we are being reminded that stock prices can be volatile, their value is rooted in two things â€“ interest rates and corporate earnings. Next Monday, fourth quarter earnings start to roll out in volume. Corporate earnings have been declining for two quarters now, and if our stock prices are to get any traction, weâ€™ll have to get some good news out of those reports.
In the meantime, JC Penney says that Holiday Sales rose almost 4 percent, while at Macyâ€™s, November/December comps dropped over 5 percent. Macyâ€™s will cut over 3,000 jobs and close locations as a result.
Oil is lower by more than 3 percent again this morning. Every single market overseas is lower, and our futures are indicating about a 2 to 2Â˝ percent selloff at 9:30. At this point, adjusted for fair value, the S&P 500 futures are lower by about 41 points, the Dow futures are now down 351, and the NASDAQ futures are now 117 points below fair value.
As if jittery stock traders didnâ€™t have enough to worry about â€“ now we have North Korea claiming to have tested a hydrogen bomb. Although the hydrogen claim appears pretty dubious, itâ€™s just another reminder that the worldâ€™s rogue players are pretty far out of anyoneâ€™s control and that does not lead to calm stock markets.
This afternoon at 2 oâ€™clock, weâ€™ll get a little more color on how calm the Federal Reserve Open Market committee meeting was last time around. The minutes of that meeting may shed a little light on just how much agreement there was among committee members to raise interest rates.
It appears that anyone who was in the market for a mortgage rushed out to Mortgages-R-Us in December, before the Fed hiked short term rates. Mortgage applications fell by over 11 percent last week.
Chipotle has reportedly fire their public relations firm. Maybe they think it was the PR folks and not the food that made some people sick.
A very important earnings season officially kicks off next Monday. Weâ€™ll talk more about that tomorrow. As for today, the ADP Employment Report revealed 257,000 new payrolls in December. That was better than the 200,000 expected. The ISM Services Index comes at 10 oâ€™clock.
Until then, thereâ€™s trouble ahead. At this point, adjusted for fair value, the S&P 500 futures are lower by about 37 points, the Dow futures are now down 296, and the NASDAQ futures are now 87 points below fair value.
The stock marketâ€™s year got off to a flying stop yesterday. While stock futures arenâ€™t nearly as bad as they looked 24 hours ago, things may well get worse before they get better.
Overnight, the Chinese Central Bank pumped about 20 billion dollars into the financial system after yesterdayâ€™s 7 percent stock market rout. In response, Chinese stocks see-sawed between gains and losses before finishing a bit lower on the day.
This morning, Eli Lilly cut its 2015 and 2016 earnings guidance a bit and the stock is indicated almost 2 percent lower pre-market.
On the heels of the Administrationâ€™s promised gun law changes, the famous other hand, or should I say firearm, belongs to gun maker Smith & Wesson. Its shares are looking to rise more than 6 percent after raising their earnings guidance.
December automobile sales reports will shift into gear as the day rolls on. The most optimistic estimates indicate that an annualized run rate north of 18 million vehicles is possible.
Overseas markets are mixed. Our futures are lower, but have improved quite a bit over the past half hour. At this point, adjusted for fair value, the S&P 500 futures are lower by about 3 points, the Dow futures are now down only 31, and the NASDAQ futures are now just a point below fair value.
Happy New Year, but unhappy New Morning, at least if you own stocks, that is. A weak number in a Chinese manufacturing survey overnight led to a seven percent drop in the Chinese stock market, which set off market circuit breakers, which halted trading there.
Our own reading on the health of the manufacturing sector comes at 10 oâ€™clock with the December ISM. Expect a better number than Novemberâ€™s 48.6. However, the expected 49.2 would still indicate a contraction in the manufacturing sector.
Weâ€™ll start getting a smattering of 4thquarter earnings reports later in the week, although earnings reports will pick up a lot of speed next week.
McDonaldâ€™s and Wendyâ€™s both received analyst upgrades this morning.
Mainland Chinese stocks finished lower by almost 7 percent. Japan was off 3 percent overnight. European markets are between 2Â˝ and 4 percent lower.
Our futures are indicating that prices will fall about 1Â˝ percent at the open. Adjusted for fair value, the S&P 500 futures are lower by 34 points, the Dow futures are down 281, and the NASDAQ futures are now about 88 points below fair value.