If you weren’t paying attention closely, it probably seemed like a ho-hum session for the stock market; and yet, it was anything but ho-hum.
The market bolted out of the gate as it has on several occasions in the past few weeks, opening higher than the news would have suggested. The manic starts have faded almost as fast, perhaps from the onrush of anxiety as the markets gets closer to monumental milestones. It was only a few weeks ago when the market was crashing, and a recession was imminent.
Yesterday’s early reversal wasn’t a mysterious change of heart. However, it was the reaction to the notion that an entirely new government could change the fortunes of many industries, including the Healthcare industry. Yes, Bernie Sanders and other presidential candidates think the greatest economy the world has ever known is too flawed to be allowed to remain in place.
S&P 500 Index
Communication Services (XLC)
Consumer Discretionary (XLY)
Consumer Staples (XLP)
Health Care (XLV)
Real Estate (XLRE)
Business is Bad
Yesterday, it was Healthcare, but a late tweet from Bernie Sanders was a reminder that the whole for-profit-model would come under attack.
What do these corporations have in common?
Answer: they all paid nothing in federal income taxes.
My reply to this tweet was: these companies also had one more thing in common. They employed people…lots of people. Try 1,427,129 jobs.
30,000 Duke Energy
38,682 Eli Lilly
173,000 General Motors
62,000 MGM Resorts*
50,000 Prudential Financial*
The latest update yesterday on factory production and capacity utilization was worrisome as both came in below estimates, underscoring the notion manufacturing is slowing, and perhaps the current Renaissance has now run into the long-term trend of lower rallies in capacity utilization. This is a pivotal moment and something we will watch closely.
I’ve been saying that the last few weeks of trading remind me of a coiled spring ready to explode higher. The idea was largely reiterated by Larry Fink, CEO of Blackrock, yesterday. Discussing his business and the market, Fink pointed to record amounts of cash on the sidelines and a lack of exposure to equities, coupled with the “most dovish” Fed ever. In his mind, these things will trigger a melt-up, not a melt-down.
After the Close
There were mostly positive reactions to earnings, including United Airlines (UAL) and CSX Rail (CSX). Qualcomm (QCOM) continued to move higher after signing a deal with Apple (AAPL), just as their long-awaited trial began. Stifel Financial (SF) upped the stock to a “buy,” raising its target to $100 from $57. That is a huge gap, underscoring the precarious position of the company.
Netflix (NFLX) reported earnings after the bell and was all over the place after announcing 9.6 million new subscribers. Reed Hastings, CEO of Netflix, had his typical swagger when asked about the Disney (DIS) & Apple (AAPL) threat:
“There’s a ton of competition out there, Disney and Apple add a little bit more, but frankly I doubt it will be material because again there’s already so many competitors for entertainment time.”
The earnings parade continues.
International Business Machines Corp. (IBM) is trading down after the company reported first-quarter net income of $1.59 billion; after the bell on Tuesday. The adjusted earnings came to $2.25 per share. The results beat the consensus estimates of $2.21 per share. Revenue decreased 4.7% year over year to $18.2 billion; which missed the consensus estimates of $18.53 billion. Revenue was hurt by slowing demand for its mainframe computers and a stronger dollar.
• Cloud & Cognitive Software fell 2% to $5.0 billion; analysts expected $4.18 billion.
• Global business services revenue was flat at $4.10 billion; analysts expected $4.19 billion.
• Global Technology Services revenue fell 7% to $6.9 billion.
• Cognitive-solutions revenue and technology services and cloud-platform revenue declined to come in at $11.91 billion; analysts expected $12.43 billion.
• Systems revenue fell 11% to $1.30 billion; analysts expected $1.37 billion.
• Global Financing revenue was flat at $406 million.
For FY19, the company expects earnings to be at least $13.90 per share, slightly below the analysts’ expectations of $13.92 per share and free cash flow of approximately $12 billion.
Morgan Stanley (MS) is trading up after it reported first-quarter profit of $2.43 billion, this morning. The adjusted earnings came to $1.33 per share. The results beat the consensus estimates of $1.17 per share. Revenue decreased 7.1% year over year to $10.29 billion; also beating consensus estimates of $9.88 billion.
• Net interest grew 4% to $1.01 billion; analysts expected $974.6 million.
• Trading revenue declined 9% to $3.44 billion; analysts expected $3.20 billion
• Investment banking revenue dropped 24% to $1.24 billion; analysts expected $1.33 billion.
The major indices are pointing to a higher open and getting closer to all time highs.