Things you need to know.
– Companies report beats on EPS but offer tepid forward guidance.
– GOOG beats and authorizes a buyback….and they paid Sundar some $220+ million.
– MSFT makes a big bet on AI – but we knew that.
– 40 more companies report today….
– Patience is a virtue…. sit tight.
– Try the Scallops
And BOOM! Stocks got whacked…finally responding to the news….FRC which reported after the bell on Monday – revealed that they ‘beat’ the estimates but lost more than $100 billion in deposits…..which was a bit worse than the expectation….and all that did was stir up the angst all over again that the regional banking crisis may not be over…..and that sent the stock down 49%! The KRE – which is the S&P Regional Banking ETF – lost 4.2% and that includes names like NYCB -2.2%, CMA – 4.5%, RF -2.6%, TFC -4.3%, WAL -5.5%, & KEY -5.8% – along with a host of others….
And then we got news that UPS also beat on the top line at $2.20/sh vs. the estimate of $2.19. Now, this was down 27% y/y – but that was expected – just putting it into focus. They warned that ‘the macro conditions would continue to put pressure’ on the company…. that ‘the shift from goods to services is depressing package demand.’ They reported a 6% drop in revenues also confirmed that 2023 full year earnings would come in at the low end of the range at $97 billion vs.$99.4 billion –and that news sent UPS down 10%! This vs the 10% surge in FDX – which reported back in March – after they beat – and expressed excitement about how their margins improved on the back of ‘efficiency efforts’ and they raised the outlook despite a shipping slowdown…Wow! What a difference a day makes….
In total – we had 37 companies report during the trading day yesterday and 32 BEAT and 5 MISSED – resulting in an 86% beat rate…. which is well above the historical average…and then after the bell we got another 14 companies to report, and they ALL beat the estimates – that’s 100% – think lower bar.
In any event the markets – and investors, traders and algo’s finally had enough….by the end of the day the Dow gave back 345 pts or 1%, the S&P down 65 pts or 1.6%, the Nasdaq -240 pts or 2%, the Russell lost 43 pts or 2.4% and the Transports lost a whopping 525 pts or 3.6% (thanks to the UPS report).
We saw Tech and Basic Materials lose more than 2%, Financials, Consumer Discretionary, Industrials, Communications, Energy, Healthcare, all lost more than 1% while Utilities and Consumer Staples ended the day down 0.1%. Retailers got whacked down 3.3%, Disruptive Tech down 3.2%, Semi’s down 3.2%, Cybersecurity down 2%, Metals and Miners lost 1.5%.
The weakness in the markets helped to send treasury prices up and yields down….as investors sought the safety of the US gov’t. The 3- & 6-month bills ended the day yielding 5% & 4.8% respectively…the 2 yr. fell below 4% ending the day yielding 3.92% while the 10 yr. is yielding 3.39%.
The FED is still expected to raise interest rates next week by 25 bps…. even as the economy is starting to slow……Yesterday’s eco data showed that consumer confidence fell, and 3 regional FED surveys came in weaker than expected. In a surprise though, New Home Sales surged by 9.6% vs. The expected loss of 1.3% and that is a bit confusing…. or maybe not….
Home builders are now offering all kinds of incentives to new home buyers…suddenly ‘cost free’ – kitchen and bath upgrades are all the rage…..landscaping is now included and if you push hard enough you can upgrade all the floors and outfit all the closets – all for ‘no’ cost….the homebuilders are giving it away! (LOL). Additionally – many of the home builders are also mortgage lenders and they can tweak (buydown) the rates that qualified buyers pay…. all helping to keep the homebuilders alive….
After the bell – we heard from 11 more companies, and they all beat…. (that’s a 100% beat rate) – names like TXN, V, PACW, CMG, JNPR and UHS…. And two big tech names that had everyone on edge all day….…GOOG and MSFT….and guess what…They both beat by significant margins….
GOOG reported $1.17 vs. $1.08 (an 8% beat) …. demonstrating that their ad business is holding up ‘ok’ during this economic downturn….and for the first time the cloud unit reported a profit of $191 million…. the board also authorized a $70 billion share buyback……Ah…do you think? It was only 2 days ago when they revealed that they paid CEO Sundar Pichai more than $220 million dollars…in total compensation – this after they slashed and burned more than 12k jobs along with ‘other efficiencies’…..and that news that hit on Monday – ahead of the earnings…and that should have been the clue that GOOG was going to surprise to the upside and that the news was going to be good….Why? Because if they announced a $220 million + payday and then announced a miss in earnings along with weakness everywhere else – you can be sure that investors would have questioned that payday….So, the fact that they leaked the payday information ahead of earnings – should have prepared you for a bunch of good news…GOOG is trading up 1% this morning.
And then MSFT did the same thing and it’s all about AI….….they beat substantially $2.45 vs. $2.23 a 10% beat…..Sales soared by 7.1%, cloud revenues up 31%, and commercial cloud products rose 22%….in the end – it was a solid report even though analyst estimates lowered the bar…And as expected – MSFT made big bets on AI – some $10 billion worth of new investments in OpenAI….traders took the stock up $16 or 5% in the post market trading ……MSFT trading up 7% this morning…
This morning US futures are struggling to find their way…. The Dow is up 16 pts, the S&P up 15, the Nasdaq up 160 (think MSFT & GOOG), the Russell is down 5. Let’s not confuse ourselves……while the markets are focused on earnings, it is clear that the economy is slowing down….and that the FED will stay the course to kill inflation…..the idea that they could raise in May and in June is now on the table and out there in the global public square….and that will continue to suggest a risk off mood.
Eco data today includes Mortgage Apps, Durable Goods of 0.7%, Ex transports of -0.2% and Capital Goods Ordered and Shipped of -0.1% and +0.1%. Look for another big day of reports…this morning we will get 20 reports before the market opens…. look for BA, BSX, CME, NSC, GD, HESS, TMO, ADP & HLT…after the bell – watch for 25 more….and they include META, ROKU, & EBAY….
Oil continues to trade in the $77 range and has not yet filled the gap created on April 3rd…but we are close….and I still suspect that it will before it moves higher…. Gold like oil is just biding its time…trading at $2,008/oz as it builds a base hear and awaits the next FED move…. Remember – ongoing rate hikes will cause the dollar to rally and that will put pressure on the commodity complex.
European markets are all lower…. CAC 40 – 0.8%, while the UK is only off 0.25% everything else is somewhere in between. The story in Europe is about disappointing earnings….and new bank worries.
The S&P closed at 4071 – down 65 pts…. ending the day on the low…. (Which usually means we go lower again……). As I have been saying – the path of least resistance is lower – until we get more clarity out of the FED – and that happens next week…. a raise in May and then a pause will help stabilize the markets…. A rise in May and a suggestion that we will see a rise in June – will put more pressure on stocks…and a July hike…oh boy…. Watch out. I am still in the camp that there is no way the FED can or will cut rates in 2023…. I just don’t see it.
Remember – this is not the time to panic…. stay the course….be patient…. keep putting money away into your account – maybe just holding it in cash until it settles down…. Cash can be defined as short duration (3 month) T bills…that are yielding 5%. Give me a call. Always happy to discuss.
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kace Capital Advisors.”
Pan Seared Scallops
This is also an easy dish to prepare and serve – you will need, 1 lb. of mushrooms, olive oil, shallots, chopped garlic, s&p, white wine, fresh bay scallops (like 1 lb.) and chopped Italian parsley.
Rinse, strain and slice the mushrooms – set aside. Rinse, strain the scallops – set aside.
In a sauté pan – add olive oil and chopped shallots – about 3 tblspns – and turn the heat to high…cook (stir) the shallots until they are a golden brown…now add chopped garlic – 2 cloves. As the garlic browns (not burns) add the sliced mushrooms – turn heat to med and season with s&p – cover the pan so that the mushrooms make their own juice. After about 15 mins or so – uncover and let the mushroom water evaporate….at this point – add the wine – maybe like 1/2 to 3/4 cup…again reduce until the wine has evaporated.
In a separate pan – heat up a bit of butter and oil – Add the scallops to the pan and sear on both sides. – season again with s&p and the chopped parsley.
When presenting – place the scallops on the plate and spoon the mushroom/wine sauce over them. You can complement this dish with wild grain rice and steamed spinach seasoned with s&p and a touch of butter. Enjoy a light dry white wine – a Riesling, Sauvignon Blanc or Chablis would work nicely.
Enjoy!
