5/4/2017
By Charles Payne, Principal Analyst

Yesterday, Facebook posted financials after the close that beat the Street on revenue and missed slightly on earnings. Their key metrics were impressive, including the monthly active users: 1.94 million +17% year-over-year.

The other hot tech name that posted results was Tesla (TSLA). It also beat on revenue and missed on the bottom line, but the -$1.33 loss was way off consensus by -$0.83.  However, shares of both names were lower in after-hours trading.

I am a holder of Facebook; even though I’m not in Tesla, the company laid an egg, and its Model 3 is on track for a summer release. Coming into yesterday’s session, shorts had a loss of $3.7 billion betting against Telsa. It’s fine if you think it is all hype, but I wouldn’t bet against the stock yet.

The market has gone into a wait-and-see mode with the jobs report looming on Friday and non-stop political intrigue over the spending and healthcare bills.  It was clear by the end of the day that despite being burned in the past, the market is beginning to believe a healthcare deal could get done, and that sent hospital stocks lower into the close.

Meanwhile, the Federal Reserve concluded its 2-day Federal Open Market Committee (FOMC) gathering without taking action. It’s hinting at the possibility of a rate hike in June; the estimate surged to a 90% probability from 70% at the start of the session.

The key observation that slowed the first quarter economic growth was “likely to be transitory” as it underscored my contention that we could be in the midst of a 3.5% growth or better right now.  While most of the major equity indices remained in the red, the Dow Jones edged into the plus column powered by financials.

Even as the big money center banks closed higher, financials got the biggest lift from insurance companies Allied World Assurance (AWH) and Allstate (ALL). Regional banks acted better as well – I love these regional bank stocks. I think they are so well-positioned for growth.

Red Flags

There are problematic elements from the collapse in crude oil and now plunging metals prices.   Moreover, market breadth is getting uglier, and it soon won’t be masked by high-flying stocks that are taking a pause. 

Although new highs continue to outpace new lows, the sheer number of the latter reflects the carnage awaiting shares of companies that disappointed the Street on earnings and guidance.  It also underscores the difficulty of making money in funds.   

Capitol Hill

Last night, word came down that the GOP plans to vote on the latest version of the Obamacare healthcare replacement bill today.  The latest addition to the GOP bill would provide $8 billion over five years to help with pre-existing conditions. This is a major deal. More than likely, the vote wouldn’t happen if it wasn’t a forgone conclusion. It will finally clear this hurdle and then move onto a bigger hurdle in the Senate.

I am not a fan of the bill. I think the GOP had public support to truly repeal, but this moves the Trump Economic Agenda along and adds momentum to the incoming tax reform. That being said, if the vote is postponed, it will be a huge blow to market sentiment and animal spirits that might go into hibernation.

Charles Payne
Wall Street Strategies

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