Why is the stock market so volatile? There are a lot of reasons, but one of the reasons not discussed is the squeamish and sketchy manner of Wall Street analysts. Once, they were touted as the calmest and smartest folks in the game, then they became promotional arms for the capital raising divisions (let us take you public and you’ll get strong buy ratings and favorable coverage). Now, these departments are like the walking dead. Their fundamental work is taking a backseat to investor reaction and short-term hiccups.

Take the case of Workday (WDAY), the human resources company that operates in the cloud. The company has been a juggernaut out the gate and posted results that looked like more of the same, which was impressive. However, management mentioned slower growth for a single quarter, even while upping its revenue and earnings guidance above their own prior guidance and Wall Street consensus.  The initial reaction saw the stock down $5.00 before the market open yesterday.

By now, most investors expect stocks to be hammered when all the news -save a sliver of time- is beyond amazing. No more than four firms lowered their share amounts when price targets were huge, even as they mostly extolled the virtues of the company. Unbelievable!

Brokerage Firm	Observations	New & Previous Target
RBC Capital	The F3Q16 guidance is lower than expected.  But F4Q16 implies acceleration; win rates are up and the core financial pipeline is 2X vs. end F1Q16.	$83 from $100
Northland Capital	Management lowered 3Q16 billings expectations as more-normal upfront payments caused ACV to be closer to 100%, down from the historical 110%.	$87 from $105
FBR Capital	I find it impressive that the company was able to approach operating margin break-even, even as it drove the material top-line upside. WDAY raised its FY16 revenue and operating margin guidance, exceeding consensus expectations.	$90 from $110
Needham	The firm believes that the underlying fundamentals are not only healthy, but it’s improving.  Win rates improved in the 2Q, while Financial pipelines doubled in 90 days from 2Q to 3Q. The firm expects the company to cross the profitability threshold in FY17 on a permanent basis.	$92 from $10

Source: Various News agencies to be updated

There’s no doubt in my mind the stock was going to open, and at the very least, retest Monday’s lows.  Then, Citigroup came to the rescue with a ‘buy’ recommendation (DA Davidson also rated the stock a buy, although its target seemed timid at $97 from a previous target of $90).

Moreover, if you’re wondering where the pressure is coming from on company CEOs, a large part is the nonsense business models that can’t be tweaked or near-term pain endured in order to build for the future. That’s the very essence of investing.

Today’s Session

China is up, but the US stock market begins the session perhaps thinking too much ahead of the weekend. This week is one for the record books and will be studied for years. It’s too early to know the lessons, although staying the course should be the main lesson. One thing people will try to figure out is who the villains were and who were the heroes.

Heroes

• Individual Investors- they didn’t panic and, in fact, most were looking to buy the crater.
• Economic Data- lost in the haze of the panic, virtually all the releases this week came in better than expected, including the GDP revision yesterday.
• China- came through with several attempts to stop the bleeding…American investors seem okay with the suggestion of jailing any sellers.

Villains

• China- the house of cards is imploding and for some reason we’re angry.
• Machines- the algorithms went nuts…but there’s an old saying, ‘don’t hate the robot, hate the programmer.’

Then there’s the Federal Reserve which some say came to the rescue via comments from William Dudley of the New York Fed. I’m not buying that for a few reasons. First, he’s a dove: his comments weren’t surprising or new. Second, he still left the door slightly ajar for a rate hike next month.

Hearing the Fed

Dream if you can a courtyard
An ocean of violets in bloom
Animals strike curious poses
They feel the heat
The heat between me and you

- When Doves Cry by Prince

The Yellen Federal Reserve is as dovish as they come, which means further accommodation isn’t out of the question, but that also means a greater chance of staying too low for too long (see Alan Greenspan).

On that note, the previous Fed had three hawks with greater talons than any on the current configuration.  So when you hear Richard Fisher, Charles Plosser and Loretta Mester on television sounding like the end is near, understand they are hawks.

By the same token, here’s the breakdown of current members.

Fed Doves

Yellen

Dudley

Evans

Lockhart

Fed Semi-Doves

Brainard

Fischer

Tarullo

Williams

Fed Semi-Hawks

Lacker

Powell

I don’t think there will be a rate hike in September, maybe December, but it still a stretch in my mind.  The economy needs to get on track and we can’t be sitting around celebrating 3.7% growth- need 5% or better.

Comments

The "social media" craze has permeated our society. Analysts, not being analysts, are just part of a bigger problem. When you try to appeal to a broader audience you become less effective and more like a politician. Yahoo,Facebook, Twitter etc. promote this. Facts become blurred by social discussion and inaction. "Too many cooks spoil the broth." E.V. Wagoner on 8/28/2015 11:14:31 AM

Agree withg you my friend, no rate increase now, maybe until 2016 joe Cayman on 8/31/2015 12:59:20 AM

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