I came into yesterday’s session looking for action from transportation, and got it when CSX Corporation (CSX) inadvertently released results before the closing bell. Earnings came in at $0.47, down year-over- year; beating Wall Street consensus by $0.03. 

The Dow was already climbing off the canvas when that news broke, giving it bounce and enough oomph for the blue-chip index to reach another record high. The S&P 500 also finished at an all-time high, too, by the tiniest fraction possible.

Hey, a win is a win, right?

Oil was the big loser after the U.S. Energy Information Administration (EIA) reported a crude drawdown that was less than expected.  On the other hand, gold soared above treasury yields that had plunged, reflecting a persistent anxiety that record equity highs cannot dissuade. 

That angst continues to set the tone for stocks. 

Breadth for the NYS:

• New highs 304
• New Lows 2

Breadth NASDAQ:

• New Highs 219
• New Lows 14

The biggest name to report after the close, Yum! Brands (YUM) posted earnings of $0.75, beating the Street by a penny.  The shares were up nicely in aftermarket trading as management guided the year-round core operating profits to be at least 14% in the second quarter, and core operating profits came in at 7%. 

Today, JP Morgan (JPM) reports earnings and the Street is looking for $1.49, but they are also looking for signs of engagement between banks and Main Street.

After peaking in 2012, year-over-year, demand for all types of consumer loans tumbled year after year until hitting rock bottom last year.

Second Quarter:

• Auto loan demand +18% almost 100% improvements
• Credit Card demand +12.5% up 39% from last year
• Other consumer loans +5.9% from a decline of 1.4% last year

So far, this year has seen an impressive inflection in loan demand; although I continue to hear horror stories on the approval process as it’s very encouraging.  Low yields should drive demand for business loans and refinance loans, but this hasn’t been the case with historic rates thus far.

2Q Loan Demand Y/Y % Change	2012	2013	2014	2015	2016
Auto	+35.3%	18.3%	10.9%	9.6%	18.0%
Credit Card	+17.5%	+12.0%	+9.8%	+9.0%	+12.5%
Consumer (not auto or credit card)	+16.4%	+3.1%	+0.0%	-1.4%	+5.9%

The only S&P 500 sector in the red this year is financials -2.1% overall, weighed down by the heavyweight megabanks; including JP Morgan, which is down 4.3%.  If financials can find a way to rally before interest rates increase, then this rally will be cooking with gas (or without it, with respect to mitigating the Fed factor).

JP Morgan sees resistance at $64.00, but it needs to close above $66.00 to signal a real turnaround.

Today’s Session

Wow, what are we witnessing?  The stock market up on news a central bank is not hiking rates.  I’m not surprised and have been saying for months central banks are largely impotent at this point, but that doesn’t absolve Bank of England Governor Mark Carney from almost pushing stock markets into a cataclysmic crash before and after the British exit vote. This morning the BOE decided not to cut rates by a vote of 8-1, but signaled they would for sure next month.

Consequently, UK Pound Sterling has picked momentum from a bounce many are calling the Theresa May bounce.

I get central bankers understand their voices carry a lot of weight, but just as their actions have had less impact that in the past, they lose massive credibility when using their platforms as a political soapbox rather than jawboning markets and behavior in a positive manner.

The market is ignoring BOE inaction and focused on JP Morgan, which blew away consensus on the top and bottom lines. There is also a curious reaction to Producer Price Index (PPI) that came in at the highest level since May 2015.  It might sound counterintuitive for many folks, but we need some inflation (think value of your paychecks and homes).

 

Comments

It seems as if since the big crash shadow banking has picked up much of the slack left by providing lending to areas previously covered by the big banks. Regulations and regulators dramatically changing the rules requiring dramatic risk reduction and reducing their earnings leverage combined with record legal expenses and fines have shifted this in my estimation from the leading indicator it once was. Yesterdays move due to the CSX report point to the market still considering the rails as an important lead indicator regarding the health of our move up. Not sure banks will regain their importance as they once did, it will remain to be seen... Ray Weldon on 7/14/2016 11:31:21 AM

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