I’ve been writing and talking about the use of corrugated boxes for a long time as a harbinger of the direction of the economy. 

It’s actually an old-school metric that might actually have a better application as an economic indicator and proxy for the health of the economy.

However, we have everything delivered these days from cooked meals (GRUB) to uncooked meals (Blue Apron) nowadays, and everything else you could buy on Amazon.

Yesterday, Packaging Corp of America (PKG) blew away Wall Street consensus as corrugated margins expanded to 15.5 from 14.9; this after WestRock Co (WRK) blew away the Street last week. Think about all the corrugated boxes you’ve tossed in the garbage in the past month. Heck, it feels as though Christmas is every weekend in my house as we toss our recyclables.

 Speaking of Amazon, one out of four tech giants posted earnings results after the close. Two of the new horsemen crushed it!

Amazon (AMZN)

• Beat on revenue
• Beat on earnings
• AWS sales +42%

Alphabet (GOOGL)

• Beat by more than a half billion on revenue
• Beat by a mile on earnings

Two of the original Tech Horsemen, Microsoft (MSFT) and Intel (INTC), posted good numbers, but they’re probably not as much as the  “whispers” of the Street; their shares were poised to open lower. 

This week, market bias shifted back to the upside based on the most purest way of measuring markets and valuations – earnings.

Of course, there are games and shenanigans with corporate earnings, with many complaining of corporate buybacks and Generally Accepted Accounting Principles (also known as non-GAAP) bookkeeping.  I think the latter is a concern when there is always recurring or “non-recurring” issues as buybacks are fine in the absence of other buyers.  My big beef with buybacks is when management is selling at the same time; there is something unsavory about that.

Moreover, the flip side is missed earnings, the ensuing carnage is overdone, and the big problem is with quarterly earnings results. Be that as it may, this is the backdrop we deal with as investors. The key is not to let this lead to rash decisions, which means enduring pain from time to time when the facts are underscored; it’s the right thing to do, along with taking hits from time to time to stay in the game.

Today’s Session

The initial reading for the first quarter’s Gross Domestic Product has come at 0.7%, better than the worst-case assumption but far below consensus, and significantly lower than 2.1% from last year.

• Personal Consumption Expenditures +0.23 (highlights recreational vehicles +0.40 and motor vehicles -0.45)
• Gross Private Domestic Investment +0.69 (highlight non-residential +1.12)
• Net Exports of Goods and Service +0.07
• Government Consumption -1.7

*You Only Live Once

I’ll reiterate that first quarter’s GDP is backward looking, but we do so with respective to its influence on the current quarter and to put things into perspective. Consumers spending on cars are lower but it’s not a disaster, however; last year was a peak year.  On the other hand, Americans are living the moment and living to have fun, as a result, recreational vehicles enjoy their best quarter +0.23%.

This *YOLO approach to live is also reflected in Royal Caribbean (RCL) which open 6% higher and established an all-time record high.

Beyond economy data from this morning, earnings are underscoring and show why it’s still a stock pickers market.  With limited consumer spending, there are distinct winners and losers.  General Motors (GM) began taking market share a couple years ago from Ford (F) and this morning posted a strong report versus its main US rival.

In Washington DC, there is a growing chance that the government could actually shut down.  It wouldn’t be the first time, but it could cause an initial havoc in the market.  (We need to significantly trim the size of government anyway.)

Comments

What do the now two full quarters of rapidly declining GDP numbers indicate about Trump. Is he taking credit? Jim H. on 4/28/2017 11:26:48 AM

If I'm reading the GDP figures correctly, it fell because Government Spending decreased. That's awesome news. Randall Montgomery on 4/29/2017 6:06:30 AM

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