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Morning Commentary

Rotation Into Earnings Losers?

By Charles Payne, CEO & Principal Analyst
10/19/2017 9:30 AM
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Another session for the record books!  This one had feeling and gusto on Wednesday, led by International Business Machines (IBM). The Dow Jones Industrial average was the best performing major index, but there was a compelling aspect of the session that could be a trend this earnings season.

Stocks missing initially were getting hit, and then recovering to close much higher, all in the same session.

Cree Inc. (CREE) posted a loss of $0.20, missing consensus by a mile, sending its shares plunging at the opening bell. The new CEO made strong promises, and the stock finished the session with 17% off the intra-day low.

Select Comfort Corp. (SCSS) earned $0.62 last quarter, but the Street was looking for $0.68. The stock shook off early weakness to finish up 5.6% on the intra-day.

Keep in mind, last earnings season saw selling as the knee-jerk reaction, even when companies beat and guided higher. I think we are seeing smart investors seek out value; they are buying dips this time around - even the names that are missing the Street.

Today, eBay (EBAY) will put this theory to the test after missing on earnings after the bell.  Also, reporting after the bell:

The Pulse of the Economy

The Fed - Beige Book summary of economic activity in each of the twelve Fed districts covering the nation was released yesterday; it featured critical takeaways:

-The economy is resilient, holding up through two hurricanes as districts reported growth to be either ‘moderate’ or ‘modest.’

Moderate: Growth: New York, Cleveland, Richmond, Dallas, and San Francisco

Modest: Boston, Philadelphia, Atlanta, Chicago, and St. Louis. Minneapolis and Kansas City

-Labor shortages are ‘restraining’ business growth particularly related to construction.

-Despite widespread labor tightness, only modest wage pressure reported.

Although the Fed cannot find any traces of inflation, conventional wisdom holds that there will be a rate hike in December. A move the market is obviously okay with, but there is a deeper mystery that could disrupt this rally- the next chair of the Federal Reserve.

Today, President Trump is meeting with current Fed chair Janet Yellen, one of the candidates said to be under consideration as the next Fed chief.  While there are five finalists, the Street is focused on three names and the potential impact on the market:

I think the street wants Yellen. Cohn would be fine, but we need to worry about Taylor, who would advocate for decisive monetary policies based on a case for full employment.

Today’s Session

It was 30 years ago today the stock market crashed and the day became known as Black Monday.  I was a stock broker then and remember thinking it was the end of the world.  Instead, it was the start of something wonderful – the next big bull market run.

Nonetheless, there is a fair amount of anxiety coupled with weakness abroad, as Spain has moved to suspend Catalonia’s autonomy.  I’ve been talking and writing about this for years and we are approaching the moment of truth. 

I would like to see Catalonia became an independent nation for many reasons, but it might take more than the will of the people and overwhelming votes of citizen.  It might take bloodshed.

Meanwhile, there will be some tears shed as the market opens under a fair amount of pressure, but I doubt there will be wholesale panic. 

For now let’s keep our powder dry. 





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