Morning Commentary
It was a very difficult session on Friday that saw early winners get hammered and a few earlier losers reverse to the upside. Clearly, the theme of last week was a lack of safety nets. When the upside momentum paused, stocks tumbled like lead balloons.
Also, caution drove the investors into real estate and utilities with consumer discretionary names, led by Expedia (EXPE) and Amazon (AMZN), along with bottom fishing in Under Armour (UAA) and Finish Line Inc (FINL).
S&P 500 Index |
-0.97% |
|
Consumer Discretionary (XLY) |
-0.38% |
|
Consumer Staples (XLP) |
-1.66% |
|
Energy (XLE) |
+1.30% |
|
Financials (XLF) |
-0.75% |
|
Health Care (XLV) |
+0.81% |
|
Industrials (XLI) |
-3.41% |
|
Materials (XLB) |
-2.38% |
|
Real Estate (XLRE) |
+0.36% |
|
Technology (XLK) |
-1.68% |
|
Utilities (XLU) |
+0.85% |
Message of the Market
Market Breadth
There was a positive shift in new high highs to new lows for both the NYSE and the NASDAQ:
NYSE
New Highs: 64
New Lows: 48
NASDAQ
New Highs: 62
New Lows: 55
Earnings Reactions
The market needs leadership, especially beyond technology. That said, there are numerous industries that are outperforming, including pockets of retail and restaurants.
It’s the plague of any earnings season, but this time around, the reaction to results and guidance has been treacherous. Even with a blending earnings growth of 24.6%, the best since the fourth quarter of 2010 - and confident guidance - many would-be winners are getting slammed. See Western Digital (WDC).
Of course, earnings are backward-looking, but it does speak to execution, momentum, and guidance. The reaction to earnings is also a mix of science and emotion, which means low expectations can spark huge moves in benign earnings beats while fantastic earnings results can often be greeted with huge stock sell-offs.
Earnings Scoreboard and Sector Performance
S&P Earnings |
Blended Return |
YTD Change |
S&P 500 |
24.6% |
-0.1% |
Energy |
81.5% |
+2.2% |
Technology |
33.3% |
+3.0% |
Financial |
29.9% |
-0.8% |
Materials |
28.9% |
-4.6% |
Industrial |
25.2% |
-3.3% |
Consumer Discretionary |
16.0% |
+5.5% |
Healthcare |
14.5% |
+1.0% |
Telecom |
14.0% |
+3.6% |
Utilities |
12.5% |
-1.8% |
Consumer Staples |
12.1% |
-10.8% |
Real Estate |
3.2% |
-5.9% |
Mountain of Worry
While there is increased talk of economic stagflation, the stock market remains bogged down in a trading range that sees staircase rallies and elevator shaft falls.
The assortment of things has derailed the rally range from the nonsensical to the sublime. The political theater has derailed big up-sessions, but so too have more substantive concerns:
Yes, stagflation is the most recent reason for selling stocks. It’s not just in the United States; there is a growing concern about high unemployment being offset by higher inflation. The stagflation argument gained steam from the first quarter Gross Domestic Product (GDP) report and the surge in commodities prices.
GDP
However, 2.3% beats consensus, which is the first time that’s happened in the first quarter of any year since 2008. The number is well above average (1.6%) of the GDP from 2009 – 2017.
Key Metrics
Negative Surprise
Positive Surprises
Business Investments: +7.3%
Trade
Commodities Price Moves 2018
I’m not in the stagflation camp yet, but I will continue to monitor.
I think the biggest worry for investors is this need for a daily dose of impending doom. In life, when people and crowds look for something even when it’s not there, they eventually find it, but more often than not, they create it themselves. The noise has drowned out all the great news this year. Even when there has been notable progress, the reactions have been harsh.
What’s interesting is the stock market has a reputation of “climbing a wall of worry,” but it’s tumbling on all breaking news and emerging conventional wisdom.
Nonetheless, I will say that the bears are frustrated that the market hasn’t completely collapsed. This is easily illustrated with the pennant formation of the market, as there have been higher lows and lower highs, which means there should be a moment of truth soon where a decisive move occurs.
S&P 500
This calls to mind the notion that stocks have been priced for perfection, which I don’t think has been the case, or perhaps the economy has reached perfection and it’s only downhill from here.
Is this as good as it gets?
Sentiment
What is "As Good As It Gets?"
1- A single mother and waitress, a misanthropic author, and a gay artist form an unlikely friendship after the artist is assaulted in a robbery.
2- Conventional Wisdom that continues to derail stock market rallies (see Michigan Sentiment Report)
Investors began last week with the “high watermark” comments, derailing a rally attempt after extrapolating the comments from the CFO of Caterpillar to reflect the entire economy and the market situation.
The Michigan Consumer Sentiment release reveals a massive tug of war between optimism over tax reform and pessimism over potential tariff and trade war.
Consequently, while the revised April report edged higher, current conditions slipped. The 2018 average of 98.9 is the second highest in the past 70 years (107.6 in 2000).
Michigan Consumer Sentiment |
Change |
Level |
Prior |
Index |
-2.6% |
98.8 |
97.0 |
Current |
-5.2% |
114.9 |
115.0 |
Expectation |
-0.5% |
88.8 |
87.0 |
Where Do We Go From Here?
However, I say the best is yet to come. Moreover, there are many intriguing positives on the horizon, including peace on the Korean peninsula and new trade deals.
Before then, the market will grapple with a hard push by the Trump administration on tariffs with a lot of news expected this week. We also get more earnings reports, the Federal Open Market Committee (FOMC) gathering, and the jobs report, too.
Consumer Income and Spending
This morning, the government reported strong consumer spending in March led by recreational goods and autos. This dovetails perfectly with what I’m seeing in the stock market, and it’s a great sign of confidence. The consumer income and spending report shows people are buying big ticket items, otherwise known as durable goods (designed to last three years plus), are growing +0.8 or twice as fast as overall spending.
Last week stock winners:
RV Makers
There is some concern over savings, which edged lower, but is still above 3.0%.
It should be no surprise that consumer discretionary is the best performing sector in the stock market this year.
In addition to big ticket items, we are reminded over and over that folks are eating away from home more at both fast casual and fast foods restaurant. Last week, it was Chipotle, this morning its McDonalds, which posted very impressive financial results.
Conclusion
American confidence is being seen in more than just surveys, as folks are going to dinner more and are even more bullish putting money down on stuff we don’t need, but we work hard to acquire.
Comments |
It appears to me that "investors" versus the traders, hedge funds, etc., are left in the lurch in the market these days as fundamentals of a company's performance are no longer a guide for the individual market participant. A quarterly beat and moderate guidance often results in the stock's price falling. The term whipsawed comes to mind! I'm a patient long term investor in good companies but, that doesn't mean I'm not concerned by the rhetoric and other psychological "stuff" that seems to have outsized influence on the market. garro on 4/30/2018 10:10:07 AM |
A really great read and insight today - keep it up! And, IMHO, as long as the Feds (i.e., the bankers) can be stopped from raising interest rates - and therefore creating the very inflation they claim to be combating - we will do just fine. El Zorro Oro on 4/30/2018 10:37:51 AM |
Charles, thanks for the report this morning. You highlight many important factors for us. I certainly don't analyze the market to the level that you do, and please correct me if you think I'm wrong, but it looks to me like the market is just taking a break after running up so fast. As a result, investors are looking for reasons to take profits right now, so many events are interpreted with that in mind, I suspect. I believe the economy is moving in the right direction, with occasional "speed bumps" and "potholes" along the way, and I would expect the market will tend to follow the economy over time. So for me, I'm holding my investments and looking for new opportunities right now. Thanks again. George Elliott on 4/30/2018 10:54:29 AM |
Thanks George,
for taking the time with this straight forward email...its actually spot on and emphasizes the need to use common sense and personal observations. Today the biggest winner in the market is McDonald's which saw its stock under pressure for a couple weeks as Wall Street said the company peaked. Its okay to be wrong but the herd mentally and need to predict the top seems to be misplaced on Wall Street these days. CP Charles Payne on 4/30/2018 11:16:17 AM |
Charles, I, like so many in this country, have constrained my purchases over the past 8 or so years due to the nasty recession we all weathered. And, as a simple observation, many of us have been using our big ticket items to the MAX and beyond. A perfect example is my daughter, who after being out of work for 7 or more years, finally found employment a year ago and has been able to "leave the nest" (again) and begin to feel her "independence" once more at age 43. However, her auto (which just exceeded the 140,000 mileage mark) "gave up this ghost" this past Friday evening and now "mother and I" will join our daughter in her search for a respectable AND modest replacement....not that she WANTS/ED to, but because there is no good rationale in spending $7,000 for a new transmission of a vehicle which has seen "better days." This, I believe, is a PERFECT example of the position in which so MANY Americans find themselves these days....and the savings accounts are starting to SHOW the results of "going without" for soooo long. Just a candid observation of American "life" today...post-recession. James Warlin on 4/30/2018 2:43:10 PM |
Tweet |
3/28/2024 1:39 PM | Fruitful Quarter |
3/28/2024 9:50 AM | LISTEN TO THE MARKET |
3/27/2024 1:40 PM | Mostly Higher |
3/27/2024 9:32 AM | U-TURN? |
3/26/2024 1:08 PM | Everything Is Up |
3/26/2024 9:42 AM | TAPPED OUT (I HOPE YOU AT LEAST GOT A T-SHIRT) |
3/25/2024 1:33 PM | Not A Mutiny |
3/25/2024 9:35 AM | STAYING THE COURSE…BEYOND TECH |
3/22/2024 12:56 PM | Toll on Americans |
3/22/2024 9:38 AM | A TAD TIRED |
3/21/2024 1:55 PM | Building on Gains |
3/21/2024 9:30 AM | A COMFORTING FED |
3/20/2024 1:33 PM | Pivotal Moment |
3/20/2024 10:00 AM | HERE COMES THE FED |
3/19/2024 1:33 PM | Picking Up Steam |
3/19/2024 9:35 AM | RUMBLINGS IN THE BOND MARKET |
3/18/2024 1:48 PM | Mag 7 is Back |
3/18/2024 9:39 AM | THE PARTY IN SAN JOSE WILL BE LIT |
3/15/2024 1:38 PM | Realtors Settle |
3/15/2024 9:33 AM | AN UNEASY PAUSE |
3/14/2024 1:43 PM | Sticky Inflation |
3/14/2024 9:48 AM | GOING TO A GO-GO |
3/13/2024 2:16 PM | Taking a Breather |
3/13/2024 9:51 AM | ALL SO EPIC |
3/12/2024 1:42 PM | Marching Higher |
More commentary archives |
Home |
Products & Services |
Education |
In The Media |
Help |
About Us |
Disclaimer | Privacy Policy | Terms of Use | All Rights Reserved.
|