Yesterday, the market was digesting financial announcements and guidance, while fending off the urge to sell-off, and it began building some momentum to the upside. Reports came out, saying the U.S. trade delegation will hit the road next Monday and head to Shanghai to meet their Chinese counterparts. The news triggered algorithms, and buyers tried to scale in during the session after the headlines. If you wanted to be long, you just had to pay up.

What’s intriguing about the market isn’t new all-time highs, but how major indices held at former resistance points that had become support. There’s still a chance these numbers will be tested again. However, they held for the most part the first time, and that is a huge technical buy signal.

• Dow Jones Industrial Average: 26,828
• S&P 500: 2,954 (didn’t come close)
• NASDAQ: 8,164

Stronger Underpinnings

Market breadth was extremely bullish yesterday, although companies that missed or offered subpar guidance are still excessively punished.

NYSE

• 1,966 advancers
• 973 decliners
• 2.45 billion up volume
• 974 million down volume

NASDAQ

• 1,779 advancers
• 1,321 decliners
• 1.13 billion up volume
• 741 million down volume

Even the Globalists Agree

Also, the International Monetary Fund (IMF) agreed with President Trump yesterday that the United States has the best economy of any advanced economy in the world. While ratcheting down its Gross Domestic Product (GDP) estimates for the world, the IMF had to hike the United States by 0.03. I’m no fan of the IMF. There isn’t much I can do with this information other than share that funny point.

IMF GDP Estimates	2019	2020
United States	1.9	1.7
Germany	0.7	1.7
France	1.3	1.4
Italy	0.1	0.8
Japan	0.9	0.4
UK	1.3	1.4
Canada	1.5	1.9

After the Close

Earnings continued to come in, largely crushing Wall Street’s consensus with most of the initial reactions being powerful upside moves.

Beat on Revenue & Earnings Initial Reaction:

• Texas Instruments (TXN): +5.8%
• Chipotle (CMG): +4.1%
• SNAP (SNAP Inc: +11.4%
• Visa (V): -0.8%
• Manhattan Associates (MANH): +10%
• Carlisle Companies (CSL): +4.6%
• Teradyne (TER): +17%

The only disaster is iRobot Technology (IRBT), which tried to blame tariffs but should really be blaming management and cheap Chinese cleaning robots. I think the stock is oversold, but the company needs to look stronger and adjust.

Justice?

We also learned after the close that the Justice Department is taking a closer look at online giants and their potential anti-competitive practices. Facebook (FB) slipped 1.6% on the news, while the other would-be monopolies were down around 1%.  I’ve said for a couple of years this would happen, but it’s a long process; more than likely, governments around the world will find ways of tapping into revenue rather than breaking companies up. 

That said, while this is a dark cloud, the Street will focus on earnings and underlying fundamentals.

Portfolio

We are technically fully vested but have several ideas we are contemplating taking profits on in the model portfolio.

Communication Services	Consumer Discretionary	Consumer Staples
1	4	1
Energy	Financials	Healthcare
1	2	1
Industrial	Materials	Real Estate
2	3	1
Technology	Utilities	Cash
3	0	1

Two Dow Jones Industrial Average components reported financial results this morning – both major misses.

Boeing (BA) posted a loss of $5.82 per share against consensus of +$1.87, which initially sent shares down more than seven points.  A closer look shows a business working very well except for the saga of the 737 Max, which still isn’t resolved.

Commercial saw 90 deliveries down from 194 a year ago resulting in revenues plunging to $4.7 billion from $14.0 billion.

Positives

Free cash flow -$1.01 billion the street was bracing for -$2.0 billion

Defense

• Revenue $6.6 billion from $6.1 billion
• Operating Margin 14.7 from 6.2

Services

• Revenue $4.5 billion from $41. Billion
• Operating Margin 15.1 from 14.7

The kitchen sink quarter might mark an inflection point for the company, which is hoping investors begin to focus more on 2020 when presumably the 737 Max would be back in service and the 777X will make its delayed debut.

Just as Boeing’s management tried to move investors gaze forward to the end of the year, Caterpillar (CAT) also issued a statement that issues for this quarter will be resolved and 2019 will be “another record year.”

• Revenue $14.4 billion +3%
• Buybacks $1.4 billion
• Dividend $500 million
• ME&T cash flow $2.0 billion

Geographic Performance

• North America $7.33 billion +11%
• Latin America $1.23 billion +9%
• EAME $2.8 billion -4%
• Asia/Pacific $3.06 billion -7%

Business Segments

• Construction $6.47 billion +5%
• Resources $2.80 billion +11%
• Energy & Transportation $5.49 billion -4%

Caterpillar reflects a firm construction market and underscores the economic strength in North America. 

European Economic Weakness

Continued weakness in the European economy has increased the likelihood of an ECB rate cut tomorrow and certainly over the course of the reminder of the year.  That in turn makes it easier and more likely the Federal Reserve will also cut rates.

EU July Purchasing Managers	Manufacturing	Services
German	46.4 from 47.6	55.4 from 55.8
France	50.0 from 51.9	51.7 from 52.7
European Union	46.4 from 47.6	53.3 from 53.6

 

 

 

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