What an ugly session yesterday. It broke the 22-day streak of sessions of moves less than 1% (the longest such streak since the 37-day stretch that ended back in November 2021).

All eleven sectors finished lower.

First Republic Bank (FRC) was down 49.4%. Other big-time decliners included: MSCI Inc (MSCI)-13.5%, United Parcel Service (UPS) -10.0%, and Northern Trust Corp (NTRS) -9.3%. The session began with the hope that the majority of financial results that enjoyed earnings beats would overpower angst from the banking sector.

Best Sector

Staples

Utilities (XLU) fared slightly better, but Consumer Staples (XLP) remained a remarkable story of passing on higher input costs onto consumers. But this luxury is taking on a political tone more and more as I read about the so-called ‘greed inflation.’  Could you imagine laws in the future that cap profits being called something like the ‘Cheerios Profit Cap?’

Worse Sector

Materials

Talk about a shellacking – it was ugly in the Materials (XLB) space. Interestingly, steel and aluminum were hammered just as there has been chatter about the huge potential with manufacturing reshoring.

Reshoring is real and began when every economist said it was impossible. 

The question is whether this deep decline in actual box shipments portends an imminent recession.

Shaky Consumers

I know, I know, the consumer is super-duper strong. They are not confident, however. The Conference Board Consumer Confidence print came in below the consensus and was littered with several yellow and red flags:

• 101.3 consensus 104.0
• Nine-month low
• Expectations under 80 are associated with a recession (came in at 68.1)
• Expectations - Current = -83 points, which is the lowest since 2001.

Earnings Parade                    

After the close, the biggest reports beat the consensus and enjoyed big initial gains.

After the close, the biggest reports beat the consensus and enjoyed big initial gains.

The star stock this morning is Microsoft (MSFT), which is firing on all cylinders and riding the AI wave like a surfing legend.

At least a dozen big names posted solid results and reiterated or lifted guidance. The market’s reaction speaks to an uneasiness that has less to do with corporate earnings and everything to do with the knuckleheads in Washington, DC messing things up.

Behavioral Analysis Note

I received a few inquiries about my comments on Google in the afternoon note.

The company has missed four straight quarters so a beat and hopeful news on AI could send shares much higher.

When there has been a string of bad or disappointing news, investors come to expect that trend to remain in place, until it isn’t.  With that in mind, four straight earnings misses were a positive going into the financial release.

As it turns out, low expectations made the actual results even more impressive, and the stock popped.  A lackluster conference call on the topic of artificial intelligence, however, has the shares slightly lower.

 

Portfolio Approach

There are no sector weighting changes this morning in our Hotline Model Portfolio.

Comments

Charles, how can a consumer have confidence when Biden won't negotiate on the debt ceiling, Banks continue to fail, the Administration keeps denying there are signs of recession coming fast and hard, and Biden announces yesterday he wants to "complete the job". Paul Krueger on 4/26/2023 11:40:36 AM

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