Like we’ve noted time and time again, stellar earnings might not cut it this earnings season. The market has failed to be impressed, with a long and daunting list of political, geopolitical and economic setbacks that seem to know no end. Trump, constantly at odds with his own party, is in the hot seat, with an ongoing investigation into his former lawyer. Likewise, the findings of the investigation into Russia’s collusion in the last election have yet to be published. Over and beyond that, a governmental shutdown may be impending, if both houses of Congress don’t approve funding for Trump’s Mexico wall. And that’s just the local front in the Oval Office and Capitol Hill.
As for geopolitical setbacks, Israeli’s Prime Minister, Benjamin Netanyahu threw a monkey wrench into fray with revelations, heretofore unknown, about Iran’s secret nuclear program. Likewise, there’s no clear light at the end of the tunnel as to what will develop in Trump’s negotiations with North Korea, of for that matter, what will come of NAFTA. Over and beyond, new concerns have arisen about the clip of global growth, especially in light of Trump’s isolationist, protectionist policies. So simply put, we’ve got a mess and one or two positive developments, be it strong earnings from a market leader or a bellwether company, or something positive on the Economic Calendar, may just not foot the bill when it comes to the catalysts the market needs to rally.
Federated Investors, Chief Equity Market Strategist, Phil Orlando, encapsulated the situation as follows: “There’s some caution about what the summer might bring, especially since stocks are up some 40% over the past year and a half,” noting, “there’s no shortage of things that can make you nervous, including North Korea, Iran, the Mueller investigation, the midterms, upcoming Fed meetings and so forth. We think the market will continue to move higher, but there’s a lot of caution that is obscuring the good news in earnings.”
Market Summary: All of the major indexes fell, the Dow dropping 0.61%, the S&P 500 falling 0.82%. The NASDAQ fell 0.75%. On the S&P 500, all 11 sectors ended off, 25 of the 30 components on the blue-chip Dow ending off. One of the day’s biggest losers was health care, which shed 1.6%. The sector saw a negative tailwind from the biotech sector, the shares of the ETF, iShares Nasdaq Biotechnology (IBB) off almost 2%. Industrial and material stocks likewise fell over 1%; energy stocks ended the day flat. Earlier in the day, energy stocks seemed on track to be the day’s biggest winners.
With that said, all of the major indexes ended up for the month. The Dow and the S&P 500 both edged up 0.3% in April, the NASDAQ, though, up less than 0.1% on the month. As for performance year-to-date, the Dow is off 2.3% on the year, the S&P 500 shedding 1% to date. The NASDAQ is the only index boasting yearly gains, now up 2.4%.
As for earnings, traders and investors have little reason to complain. With more than half of the companies on the S&P 500 reporting Q1 results, 79% have beaten Wall Street’s earnings expectations. Despite the U.S. 10-year T-bond yield having fallen back beneath 3%, the stock market can’t seem to get up the gumption or drive to climb.
On the earnings front, a lot of major companies were in the spotlight yesterday. A market lead, McDonald’s (MCD) traded up 5.6%, after beating top and bottom line estimates, making it the biggest winner yesterday on the Dow. Sprint (S), on the flipside, took a real beating, falling 14% after news broke on Sunday that it sought to merge with its rival, T-Mobile (TMUS). TMUS was off 6.2% on the day. The deal struck by the two rivals is valued at $26 billion and is an all stock deal; it still has to make it through anti-trust regulators.
Walmart (WMT) was another stock in the limelight. It rose 1.3%, the retail behemoth’s UK division agreeing to merge with the British chain, J Sainsbury PLC.
As far as guidance goes, we can’t say how important it is. One of the stocks that got clobbered after lowering its outlook was Arconic (ARNC). Though the metals company’s results outstripped forecasts, on its lowered outlook it fell 21%.
Yesterday, there were quite a few developments on the Economic Calendar. The Fed’s preferred inflation gauge, the PCE index, rose to a clip of 2% year-over-year from February’s 1.7%. The index hit the Fed’s target, something it had not done in a year. On the manufacturing front, the Chicago PMI for the month of April came out at 57.6, a smidgen beneath the estimate of 58; like always, a reading above 50 points signifies growth. The National Association of Realtors pending-home sales index climbed 0.4% to 107.6 points in March.
When the Fed makes it policy decision announcement tomorrow, it’s expected to leave interest rates unchanged. Likewise, expectations have it not veering off course. At present, it’s on a tightening path, two or more increases expected this year.
Economic Calendar: Today, the FOMC meeting begins. The Redbook comes out at 8:55. Be primed for the PMI Manufacturing Index at 9:45, with the ISM Mfg Index shortly thereafter at 10:00. Construction spending numbers will be released at 10:00.
Watch any news on tariffs today! Yesterday, Trump delayed metal tariffs on Canada, EU, and Mexico, while exempting some other countries. The White House noted, “The administration is also extending negotiations with Canada, Mexico, and the European Union for a final 30 days. In all of these negotiations, the administration is focused on quotas that will restrain imports, prevent transshipment, and protect the national security.” The decision came just after temporary tariff exemptions were set to expire. The Oval Office also noted that the specifics of deals with Brazil, Argentina and Australia will be stamped out shortly.
Tuesday’s Hot Stocks: INGN, THC, ALSN, CGNX, AKAM
Have a great trading day!