April 18, 2018.
Daily Summary: The Dow Jones rallied 0.87%, the S&P 500 surging 1.07%. Taking the gold was no other than the NASDAQ, which saw stunning gains of 1.74%. The NASDAQ crossed above its 50-day moving average, trading up now 2.63% over the last 5 days. On the S&P 500, over the last 5 days, the energy sector has seen the nicest gains, up 3.13%. Yesterday, on the S&P 500, the strongest sectors were energy and utility stocks with gains of 0.72% and 0.67% respectively, with the real estate sector seeing the strongest movement on the downside with losses of 0.60%. Financials fell 0.25% on the day, making it the second weakest sector.
With all of that said and done, one of the weakest stocks yesterday in after-hour trading was IBM. The stock toppled over 5% in extended trading, even after releasing revenue and earnings numbers that beat out analyst forecasts. When push comes to shove, IBM has succeeded in reversing its blight of declining revenues now for the second straight quarter. What the market didn’t like was that the company’s earnings guidance for the coming year came out 3 cents below the consensus. As for the expected EPS of $13.83, which came out at $13.80, IBM’s CFO, James Kavanaugh told Reuters, “We delivered exactly what we said 90 days ago. The $13.80 is an ‘at least’ and it’s up 1 to 2 percent year over year.” The CFO added, “We feel very comfortable as we enter the second quarter and the remainder of the year that we can actually deliver moving forward.”
What seemed to irk investors was that cloud computing revenues hadn’t grown at the clip expected, “strategic imperatives” representing 47% of IBM revenues this past quarter, beneath the 49% they had constituted the previous quarter.
It’s hard to point one’s finger at exactly what the catalyst was for IBM’s losses. Could it be that Warren Buffett, known as the Oracle of Omaha, voted with his feet, selling most of his shares of Big Blue? It seems that the market isn’t giving the stock the benefit of the doubt, even though the company has forked out healthy dividends and seen solid revenues and earnings for time immemorial. With IBM mostly left out of the tech rally these past 2-years, it seems that the stock doesn’t fit the standard typology of a growth company. In its stead, investors see a company bogged or weighed down by legacy businesses that are becoming increasingly obsolete. Also, they see a company that got a boost from currency fluctuations after it received a 5-percentange-point revenue boost from the weak dollar, with growth having otherwise stayed flat on a constant-currency (CC) basis.
IBM is definitely a stock to watch today; there’s a chance that after opening at a gap down, the stock could correct; volatility is certainly expected in the stock today, but like always keep your finger on the pulse of the market!
Tesla (TSLA) is another stock to watch today, after rising 1% in after-hour trading. Tesla had announced that Model 3 production is expected to ramp up after the factory upgrades.
In extended trading yesterday, United Continental (UAL) rose almost 3%. The airline’s per share earnings beat the consensus by 10%, revenues outstripping forecasts by $30 million.
In so far as where stocks are going from here, many say they’ve peaked. All-in-all, fund managers’ stock allocation is at an 18-month low according to the most recent Bank of America survey. On aggregate, 58% of fund managers believe that stocks have either peaked or will peak in the second half of the year. And also, the amount of moneys being injected into global tech stocks has fallen to a 5-year low. Allocation to tech stocks fell to a net amount of 20% overweight, the lowest level recorded since February ’13.
Which are the stocks, though, that could expect a nice boost this earnings season? For one American Airlines (AAL). Over the last 3 months, analysts have edged up their EPS expectations by 20.1%. Managing Director of MKM, Jim Strugger, noted, “The company reported strong Q1 operational metrics last week and reiterated full year guidance.” It would be a healthy correction for the stock, now down 13.7% on the year. AAL is set to release its numbers on April 26th.
Caterpillar (CAT), likewise has seen an 11.8% jump in earnings estimate projections over the last 3 months. The construction equipment maker will be releasing its quarterly numbers on April 24th.
Economic Calendar: Be primed bright and early for MBA Mortgage Applications at 7:00 AM ET, with NY Fed President, William Dudley, speaking twice today, first at 8:30, and then at 15:15. The EIA Petroleum Status Report will be coming out at 10:30, followed by the Beige Book at 14:00.
Today’s Earnings Calendar is packed. Some of the big names include: ABT, AXP, BANF, FNLC, KMI, MS, and USB. Morgan Stanley (MS) will be one of the last financial reporters. Analysts are banking on net income of $2.2 billion, with revenues projected to come out at $10.4 billion. If these projections materialize, at EPS of $1.25 it would be the best quarter for MS since 2008. Given buybacks, share count is 9% less than it was in 2014, which partially reflects the EPS growth.
Whereas volatility this past year should prop up the company’s equities division, the declines in the market could eat into the company’s retail-brokerage division, with $2.4 trillion under management. Also be primed for the comments of company CEO, James Gorman, on the new Fed proposal to eliminate the stress test assumption that banks will continue dividend and buybacks in the event a crisis worsens. Any new rules in that regard could have far-reaching consequences for the capital return program at one of America’s largest banks.
Today’s Hot Stocks: UAL, LRCX, CSX, ISRG, IBM
Have a great trading day!