Here we go again.
We topped out at 11,983 yesterday on the Nasdaq 100 as tech stocks came roaring back but, this morning, we’re back to 11,882 in the Futures and now it’s going to be up to the actual earnings – to see if they are strong enough to support the 1,000 points (9%) we’ve added on since the start of the year.
The last earnings were in October/November – and that caused us to drop 10%. Will we be that much improved since or is the market being as irrationally optimistic as it was when we ran up ahead of last quarter’s earnings?
3M (MMM) missed so badly this morning that they are cutting 2,500 jobs. GE was in-line but guided down. LOGI missed last night along with 3 others, keeping it 50/50 between hits and misses in companies that have reported so far.
Along with the micros of earnings, here are the macros we’re paying attention to this quarter:
Homebuilder KBH reported that 68% of their Q4 contracts were cancelled, compared to 13% the year before (which is more typical). Of course rapidly rising rates played a part in that but how many other purchase decisions were cancelled in Q4? That’s why we need to be patient and see what the companies actually say about Q4 and the year ahead in the coming reports.
Another report we’re concerned about what yesterday’s Leading Economic Indicators, which are still trending down and, usually, when the indicators are this low, we’re about to collapse into Recession:
November was down 1.1% and December was down 1% and people tend to think 1% is not much but that’s because you are thinking it’s out of 100% but you need to be aware of the RANGE we usually move in, which is 10% up or down so 1% is actually a very significant move for a single month and 1.1% is accelerating to the downside – in a month that was make or break for retailers.
It’s not so much that we’re at -1.1, it’s that there are NO positives. Well, interest is positive and that’s supposed to be an indication of a healthy economy but we know it’s only and indication of artificial Fed moves, not the natural supply and demand for Dollars.
What may save us this quarter is our very low expectations. Estimates for the S&P 500 are for -4.9% earnings growth and that is down from + 4.8% that was expected in September so a lot of the Recession is already baked in but still, that does not excuse us from making sure the companies we invest in are above the curve in handling what the economy is throwing at them, not below it.
The S&P 500 was at 4,325 in August (4,800 in January) and now we are just getting back above 4,000 so let’s say earnings are down 5% from 2021 and 2021 averaged around 4,300 so 5% less than that is 4,100 – which is where we are. That’s where our range is too:
Earnings are going to make or break us and Thursday we get the first estimate of Q4 GDP on Thursday morning and that’s likely to be lower than the 3.2% expectations – how much lower is the question. Then, next week, we get the Fed Rate Decision and Non-Farm Payrolls and, after that, we can get back to watching earnings – still from the sidelines for now.
Good interview:
‘The Fed-fueled fantasy bubble has popped.’ Stock investors are about to get a big dose of reality.
Good Morning.
Good morning!
Jan Manufacturing PMI still sad at 48.6 and 46.6 for Services, which are usually the bright spot. Well, Services are bright since last month was 44.7 and Manufacturing last month at 46.2 so both are improving but still negative (below 50 is contraction).
As with Leading Indicators, the trend is not our friend:
Better Earnings this morning with only 4 misses out of 20 reports but VZ guided down, JNJ was cautious and GE and MMM undoubtedly bearish.
DHI did really well, HAL small beat, LMT small beat, RTX in-line, TRV in-line, UNP missed by a bit. Another 20 this evening including CNI, COF, FFIV, ISRG, MSFT is a market-mover, NXGN, TXN…
MSFT is $1.8Tn and AAPL is $2.2Tn so together about 40% of the Nasdaq as they didn’t go down as much as their peers (AMZN is under $1Tn, GOOGL $1.2Tn, META now below $400Bn). So, if AAPL (2/2) or MSFT miss – DOOM!!!
MSFT is how “they” take us down tomorrow. MSFT slashes 10,000 jobs and this note from Piper last week:
We see a challenging set-up for MSFT ahead of 1/24 results given 1) moderating Azure growth that has accounted for 50%+ of incremental TTM revenue, 2) further erosion in bookings, billings, and FCF metrics on payment timing shifts, and 3) rising recessionary risks to non-cloud that has grown for five consecutive years but now faces potential y/y decline in FY23
MSFT beat in 3 of the last 4 Qs. Last Q4, they beat by 7.4% at $2.48 with $2.31 expected and expectations for Q4 now are $2.29 after making $2.35 last Q. I think they have a good chance to beat the low expectations – I don’t see why Q4 would weaken. Lower Dollar should have boosted their outside revenues compared to Q3 – but it depends on when they do their calculations.
I think the wildcard is the $10Bn investment in OpenAI – It’s not like Elon buying TWTR and they did have $44Bn in cash but even a bit of the reaction Musk got is going to take them down.
dollar down 10% and since microsoft gets a lot of revenue outside of US, maybe they will beat earnings estimate.
LOGI is up on their miss. I guess expectations were a lot worse.
Logitech reports Q3 earnings miss; reaffirms FY23 guidance
Jan. 24, 2023 12:16 AM ET
Logitech International S.A. (LOGI)
By: Meghavi Singh, SA News Editor
1 Comment
Oil News:
War, etc.
What if the Dollar hadn’t dropped 10% since November?
That’s all on the narrative that the Fed is about done raising rates.
Meetings were 9/21, 11/1, 12/14 and now 2/1, 3/22 and 5/3 and the Fed Funds rate is 4.33% (between 4.25 and 4.5 as they put it). My expectation was 6% by June, most of the Fed says 5% is done so that would be 4.88% – two more 0.25% hikes.
As I’ve said though, they have bonds to sell and that’s their priority. If bond rates rise higher than the Funds rate, it means the Fed has lost control and that they can’t afford to let people think.
The ECB is saying 2 more 0.50 hikes ahead. They are at 2.5% so that would be 3.5% – still way behind the Fed and that means EU bonds are less attractive than US bonds – they can’t have that. Inflation over there is still high as well.
Phil / lmt
war is good business. I woudn’t be surprised to see $500 for LMT by years end
Finally starting to make money on the oil shorts from last week.
March /NG contracts back to $3.10 from $3.30 this morning.
That’s the Feb – still the front-month.
Richmond Fed survey -11 in January
Jan. 24, 2023 10:07 AM ET
2 Comments
Commercial bank reserves kept at the Fed serve as foundation for the U.S. financial system. With the Fed’s QT program in 2018 and 2019, stocks dropped and money markets froze when reserves dropped.
Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets, told Bloomberg that, “there’s really two major sources of uncertainty around this process. We don’t know what the right level of reserves is” or how long it will take to reach that level. In addition, the debt limit “adds uncertainty around the pace” of reaching that end level.
The Fed’s QT process can reduce liquidity through two mechanisms — bank reserves and the reverse repurchase facility, or RRP, which essentially holds money for money market funds. Which one shrinks can matter as reserves are seen as having a more powerful influence in supporting credit.
As the Treasury’s cash holdings dwindles and sales of government securities are restrained, there will be a smaller supply of Treasury bills for money market funds. That’s likely to lead money market funds to funnel more money into the reverse-repo facility, Bloomberg said. In turn, that could end up shrinking bank reserves faster.
“All of this cash is going to be put to work in the Fed’s RRP facility,” John Velis, a foreign exchange and macro strategist at BNY Mellon, told Bloomberg. “That will bring down reserves, as it’s a mirror image.” If reserves get too low, markets could experience “some hiccups,” he added.
VIX is way down – people getting complacent.
Dollar back under 102 is helping.
Oil back to $80, hopefully fails this time.
phil is pan american silver a good company for silver exposure. thanks in advance
$19 is $4Bn and they only make $200M so 20x. It is up 100% from pre-covid but that’s because /SI is up 66% more so than anything they’ve done differently.
Their stock is essentially in the same place it was in 2018 and they surged with Silver in 2020 but fell back since – even though Silver is still near the highs.
No debt is nice and they have about 1.8Bn ounces of reserves so you’re only paying about $2/oz for what they own so, on that basis, I do like them.
They do have options out to 2025 and they only pay a 2% dividend, so there’s no point in owning the stock so I’d go with:
That puts you in the $18,000 spread for net $2,000 with $16,000 (800%) upside potential at $22, which is a very reasonable goal and, as long as you REALLY want to own 2,000 shares for net $18 ($36,000), this is a very nice way to make $16,000.
https://charts2.finviz.com/chart.ashx?t=paas%20\&p=w&s=y
Phil / VZ – I thought the earnings this quarter were putting good…. still loosing some line subs, but seemed to make progress on mobil adds. Outlook a bit off but I’m thinking this is conservative given some pressure going forward, although the CE was already low….. what are your thoughts?
Cash flow seems to be dropping and that may lead to a dividend cut, which would spook investors. They have always been a toss-up with T when we’ve dug into them so nothing wrong with them in particular – they just always come up a little bit short between the two.
Don’t forget there’s $145Bn in debt here. Going up just 3% will add $4.3Bn to expenses and that’s 20% of profits, down to $16Bn, which puts them around 10x.
T has $128Bn in debt and that drops them to $15Bn in earnings and that’s 9x. They were both top bidders in the 5G auctions at $45Bn for VZ and $32Bn for T vs $12Bn for TMobile and I think they’ll all do well as others become non-competitive once we standardize.
What also concerns me about VZ is that they have 149M subscribers and T only has 102M yet T gets a lot more money per subscriber.
Anyway, close but I keep choosing T.
BBAR is interesting at $4.67 as that’s $957M but they make $413M a year and they have $1Bn in the bank. I think companies like this get missed because their earnings are in Pesos and the screener programs can’t handle conversions properly (seems basic but it keeps happening).
https://charts2.finviz.com/chart.ashx?t=bbar%20\&p=w&s=y
They had a nice, solid business but they embraced digital banking and have grown 10x since 2018, top and bottom lines.
That means, if you cycle this through, you turn $14,350 into $20,750 in one year, then $30,000, then $43,000, $62,000, $90,000 (year 5), $128k, $185k, $266k, $383k, and $552,000 in year 10. I guess we’ll look to add that to the $700 portfolio as well when it comes back around.
Phil BBAR I got .65 for the puts then the price changed someone got 1.05 right now
bbar
That’s great. That’s why I always make favorable offers and, if they don’t fill, then I might compromise but it’s silly not to at least ask/offer a better price before capitulating.
Phil BBAR. No div with TOS. Finviz shows only .04 cents. So where do you read 4.25%???
Yahoo.
You can see it in the history, they pay monthly, not quarterly.
I find the nasdaq site has the most up to date and accurate divvy info
Banco BBVA Argentina S.A. ADS (BBAR) Dividend History | Nasdaq
Once you get to the dividend history page you just type a new symbol and go right to its dividend history
MSFT beats. Big pop back over 12,000 for the Nasdaq.
Intuitive Surgical misses on bottom line in Q4; shares down 12% after hours
ISRG +0.78%
Jan. 24, 2023 4:58 PM ET
2 Comments
Capital One December credit card delinquency, charge-off rate climbs
COF -0.57%
Jan. 24, 2023 4:55 PM ET
AT&T earnings preview: It’s all about the cash flow
T +0.31%
Jan. 24, 2023 4:54 PM ET
2 Comments
AT&T (NYSE:T) reports its earnings before the market opens on Wednesday, and plans a conference call to discuss them at 8:30 a.m. ET that day.
All eyes will likely be on its dividend, at least indirectly – in this report, by way of heavily anticipated forecasts for free cash flow.
It was a resized dividend that hit AT&T in 2021 as it announced its spin-off of WarnerMedia to merge with Discovery. As AT&T chief John Stankey said then, “you have to resize the dividend when you change the size of the company.”
Last summer AT&T cut its free cash flow forecast amid the economic slowdown, after a tepid first half brought in a $4B figure there – and investors automatically connected the dots with a potential threat to their dividend. Third-quarter results brought the same focus.
Now it’s set to provide its first full-year outlook since the media spin-off.
The company faces a multitude of costs – not only its key dividend, but also some $20B-plus in capital spending and a pile of debt to pay down – so for Wednesday’s earnings, AT&T’s free cash flow expectations are a bit of a wild card and have a good chance of driving the stock following the report.
Last summer, as AT&T reined in second-half 2022 cash flow expectations, it had said there was no change to its forecast for 2023 cash flow of $20B; analysts now have settled on $16B as the likely 2023 figure, with any strong departure in either direction serving as tea leaves for AT&T’s investors.
Where analysts fall on that question depends on how they see the cash flow going as well. Wells Fargo’s Eric Luebchow thinks that recent lowering of expectations for free cash flow suggests AT&T could see upside there (with help from wireless service revenue growth, along with a better balance sheet).
Seeking Alpha contributor Matthew Smith says the free cash flow forecast “impacts everything AT&T does; from wireless, to fiber and buying back debt.”
Consensus expectations are for AT&T (T) to post earnings per share of $0.57 on a normalized basis, on revenues of $31.34B (which would mark a year-over-year decline of 23.5%).
Those numbers have actually seen more revisions higher than lower over the past few months: Analysts have revised EPS expectations upward 17 times in three months vs. just three downward revisions.
Oil slips to lowest level in nearly three weeks on global economic concerns
USO -1.79%
Jan. 24, 2023 4:35 PM ET
7 Comments
Crude oil pulled back Tuesday from recent gains that lifted prices to their highest in two months, as some energy traders remain skeptical about the speed and strength of China’s economic reopening.
In the U.S., business activity contracted in January for the seventh straight month, although business confidence strengthened as the new year began.
Front-month Nymex crude (CL1:COM) for March delivery settled -1.8% to $80.13/bbl, and March Brent crude (CO1:COM) closed -2.3% to $86.13/bbl; also, February Nymex natural gas (NG1:COM) ended -5.5% to $3.258/MMBtu.
Energy (XLE) was among Tuesday’s poorer performers on the S&P sector standings, -0.4%.
ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (DBO), (DRIP), (GUSH), (USOI), (NRGU)
J.P. Morgan raised its outlook for Chinese crude demand but maintained its forecast for a 2023 price average of $90/bbl for Brent crude.
“Absent any major geopolitical events, it would be difficult for oil prices to breach $100 in 2023 as there should be more supply than demand this year,” the bank said.
OPEC+ is expected to leave production levels unchanged when the group meets next week.
U.S. crude stockpiles rose 3.4M barrels last week, API says
USO -1.79%
Now!
The American Petroleum Institute reportedly shows a build of 3.38M barrels of oil for the week ending January 20.
Gasoline inventories reportedly show a build of 620K barrels, distillate inventories show a draw of 1.9M barrels, and stockpiles at the Cushing, Oklahoma, storage hub show a build of 3.9M barrels.
The U.S. Energy Information Administration will release its weekly petroleum supply data on Wednesday, with analysts forecasting the report will show a 100K-barrel increase in domestic crude supplies and a 1M-barrel gain for gasoline, according to a survey by The Wall Street Journal.