Earnings, Earnings, Earnings
Equities start the day higher after the Cubs win! Cubs win! I’m trying not to get too excited about the prospects of a Cubs pennant because I was there at Game 6 on October 14, 2003. My brother in law had texted me “you are going to the World Series” about 3 minutes before Bartman changed the fate of Chicago worse than that fire. It was a painful night (followed by a painful game 7) so while I’m happy that they won I know that a river has many bends as it travels into the future. Earnings, Earnings, Earnings, that’s the story for the next few weeks. Which is fine, I’d rather talk about corporate cash flows than high yield spreads or China’s export numbers (ugh). What should we expect to hear? Endless complaints about a “Strong dollar”, in fact let’s set a betting line shall we? What will we hear more about in the next two weeks 1) how a strong dollar “impacted our results in a negative way” or 2) the fact that the Cubs won the World Series in Back to the Future 2, which just so happened to take place in the year 2015. Hmmmm…tough one right? I think I’d make option 1 a slight favorite but it might be a pick’em. Retail sales came out this morning and while it was nothing to write home about it was still slightly positive. In fact, Retail Sales hasn’t been negative since February so I don’t understand all the angst. Yes it’s slow, it’s been slow for awhile, but that’s the world we live in. This isn’t the 50s when everyone bought a new TV or the 80s when everyone bought zipper jackets and hairspray, this is 2015 and the U.S. is a slow growth economy. But at least it’s SOME growth so don’t get caught up in too much negativity. A lot of countries around the world would swap their macro picture for ours so let’s keep things in perspective. Anyway, happy for Chicago and their baseball team, who could possibly hate such lovable losers?
After the open, Wal Mart held a rollback sale on its stock. An hour into the session the company issued guidance that was horrendous (2017 EPS down 6-12% vs street modelling up 4%) and the stock got hit for 10%, the worst drop in 15 years. You know the real question is this: has e-commerce reached the tipping point against big box? WMT blames higher wages for part of their guidance but COST pays something like $20/hr on average and seems to do ok? Is AMZN just starting to eat WMT’s lunch? I guess you could also construe this as commentary on a slowing consumer but we’d need to see other companies say the same thing before jumping to any conclusion. Intriguing nonetheless. Tons of other stocks to talk about so let’s not dwell on one thing for too long. TRIP soared 25% after partnering with Captain Kirk, SNDK said “we may need to shop this company” and gained 11%, FCS (not to be outdone) said they may need to shop themselves and rose 15%. Then Analog Devices and Maxim said they were in merger talks. Did I miss the memo on selling semiconductor companies? Hey junior banker working on cash flow modeling for tech companies….remember how jealous you were of your healthcare compatriots? Go cntl-c / cntl –v some headlines on their face. Who were the biggest losers besides the Walton Family? CPHD -19%, CFX -9%, EXAS -6%, and BBY -5%. What about bank earnings? BAC, WFC, and JPM all reported and I don’t know, meh. JPM fell 2% but noted that equity trading was strong. Equity trading you say? I know someone who works in that area who just so happens to be the grayest haired 40yr old on his team! Quite the honor I might add. By lunch we were hovering around unchanged speculating on WMT’s future. I will say this…American icons don’t go gently into that good night. People said MCD was dead because of SHAK and Five Guys and that fact that millennials love burritos. Guess where that stock is now…that’s right…its all time high. Make no mistake, WMT is an American icon, failed retailers like Sears and Montgomery Wards and Woolworths aren’t even in the same league.
The rest of the day saw the market slip slide to close near the lows, 1,992, down 0.50%. Which, to be honest, wasn’t that bad given WMT imploded and a few of the big banks acted blah. Lots of earnings in store this week so stay tuned for further analysis and random commentary. One thing to note before we head home and rake leaves: consumer stocks might be due for their turn in the shed. Both Staples and Discretionary have managed to largely dodge the pain felt in other sectors (they are about 3-4% below their summer highs). Given the news out of WMT it wouldn’t take much more for their pretty boy face to get smashed in. If you are heavy into Consumer you need to tread very cautiously right now, they will be in the bears sights (look at NFLX after hours..)
Final Score: Dow -92bps, S&P500 -47bps, Nasdaq -29bps, Rus2k -95bps (acts poor)
- Succinct Summation of the Day’s Events: Most of the day was spent staring at Wal Mart but we also talked about semiconductors and bank earnings. Market appears to have no direction right now.
- Way past the tipping point: According to a recent Forrester Research study cited by The Wall Street Journal, about 18% of the U.S. population have never signed up for cable TV. In fact, the study reveals that among viewers between the ages of 18 and 31, the number of viewers who aren’t subscribing to cable at all is now greater than the number of viewers opting to cancel their cable.
- Leon Cooperman is bullish! So we got that going for us! Here’s a good stat from him: “This would be the first time the market has peaked before a Fed tightening since 1950.”
- WMT CEO on the U.S. economy: milquetoast. In an interview on CNBC, McMillon was asked to comment on the US economy. He shrugged and said: "It's steady. It's OK."
- Company excuses for missing the number…I love these! Macy's chief financial officer, Karen Hoguet, blamed the company's weakness in the luxury retail market on lipstick and Netflix. During an earnings call on March 26, 2015, Hoguet said, "We did some consumer research, and the customers said, she likes going to the off-price retailers because she doesn't have to put lipstick on." I think after my career at Baird is over I’m going to try and work in IR somewhere. I could come up with some AWESOME excuses. “Well Mr Analyst, someone emptied all our mouse balls out so we couldn’t actually use our computers in the Quarter. Quite the prankster that person was”.
- I must admit, this Spark Gift thing is really great idea. My father in law tried to buy stock for our kids and it got lost when we moved homes. Just a real mess of paperwork and stuff so maybe this alleviates that.
- Housing…..still hot. “Our flooring contractors are having a hard time finding enough guys to lay tile,” said Lance Wright, a partner in CastleRock. “Plumbing is three weeks out. Everything that used to be a three- to five-day lead time is now three weeks to 30 days out.”
- You know…..sometimes you have to wonder about Joe down in Marketing…
- Edinburgh doesn’t look half bad! Wish I got to travel there.
- A few people on Wall St give their best advice: David Schawel, vice president and portfolio manager at Square 1 Bank: “I've received dozens of pieces of advice over my career, but a few things stand out. Being the smartest person isn't something to strive after, as there will always be someone, somewhere, smarter. Rather, focus on having intellectual curiosity, a willingness to learn, and an open mind about what areas of the market are interesting”.
We’ll end tonight with some Pool Trick shots. Haven’t featured these in a while and they are always fun to watch.
Have a good night.