This past week was the definition of “consolidation” – a period of very little movement and volatility after a large move up to work off overbought conditions. A slight gap up Tuesday was about it in terms of excitement for the week. Bulls remain in full control.
We are in the midst of earnings season – it is not a great one but companies have lowered the bar enough that they will “beat”, everyone will clap and cheer, and we continue on.
The first-quarter earnings outlook has improved somewhat, according to CFRA, which said consensus estimates now call for a 2.3% fall in first-quarter operating earnings a share. That is up from the call for a 3% drop ahead of the kickoff of earnings season, but down from the 4.5% increase projected at the end of last year
“The market is completely focused on earnings,” said Eric Kuby, chief investment officer for North Star Investment Management. “Companies really lowered their guidance coming into earnings season, and we’re getting to the point where companies are doing a good job of stepping over that lowered bar.”
“It’s still much too small a sample size to generate conclusions, but the bottom line is that earnings season is not off to a very good start,” wrote Tom Essaye, president of the Sevens Report in a research note. “While stocks are looking past that courtesy of dovish Fed speak and hopes of better global growth, earnings will need to get better during the next two weeks—because so far the results, while not a disaster, aren’t that great.”
Not much on the economic front that the market cared about. Here is some data regarding the Fed’s Beige Book:
Most of the 12 districts monitored by the Fed showed economic activity grew at a “slight-to-moderate” pace in March and early April, according to the central bank’s Beige Book compilation. However, retail and automobile sales were sluggish while the labor market remained tight, increasing upward pressure on wages, indicating conflicting views on the economy depending on the sector.
Retail sales also came out Thursday to the tune of a rise of 1.6% in March, beating consensus estimates. The increase was driven by a 3.5% rise in auto sales, but even with autos and gas stripped out, sales rose by 0.9%, after February’s 0.4% decline.
For the week, the S&P 500 fell 0.1% while the NASDAQ gained 0.2%.
Interesting rally in the housing ETF (ITB)!!
Here is the 5 day weekly intraday chart of the S&P 500 … via Jill Mislinski.
The week ahead…
Earnings will continue to be hot and heavy with many of the big names familiar to the retail investor hitting in the next few weeks. The first read on quarter 1 GDP will hit Friday – analysts are expecting something in the range of mid 1% growth.
That yield curve inversion everyone freaked out about a bit ago has reversed. For it to be a “recession indicator” people look for it to stay in inversion for 10 days.
Short term: The S&P 500 and NASDAQ are both just a tad below fall 2018 highs.
The Russell 2000 fell back below the 200 day moving average Wednesday – this continues to be the worst index as it has been for much of the past 2 years.
The NYSE McClellan Oscillator flipped back red Thursday – we will see if that continues or it’s just a blip.
Long term: Things are definitely looking up again.
Charts of interest / Big Movers:
Monday, Advanced Disposal Services (ADSW) surged 18% after Waste Management (WM) said it entered into an agreement to buy the rival waste company in a $4.9 billion deal. Waste Management will pay $33.15 a share in cash for Advanced Disposal stock, a 22.1% premium to its Friday closing price.
Tuesday, Qualcomm (QCOM) soared 23% on news that it reached a deal with Apple to drop all lawsuits, with Apple paying an undisclosed sum in the settlement. They rallied another 12% Wednesday.
Bank of New York Mellon (BK) slumped 9.5% Wednesday after the financial services company reported sharper declines in first-quarter sales and profits than Wall Street had expected.
Thursday saw the debut of Pininterest (PINS) which soared 29% on its debut in the market after pricing its initial public offering higher than expected, raising more than $1.4 billion and valuing the company at more than $12 billion.
Zoom Video Communication (ZM) which reportedly priced its IPO above its stated range as well, surged 72%. Pretty interesting a small video conference company can be worth so much but that’s the market for you.
Zoom posted a loss of 11 cents a share on revenue of $151.5 million.
Have a great week and we’ll see you back here Sunday!