The S&P closed at 2656.30 – So today’s circuit breakers are:
Level 1. 185.99 pts (7%) or 2470.88
Level 2. 345.40 pts (13% total) or 2311.47
Level 3. 531.37 pts (20% total) or 2125.50
Stocks go up and they go down…and on Friday – they went down again; trading volumes were the slowest of the year – causing gaps in liquidity…. …. The Dow gave up 122 pts, the S&P weakened by 7.69 pts and the Nasdaq lost 33 pts as the week ended and investors remained concerned about what conflict may or may not happen over the weekend…. By now we know that on Friday night at about 10 pm est - the US and the allied forces sent 105 missiles to Bashar al Assad - for his use of chemical weapons in the city of Douma last week. More to follow.
The challenge of late has been all the noise coming out of DC…. whether it is fear of a trade war, or conflict in the Middle East, or a flattening yield curve – suggesting a looming risk of a recession but now the quarterly ‘beauty contest’ has begun – so traders and investors will have more micro data to focus on…and on Friday – it was all about the big banks….
The first of the big investment banks reported ‘great numbers’ all of them exceeding expectations (you can’ t be surprised) yet those same stocks sold off...... The bank’s big gains failed to impress anyone...... Better loan numbers, better trading numbers and lower tax rates all contributing to the stronger earnings – yet the tax reform benefit is already backed into the reports so investors want to hear more…......so then what happened? The banks were supposed to set the record straight and send the mkt higher so how come the mkt sold off and how come the bank stocks sold off?
You can blame geo-political events for the overall mkt performance and you can blame forward guidance and weakening loan growth for the weakness in the banks…. So, we saw JPM fall 2.7% after reporting a 35% increase in net profits... we saw C - give up 1.5% after their net income rose 13% y/y, we saw PNC financial fall 4.4% after reporting a 16% rise in earnings and we saw WFC drop 3% after reporting a 5% increase in profits - BUT to be fair - they did also say that they may have to restate those numbers due to a potentially large $1 bil regulatory settlement.
Now - all sudden - the talk is that lower tax rates will leave companies with more cash on hand REDUCING the need for those same companies to go to the big banks for loans (think weaker loan growth) .... Really? You mean that analysis didn’t exist last week? That’s a stretch - Are they really ‘suggesting’ that the economy is weakening a bit – which is reflected in the flattening yield curve - and THAT is what will cause the weaker loan growth or are we supposed to believe this whole tax reform story? Whichever story you believe - you believe so now what do you do? Look financials as a group have been lagging and are now in the Underperforming & Improving quadrant using the O’Neil methodology and while the sector appears to be consolidating – it might be time for the long-term investor to pick his spots - remember - financials tend to do well when inflation begins to kick in and rates start to rise... both of which are happening right now. So as the trader types unload - you must ask - does this create an opportunity? A look at the XLF - $27.46 – shows that it has held tight during the past month between support at $26.86 and resistance at $28.29 and a move into the Outperforming & Improving quadrant would clearly signal better days ahead
And so, it is……now the challenge in the next 3 weeks is for investors/traders to separate the earnings reports from the geo-political events as they analyze and dissect the strength of the reports vs. the strength of the economy and that is exactly what happened on Friday. What we need is for companies to beat the number AND project upbeat forward guidance. And while lower tax rates are good - we need to see top line revenue growth and better metrics on guidance.
The industrial names – represented by the XLI – have also come under attack because of a potential trade war between the US and China - but industrials also tend to do well in a rising rate and rising inflationary environment - if those data points are rising due to a stronger economy - so if a trade war doesn’t materialize and we don’t enter a recession then we could see those names bounce back quickly - so keep your eyes on those earnings as they will tell the story. Concern over a trade war is sure to be the underlying message - but we know that.
Tech – XLK remains in the Outperforming & Improving quadrant and looks like it is about to break out of resistance at $66.75…. a move up and thru could see the XLK attempting to retake the March highs of $71 ish and after all the drama around FB and data security that concern appears to be fading a bit – so any rally in the broader mkt will certainly take tech with it.
Earnings today include BAC and expectations are for them to report 59 cts/sh and they BEAT IT at 62/cts/sh citing gains in equity trading – like the rest of them….…. that stock is now trading up 20 cts in pre-mkt trading. Recall that the stock lost 2.7% on Friday with the group. NFLX is also due to report today – exp of 63 cts/sh and the stock is rallying ahead of that report currently up 6 pts…. adding to the feel-good mood this morning in the broader mkt.
Eco data today includes – Empire Manf of 18.6 – which would be down from last month, and Advanced Retail Sales m/m – exp of +0.4%, ex Autos and Gas of +0.2%,
We will also get a slew of reports about Credit card charge off from BAC, JPM, AXP, SYF, ADS,
So – it appears that the world is not concerned about the allied strike on Syria Fridayevening….in fact – the mkts while mixed are not collapsing at all….US futures are in fact up 16 pts in early trading….as the dust settles. The lack of a Russian response and the fact that the strikes were ‘targeted’ and limited to chemical weapons facilities suggest a reduction in potential risks – and so stocks around the globe are focusing more on fundamentals.
Asian mkts ended the day mixed -but appeared to be more concerned about trade tensions than any bombing in Syria. The start of earnings season is causing investors there to focus on the micro data as well. Banks and manufacturers a bit weaker, tech mixed and utilities and pharmaceuticals showing strength. Japan +0.26%, Hong Kong -1.6%, China – 1.6% and ASX +0.21%.
European mkts are a bit lower – there is more concern over proposed US sanctions on Russia for their support of the Assad regime in Syria. Look – Russia did not respond in kind against the allied forces, but he did say that ‘further attacks on a war-torn country could bring chaos to world affairs’ and that is causing a bit of angst across the European continent today – but nothing dramatic – at least not yet. FTSE – 0.39%, CAC 40 - 0.13%, DAX – 0.06%, EUROSTOXX – 0.17%, SPAIN -0.08% and ITALY + 0.03%.
As noted – US futs are spiking higher + 15 pts trading at 2671 after the weakness on Friday…. again, the lack of a response from Russia has relieved some of the pressure that we experienced on Friday afternoon. Eco data today and earnings will be the focus… We have two Fed speakers today…. Atlanta’s Bostic and Dallas’s Kaplan – neither will be a mkt mover by any stretch.
So, the SPX is in a funny place…. the 50 dma has pierced the 100 dma on the downside – yet the index looks like it wants to push up and thru resistance at 2689…. this will be KEY…. if we try and fail then a test of support at 2600 is in the cards, but if we test and pierce it – then watch as the mkt attempts to surge towards 2800 in a show of force. It is all about the earnings right now….
Breaded Pork Cutlets Bathed in White Wine
Preheat the oven to 350 degrees.
This is also an easy dish to make and one that will become a family favorite. For this you need – boneless pork cutlets, eggs, seasoned breadcrumbs, flour, butter, white wine and chicken stock.
Begin by rinsing and patting dry the pork cutlets. Set aside. In a bowl beat 5 eggs – set aside. In a large bowl – add the breadcrumbs – season with pepper, onion powder, garlic powder, and 2 handfuls of grated parmegiana cheese. Mix well and smell the breadcrumbs – how great is that? Ok. So now make a production line.
First Cutlets, then the bowl of flour, then the eggs, and then the breadcrumbs. Dredge the cutlets in the flour, dip in the eggs and then in the breadcrumbs – set aside and repeat.
Next – melt ½ stick of butter and a splash of olive oil in a large nonstick frying pan. When hot – sear the cutlets on both sides until the breadcrumbs form a crust – maybe like 4 mins per side. Place in a pyrex glass baking dish. Next – add some white wine to the pan and deglaze – Now add some chicken stock – enough that when you add to the baking dish – the cutlets are bathing – do not cover them in the liquid.
Now cover the dish with tin foil tightly and place in the oven for 30 mins or so.
Remove and serve with a side of roasted butternut squash and a large mixed green salad with sliced tomatoes, red onions, cucumbers – maybe add a couple of sliced bocconcini (those bite size mozzarella balls). Dress in a champagne vinaigrette. Simple, easy and soon to be a family favorite.
Information and commentary provided by ButcherJoseph Asset Management, LLC (“BJAM”), are opinions and should not be construed as facts. The market commentary is for informational purposes only and should not be deemed as a solicitation to invest or increase investments in BJAM products or the products of BJAM affiliates. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. There can be no guarantee that any of the described objectives can be achieved. BJAM does not undertake to advise you of any change in its opinions or the information contained in this report. Past performance is not a guarantee of future results. Information provided from third parties was obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness.
Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will be profitable. The price of any investment may rise or fall due to changes in the broad markets or changes in a company’s financial condition and may do so unpredictably. BJAM does not make any representation that any strategy will or is likely to achieve returns similar to those shown in any performance results that may be illustrated in this presentation. There is no assurance that a portfolio will achieve its investment objective.
Definitions and Indices
The S&P 500 Index is a stock market index based on the market capitalization of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard & Poor’s.
UNLESS OTHERWISE NOTED, INDEX RETURNS REFLECT THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS, IF ANY, BUT DO NOT REFLECT FEES, BROKERAGE COMMISSIONS OR OTHER EXPENSES OF INVESTING. INVESTORS CAN NOT MAKE DIRECT INVESTMENTS INTO ANY INDEX.
BJAM is an investment advisor registered in North Carolina and Arizona. Such registration does not imply a certain level of skill or training. BJAM’s advisory fee and risks are fully detailed in Part 2 of its Form ADV, available upon request.