Markets Surge to New Highs, Forward Guidance Continues to Impress

What You Need to Know Today

• Markets surge to new highs

• Earnings continue to impress

And it’s a record close for the S&P and Nasdaq…while the Dow is just points away….the Russell 2000 remains 9% below its September high – giving some analysts/strategists continued reason for caution.   Now don’t get me wrong…..I am not throwing cold water on this move at all, I am just pointing out that while the broader mkt has surpassed its prior high – the US centric small cap/ mid cap names are lagging still and that does suggest that some level caution.  That being said – the mood was one of celebration as the S&P busted up and thru its prior record to end the day at a new record.  Now I will be the first one to say – that I did not think it was going to happen yesterday morning.  In fact, I thought we were going to get stuck at the 2915 level – although I did point out that IF the tone turned more positive ….off we would go…… in my note yesterday I said

“Look for the S&P to remain in the 2900/2915 range – a spectacular set of reports could ignite that move up and thru 2915 – but my sense is that there is plenty of supply – but if the tone turns more positive – then expect the algo’s to cancel inline supply – leaving a void which will allow the mkt to surge…But it just doesn’t feel like it today

It was – as Larry Fink – pointed out on CNBC last week – a ‘melt up’ of equity prices.  By about 9:45 am – we were testing 2915 only to back off for a couple and then BOOM – by 10:02 it was off to the races – strong earnings from KO,  VZ, NUE, TWTR, LMT, UTX and 30 more setting the tone…….as the algo’s went all in – the inline supply cancelled off the book – leaving a void in supply – allowing for the melt up - and that is how the story gets written….Don’t forget – that this move did not happen in a vacuum…it happened because the FED became a bit more accommodative – after the end of year meltdown – when Fed Chair  Jay Powell told the world that they (the Fed) would hold rates steady and that the expected moves higher were off the table (at that moment) – and that move laid the groundwork that set this into motion……additionally – the macro data did not weaken the way so many had feared, in fact there is this new – yet cautious - optimism surrounding the US economy and that is evidenced by the lagging Russell 2000. 

We are now in a different place….clearly having broken out of the 2850/2915 trading range….we are now at new highs and new highs beget new highs…and with nothing to gauge ourselves on – you have to depend on the trendline to give you guidance and it looks like 2955 ish is a fair bet, but we still have plenty of earnings to get thru and plenty of forward guidance to listen to.  Today we will hear from TMO (they beat) $2.81 vs. $2.73), ANTM (they beat $6.03 vs $5.84), while T missed $0.64 vs. $0.85.  And that is only a taste – clearly more of the reports are beating -as we are now at 80% of reported companies have beaten their estimates, well ahead of the usual 73/75% of companies that report. 

Overnight Asian mkts were mixed…..I mean they did not just jump on the band wagon…mkts in Asia are struggling with the recent spike in oil prices, as well as trying to understand the next move by the Chinese gov’t  - will they remain accommodative or will they begin to scale back on stimulus and focus on de-leveraging.  Japanese automaker Nissan slashes full year guidance by 45% - which is not good.    Australia was a standout – rising by 1% as inflation data in that country came in at a record low  1.4% y/y – prompting many to suggest that the next move by the RBA is to cut rates Rob Carnell – Chief Economist and head of research at ING had this to say –

“ “Australian inflation shows no signs of coming anywhere near the central point of the RBA’s 2-3% range, and we are biting the bullet and changing our ‘on-hold’ call for the RBA to a cut, possibly as early as the 7 May meeting,”

By the end of the day – Asian mkts looked like this:  Japan -0.27%, Hong Kong -0.53%, China +0.28% and ASX +0.99%

In Europe – mkts there are also a bit mixed – trying to take in and digest higher oil prices, accommodating central banks,  mixed macro data and mixed corp earnings…..….the cut by Nissan is causing a sympathy trade for the European automakers – Fiat Chrysler, Valeo and Renault. – all down by more than 1%.  And energy – remains another concern….as spiking prices begins to take its toll on investor psyche. As the morning fades to afternoon mkts remain mixed. FTSE -0.26%, CAC 40 + 0.02%, DAX + 0.85%., EUROSTOXX +0.25%, SPAIN -0.206% and ITALY -0.47%.

US futures are essentially flat after yesterday’s surge….Dow futures are up 25 pts, S&P are up 1, Nasdaq futures are adding on 10 while the Russell is struggling at less than 1 pts. News hits the tape that Occidental Petroleum is making a $76 bid for Anadarko – clearly now getting into a fight with Chevron whose bid is well below that at $65/sh.  Expect the energy sector to be busy today.  As we have been saying – the focus will be on earnings and today we get another shopping bag full of them.  SWK, APD, DPZ, GD,BA, KNX, TMO AND ANTM to name just a few…and while the mkt has run and tested record highs -it does need to consolidate – all of (or most of) the good news is baked into the mkt – positive forward guidance has caused individual names to be rewarded and the broader mkt to be rewarded.  All of the indexes are now up strong double digits…The Dow up 14%, the S&P +17%, The Nasdaq is up 22% and the Russell is up 17.5%.  – so do not be surprised to see the mkt trade sideways now.

Oil – which has been a story of late -is off its 6 month high as the IEA (Int’l Energy Agency) says that not only are the mkts well supplied but that ‘global spare capacity remains at comfortable levels’.  They also said that US Crude stock ROSE by 6.9 mil barrels last week -so that is taking some of the wind out of the sail.  That being said – oil is still trading at $66/barrel – up nearly 44% since the start of the year. While we would like to think that the Saudi’s will ramp up production to fill the void created by the sanctions on Iran and Venezuela, as well as the ongoing conflict in Libya – they have not said anything.  I would expect that OPEC and Russia will stick to their plans until the June meeting.

 

Risotto w/Fava Beans

Risotto is always an easy meal and is good for those who are vegetarians and or need to be gluten free.  This one celebrates the spring with fresh fava beans enhanced with pancetta.  – Truly a great dish.

For this you will need:  Butter, Olive Oil, Finely Chopped Onion, Finely Chopped Pancetta, Arborio Rice, White Wine, 6 Cups Vegetable or Chicken Broth, Fresh Shelled Fava Beans, Frozen Peas,  Chopped Parsley, Grated Pecorino Romano Cheese.

Begin by heating the butter and olive oil in a heavy saucepan.   Add the onions and cook until translucent.  Add the pancetta and sauté for 3 or 4 mins…. Add the rice and stir until it is well coated.  Next add the wine, and stir continually over medium heat until it is absorbed.

Once absorbed add in a ladle of hot broth – stirring constantly until absorbed…Repeat - adding ladles full of hot broth, and stirring continuously.   About 10 minutes into the cooking time, add the fava beans and peas and continue adding broth and cooking. You want the rice to be firm to the bite – but not hard.  Remove from the heat, add another dollop of butter and the pecorino cheese. Serve in warmed bowls and enjoy with your favorite white wine.