What You Need to Know Today

  • Bank earnings send mixed messages

  • Macro data remains steady

  • Fed Governors remain Dovish helping to send mkts higher

Good morning....it's Tuesday, April 16th... the morning after a horrific night in Paris....that rocked the world – the fire and destruction at the historic Notre Dame Cathedral is only beginning to be understood and the people of the world continue to grapple with its devastation – the loss of this historic site can be felt deep within.....and in this time of tragedy (as so many other times) – we see the people of world come together to not only mourn, but to commit to restore and rebuild this iconic and historic piece of history.......and while it may take a decade – the French will persevere and the cathedral will rise again from the ashes......

Stocks ended the day lower yesterday (as the focus remains on earnings) – after having opened lower, trading even lower before trying to stage a comeback rally – as both FED Governors – Evans and Rosengren made dovish comments about inflation and future FED policy – as they tried to stop the bleed...........in the end – it did help to turn the mkt around but failed in their attempt to help it go positive – by end of day........the Dow lost 27 pts, while the S&P gave back almost 2 pts, Nasdaq lost 8 and the Russell 2000 lost 5....all in all – nothing to worry about as investors, traders and algo's try to discern individual earnings reports and what it means for the broader economy and the broader mkt.

It was another day of bank earnings....GS – while beating the lowered estimate – still lost 8 pts or 3.8% after it became clear that 1Q profit fell by 21% y/y and revenue fell almost across all of the product lines.....so then how did they beat on the number? Easy – cost cuts and lower taxes.....but that was not enough to assuage investor concerns at all......CEO Davey Solomon got on the phone and announced to street analysts that GS is in the middle of a ‘multi-year effort to diversify away from trading'.....(almost sacrilegious) as they look to build out their consumer bank, credit card and data services businesses as he looks to create ‘value' over the next year ......Stock trading in particular took a big hit – as revenue plunged by 18%....remember JPM reported a 17% drop in trading revs, while C reported a 5% drop in trading revs....but unlike his cohorts – Solomon pointed out that GS does NOT have big retail & lending books (but that is about to change) leading Davey to release a list of financial targets over the next year – becoming more transparent than GS ever was – causing GS's founders to roll over in their graves... as Davey pled for patience as he tries to create value over the next 4 or 5 qtrs....so will investors embrace him or punish him? On Friday – GS kissed it long term resistance at $208.95.....giving some trader types the idea that on Monday – they were gonna pull a Jamie Dimon – and surge up and thru....but that was not the case – resistance proved to be stronger than he thought – at least for yesterday....and the trader types began the assault.....

Other companies that reported included C, and SCHW – and while both also ‘beat' the number – the overall negative tone for the banks could not be broken.....both lost ground as investors ‘Sell the news'. And while some asset managers want to say – ‘but they beat the number – that's good' you have to ask – How did they manage to do that in the face of declining revenues? And if the reason is because of cost cuts – that is not a growth story at all....that should be a reason for caution as companies struggle with top line revenue growth......

Energy – represented by XLE (Energy ETF) – fell by .6% as the Russians started making noise that they might increase production (as oil has catapulted higher) as they try to regain mkt share....and transports took it on the chin – falling by 0.85% as the airlines continue to sort out the BA issue – as they make clear choices to ground their MAX 737's – resulting in more flight cancellations and confusion.....BA – too – continues to get punished falling by another 1% - taking its total loss to nearly 15% since the late February crash.

(Note that ButcherJoseph Asset Management currently holds positions in GS, JPM, and BA. The discussion above does not affect our current recommendations and should not be construed as a recommendation to buy or sell the securities referenced.)

And while there is plenty of eco data to go around – it is all about earnings....because analysts expect earnings to decline by 4% this qtr – y/y and while the mkt expects it – we won't know what happens until we get further into the reporting season.... And if yesterday' reports were any indication – it doesn't feel very encouraging – causing the general outlook to deteriorate further before the FED speak promises continued support for the economy. And while it has only been two days of earnings – the banking results have been far from overwhelming – in fact you can say that they are more ‘underwhelming'. And if the tone of coming earnings do not change then investors will become frustrated and will begin to put more pressure on the broader mkt. Again – While the macro data points are holding steady – investors want to see positive news in the earnings reports – remember in the face of negative earnings growth this qtr – it is more important that the forward messaging be more upbeat and encouraging.....

Eco data today includes Ind Production – exp of +0.2% and Capacity Util of 79.2 – which would be up from last month and approaching the range (+80) that should ignite more talk of inflationary pressures building....and on that note – we will hear from Dallas Fed Gov Bobby Kaplan at 2 pm..... But no matter what – EARNINGS will remain the focus and today we get numbers from JNJ – they beat – stock quoted up $2....in early trading....BAC just announced and guess what? They beat too.....reporting the consumer banking dept way outperforming – while trading revs dropped 13% in line with the others......Net Interest income – a key measure – rose by 9.7%......in line with both JPM and C – affirming what Davey Solomon (GS) had to say yesterday...... BAC is quoted just pennies higher than yesterday close.....but remember – they took 1% out of BAC yesterday on the back of the GS news.....so the question is – will they punish her again today? After the bell we will hear from NFLX and IBM .

Overnight – Asian mkts surged a bit higher -with China the clear winner gaining 2.7% - more on trade talk than eco data points...Trump now raising some concerns with Japanese Trade and the Japanese Economic Minister is set to meet with Bobby Lighthizer today. Japan +0.24%, Hong Kong + 1.07% and ASX +0.67%.

European mkts are slight higher as they too digest earnings. In Germany – the ZEW index weakened again, but business expectations rose for the 6th straight month. FTSE +0.50%, CAC 40 + 0.07%, DAX + 0.08%, EUROSTOXX +0.27%, SPAIN -0.05% AND ITALY -0.04%

S&P futs are up 9 pts in pre-mkt trading – while the Dow suggests a higher opening of +140 pts, Nasdaq up by 32 pts and the Russell 2000 showing a gain of 5 pts. ....if this holds – then the S&P would vault past its most recent high of 2910 (Friday) – taking it on its way to challenge the all-time intraday high of 2939 – back in October.....If she fails to break out then we could see pressure building as the bulls remain cautious causing the bears to become more aggressive. Either way – the chatter will now move from the banks to tech, industrials, consumers, energy and healthcare in the days ahead....Stay tuned.....

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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.

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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.


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