The Ride Continues - Focus on Earnings

And the roller coaster continues… In a breath of fresh air - for at least yesterday - the action was NOT driven by Vlad, Bashir (al Assad), Chubby (Kim Jung On), Donny (Trump), Xi Xi (Jinping) or any of the other 'heads of state' nor was it driven by Auntie Janet (Yellen), Uncle Mario (Draghi) or Cousin Haruhiko (Kuroda) or any other global central bankers.......Mkts and investors/traders reacted to the micro data (earnings) as the Geo-political and central bank tension was remanded to the back burner.....

The DOW lost 138 pts yesterday while the S&P struggled all day to hold the unchanged line only to fail in the final hr falling 4 pts by the time the final bell rang.  The Nasdaq managed to rally 13 pts - (note that IBM is NOT a member of this index - thus its loss was reflected in the DOW not the tech index know as Nasdaq).   Small caps/Mid caps represented by the Russell also managed to buck the trend and add on 5 pts.......while the Transports also showed life by gaining 43 pts...so it is a tangled web we weave.....what is all this action really telling us? 

 IBM (a Dow 30 component)  disappoints and drags the Dow lower, MS (an S&P 500 component)  beats  - specifically where GS failed (Fixed income), reported revenues that almost doubled at $1.7 bil  allowing that stock to gap UP by $1.60 or so....Blackrock (BLK) – the firm that announced that they are replacing human  portfolio managers with ‘Watson’  saw their assets rise to $5.4 TRIL as profits surged by 30%.....noting that ‘investors seeking our lower cost funds that track the performance of indexes’ – think ETF's – as being responsible for the surge in growth and profits……remember they are in the middle of an overhaul – and while Larry Fink is trying to tell us that that he is NOT laying off human portfolio managers – in fact he is...as the WSJ points out – ( I mean  it is not a surprise, it just is what it is…..)

“BlackRock is in the midst of overhauling its stock picking business in an effort that has included layoffs, pricing changes and a greater emphasis on computer models that inform investments…...The firm is working to mitigate outflows in problem areas and bring new money in areas that have delivered more consistent performance.......BlackRock as part of its overhaul, will be offering its Main Street Customers lower cost quantitative stock funds that rely on data and computer systems to make predictions, an investment option previously available only to large institutional investors” 

BINGO!  What is it that he said?  If we cut thru the BS - it says - Look - artificial intelligence is not so artificial any longer...so we don't need humans to make these decisions.....So we can CUT our overhead and at the same time CUT costs for the client - Everyone WINS! (And Larry goes home with something like $30 mil bucks in stock and cash....)

In the end – BlackRock reports that investors have withdrawn some $6.8 bil from their ‘actively managed funds’ leaving one with the impression that that money has moved into the ‘passive’ funds….Fink went onto note that the ‘quantitative funds’ have had the best performance of any year…

And then at 10:30 the mkt gets hit with the EIA (Energy Information Admin) report said that weekly gas supplies ‘rose’ for the first time since February…this sent the price of oil plunging by $2+ or 3.8%...to end the day at $50.44…the decline in oil then hit the energy names hard….the XLE (Energy ETF) slid 1.4% - making that sector the worst performing sector in the S&P.  And why do we think this is happening at a time when demand should be spiking (think spring/summer)?   Is it more about current demand or is the mkt suggesting the future appears to be under pressure?  (Remember 'expectations?). And If oil prices start to fall again then what will OPEC do?  Will they cut more to help support prices?  Is that really the answer?  (It is kind of like the gov't - as more and more people lose their jobs to automation they raise taxes on those that still have jobs to make up for the decline in revenues vs. taxing those very companies that threw the humans out and replaced them with computers - HEY!  There's a thought!)
 
Is anyone really looking at what is ailing the global economy?  Is the lack of structural economic reforms around the world finally raising its ugly head?  Is there a reason the 1Q US GDP is expected to grow only by 0.6%?  I mean just look around......and see the breakdown’s in the macro data of the US and global economies.  (Macro-economics is the study of the large-scale national productivity and activity - think all of the monthly gov't reports that detail the health of everything from spending to manufacturing that then affect interest rate policy.)
 
With the Fed in a tighten mode right now and banks backing off their lending sharply, the “macro-economy” is now beginning to feel it and that has become evident in the most recent weaker eco reports......

We are at now at the point where investors are really scrutinizing earnings reports relative to what was expected and are now seeing the 1Q reports as history as they are now already wondering what the 2nd Q is going to produce…..…..and remember – the mkt is a discounting mechanism…..it is trading today on what the expectation is 4 – 6 months out…….so a Buy the Rumor/Sell the News reaction is not completely wrong as stock prices have advanced on a range of positive expectations – some that are coming true while some are clearly not….thus investors need to re-price individual stocks as well as the broader mkt….. Recall the start of this rally – Election night 2016……that was 6 months ago already…and for all those ‘expectations’ – that were gonna happen in 2017 – now do not appear as if they will - in fact most of them have been shifted to 2018 and beyond……

Last night after the bell - Amex - reported a decline in revenues and earnings and traders took the stock UP $2 in after hrs trading...WHY?  Well because although they did report a decline y/y - the expectation for the qtr was $1.28 vs. last yrs $1.45... take a look at the stock - it has been in decline for 6 months....as investors tried to reconcile the weaker estimates to reality.....but yesterday when they reported $1.34/sh it represented a BEAT on the estimate...get it?  So traders viewed this as a WIN....besides CEO Ken Chernault re-iterated full yr 2017 earnings of $5.60-$5.80 sh while reminding everyone that 2016 was a year of 'transition' and now Amex is in a stronger position going forward....Everyone gets a trophy!!! 
 
European mkts - are mixed.....Investors are trying to focus on earnings and the macro....but geo-political tensions are once again moving to the front burner as Chubby 'warns of a super mighty pre-emptive strike'  warning the US 'not to mess with us'......Rexy (Tillerson) is working hard at getting China to pressure Chubby to think twice.....but it is getting hot in the kitchen...... FTSE -0.18%, DAX +0.02%, CAC 40+0.73%, EUROSTOXX + 0.42%, SPAIN +0.51% and Italy +0.08%.  

US futures are UP 7 pts as I write this... positive beats from AXP, QCOM and CSX are helping sentiment.......but it is more about the mkt fighting to hold onto its 50 dma at 2355..... Since it broke on the 11th - it has been a roller coaster ride.....while the next real support is at 2300....the mkt is fighting to not break......and we have seen it advance and decline over the past week - with really no move lower or higher....it is resilient for sure....but my sense is that it is exhausted here and will eventually cave and test lower.....if for no other reason than to re-group.  Once support is broken it needs to rebalance and the only way is for it to find its next level of support. 

Take good care -

On a side note - the 11 yr old son of a dear friend of mine who suffers from 'Fragile X Syndrome' will be here  to ring the opening bell this morning....to help raise awareness for this disease.   Fragile X is the most common inherited cause of autism and causes numerous other disorders through a genetic mutation on the X chromosome.  You can find more information at FragileX.org. 
 

Take Good Care
KP

Chicken Thighs w/Pancetta and Balsamic


I figured it is still a game of chicken - so try this chicken recipe tonight.

For this you need:  Olive Oil, Diced Pancetta (Or Bacon),  8 Medium Sized Skinless Chicken Thighs,  Onion, Diced, Garlic Cloves, Peeled & Minced, Dry Red Wine, 1 Can Diced Tomatoes, Tomato Paste, Water, Chopped Rosemary, Chopped Thyme, S &  P,  Red Hot Pepper Flakes (Optional), Balsamic Vinegar,  Chopped Fresh Parsley

In a large heavy skillet, heat the oil over medium heat and cook the pancetta until cooked through and lightly browned, about 5 minutes.  Remove the pancetta to a plate, set aside, and brown the thighs well on all sides, about 10 minutes.  Remove the chicken to the plate and cook the onions until translucent and soft, stirring often, about 5 minutes.

Add the garlic and sauté for 3 mins or so, Add the wine, (about ½ cup) increase heat to medium high heat, and cook just until the wine is reduced by half.

Now add the tomatoes, tomato paste, water, rosemary, thyme, salt, pepper, and red pepper flakes if  you are using.
Bring to a boil, then reduce to a simmer and return the chicken and pancetta to the pot. Cover the pan, and simmer for 20 mins, or until the sauce has thickened, adding additional water as needed if the sauce thickens too much. Taste the sauce, and adjust s&p as  needed. Now stir in about 1 tblsp of  balsamic vinegar – mix well and place the chicken on a platter.

Top with the sauce, then sprinkle with the chopped fresh parsley.

Buon Appetito.

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