Tuesday, April 14, 2020

The Morning Call--Earnings season starts today but the results will likely be ignored


The Morning Call

4/14/20

The Market
         
    Technical

The Averages  (23390, 2761) sold off yesterday but closed well off their lows.  The good Market news is that  (1) new higher lows have still been set, leaving the possibility that a bottom has been made, (2) both of the indices have reset their short term trends to trading ranges [18210-29540, 2188-3398] and (3) both remained above the lower boundaries of their very short term uptrends.  The next visible resistance levels are the 100 and 200 DMA’s.

            Counterpoint.

            Have we put in a bottom?

TLT and UUP  traded lower; but their technical pictures were unchanged.  On the other hand, GLD once again soared (on volume), finishing above the upper boundaries of its very short term and short term uptrends.  Clearly, it needs to successfully challenge those boundaries for this move to have any technical significance; and, as you recall, it has tried three times to do so and failed.  Still, if this challenge is successful, it suggests that investors have added a new element to the Fed ‘put’---inflation.
           
            Central banks continue to add to their gold reserves.

            Monday in the charts.

   Fundamental

       Headlines
           
            No data releases yesterday either here or aboard.

            Update on ECRI weekly leading index.

            The crisis is over but at a terrible cost.

            How big the deficit?
           
The coronavirus

            Five lessons from WWII.

            Three waves of the 1918-20 flu epidemic.

            Study reveals biggest coronavirus factor leading to hospitalization

            Morgan Stanley on the likely course of the coronavirus.
                           
             Governors planning to reopen their economies.

            The economy is now a sausage factory.
           
            The Fed
           
            Guess who the Fed is helping.

            As you might guess, I disagree with some of this narrative (i.e. the Fed is somehow not responsible for the mispricing of risk); but I include it to present the counterpoint.

            Bottom line: money solves a lot of problems, especially when there is a lot of it.  And it appears that the Fed is determined to ensure that there is a lot of it and that nothing will stand in its way to keep it that way.  In short, the Fed ‘put’ is alive and well.  If investors embrace it as enthusiastically as they have previously, the bias in stock prices is up.  However, as I have noted previously, I am not chasing stock prices to the upside.

                        Today starts first quarter earnings season which means we will begin to see the impact of the coronavirus/government reaction on corporate earnings.  No one is expecting anything positive.  Indeed, the debate is just how bad profits will be.  I think most of Wall Street has already written off 2020 earnings and is now focused on the length and magnitude of an earnings recovery.  In short, unless figures released are an unmitigated disaster, I don’t see stocks selling off.  Forward guidance will be much more important along with the rapidity with which the Fed juices the money supply.

    News on Stocks in Our Portfolios
 
Johnson & Johnson: Q1 Non-GAAP EPS of $2.30 beats by $0.30; GAAP EPS of $2.17 beats by $0.74.
Revenue of $20.69B (+3.3% Y/Y) beats by $1.21B.

Economics

   This Week’s Data

      US

            March import prices fell 2.3% versus expectations of -3.2%; export prices declined 1.6% versus -1.9%.

     International

            The March Chinese trade balance was +$19.9 billion versus estimates of +$18.55 billion.

    Other

What I am reading today

           

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