Good morning contrarians!
Stock futures are down as of 0630, but not as much as they were earlier in the overnight session. The Nasdaq, which was off 2% at one point, is now down 0.6% with Dow Industrials and S&P 500 down a little less than that.
Twitter is up about 2% in the pre-market after the company adopted a poison pill to ward off Elon Musk’s efforts at taking it private. Other active stocks this morning include travel companies (Delta Air Lines (DAL) and Carnival Corp (CCL) seeing some selling) and Colgate-Palmolive (CL) and Eli Lilly (LLY) which are up 3% each.
Bonds are selling off, with the yield on the 2-year up about 5 basis points to 2.49% and the 10-year up 6bps to 2.87% (yields move inversely to prices). That’s a multi-year high for the 10-year. The 2-year is still off about 11 bps from its multi-year high set earlier this month.
Commodities are up, with the exception of WTI crude oil, which is flat at $106/barrel. Natural gas in the U.S. up 3%, gold and silver are up 1% plus, industrial metals, and soft commodities are all higher as well.. Cryptos are dropping with bitcoin down more than 3% to trade around $39,000.
Earnings
Earnings season enters high gear this week, with more financials companies reporting today. Bank of America (BAC), Bank of New York Mellon (BK), and Charles Schwab (SCHW) are all due before the open at 0930.
That’s just a warmup as the rest of the week is chock full of major earnings releases: Johnson & Johnson (JNJ), Netflix (NFLX), Tesla (TSLA), Procter & Gamble (PG), United Airlines (UAL), Philip Morris (PM), AT&T (T), Verizon (VZ) are just some of the names worth mentioning.
So far 77% of S&P companies reporting earnings have beaten EPS estimates. But just 7% have reported so far, so it’s early days. And financials have been much more mixed, with Goldman Sachs (GS), JPMorgan (JPM), and Wells Fargo (WFC) falling short of analyst estimates whilst Morgan Stanley (MS) beat earnings.
Perhaps more important than how companies fared over the prior quarter is what they are saying about future guidance. This is especially true where inflationary pressures — surging input costs — are concerned. Some companies are able to pass these on to consumers whilst others may be forced to eat them. The difference between the two may be the key to separating winners from losers this earnings season.
Economic Data Releases
The only noteworthy economic data comes from the National Association of Home Builders, or NAHB, which publishes the Housing Market Index for March, at 1000.
Economists expect this to print at 77, which would the lowest level since last September. From many accounts, the housing market is starting to turn. Mortgage rates are up past 5% (for 30-year mortgages) and that is starting to eat into demand for new homes.
Finally, St. Louis Fed President James Bullard is due to speak at 1600.
The Bottom Line
Futures are painting an ugly picture and the action in bond markets tells us this is still about inflation and interest rates rather than geopolitical concerns. Earnings season will be a welcome distraction to this, but one would think the forward guidance will need to be there for this to lead to any kind of sustained buying.
Other than that Twitter will be good for headlines of course. But the impact on the broader market should be pretty muted there.
Welcome to Earnings Season: Daily Contrarian, April 18