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It’s all about earnings!  

OK, so let’s say it like it is… someone is not telling the truth or someone just can’t do the math OR someone just wants to look good. For months now we have been told NOT to expect positive earnings announcements for the 3rd quarter in 2019.

During the last couple of weeks, it was all about how the global slowdown, or elevated trade tensions, or geo-political BS, or exploding oil fields and tankers would cause earnings to plunge!  Negative 4.2% year-over-year was the number being bandied about. In yesterday’s letter, I outlined the expectations by sector. Financials were expected to come under pressure — lower rates, squished margins, less net interest income, etc. So what did we see? Strength in numbers.

Yesterday was a big day for earnings. First the banks: JP Morgan, Blackrock, WFC, and C all reported yesterday. And guess what? JPM and BLK crushed it, C and WFC were inline and GS missed. Now the GS miss can be attributed to the massive money they are spending to become more like JPM and while they punished GS at first, by the end of the day investors reconsidered the early moves and closed it higher. And while these reports do not speak to the broader banking sector, they do help to set the tone.

And then we got some healthcare reports. UNH (United Health) and JNJ both reported “better than expected” earnings. Both of these reports are important as well because not only did they beat the estimates, but they both RAISED forward guidance. This sparked a rally in other names in the group. By the end of the day, UNH rose 8.2% and JNJ was ahead by 1.6% Remember, the healthcare sector (XLV) has been under pressure during the start of the election cycle as Democrats take aim at reforming the industry and JNJ is up to its eyeballs in litigation.  

After the bell, UAL (United Air) reported and beat and also RAISED guidance going forward, citing a surge in bookings — and this despite the grounding of BA’s 737 MAX which makes up a portion of their fleet…

And while it is still early in the season, it does not feel like the disaster that the street has been preparing us for.  Of the 35 or so companies reported to date, 90% of them have beaten and made positive forward guidance comments and as we move through the next three weeks, it just feels like the season will not be as bad as feared. By the end of the day, the Dow added 237 pts or 0.89%, The S&P was ahead by 29 pts or 1%, the Nasdaq rose by 100 pts or 1.2% and the Russell added 17 pts or 1.2% taking all of these indexes within a chin hair of their yearly highs. So what’s next?  

Overnight, we see a bit of caution as we await the next batch of earnings: IBM, NFLX, BAC, PNC, ALLY, ABT and PGR all due out before the opening. In addition, economic data today includes Retail Sales and exp of +0.3% – and this will be the number to watch as well as it speaks directly to the consumer and how that consumer is feeling. If yesterday’s reports are any indication at all, the Consumer if feeling just fine.  

US futures are off just a bit, but that is no reason to start that negative story. The markets have surged in the past week, adding 5% as we enter earnings season. As the sun begins to rise over the Atlantic, Dow futures point to a loss of 68 pts, the S&P is lower by 11 (3000 appears to be a level of resistance), the Nasdaq is lower by 23 pts and the Russell is off by 4 pts.  

Look, you aren’t going to get away from it: It’s all about earnings and will be for the next 3 weeks. Economic data will play a supporting role while talk of impeachment and other geo-political drama will be nothing but noise. The S&P did rise up and thru 3000 (a psychological number) but could not hold above it.  By the end of the day, the S&P ended at 2995 and appears to be struggling with that level for now. Mixed earnings in the days ahead (if that is true) will see the markets churn and back off a bit as we have been discussing. My sense is that we are in the 2940/3000 range for now but could attempt to test the recent lows of 2867 — or very near the long term (200-day moving average) before earnings season is over. But I suspect that we will rally into year-end as the predictions for a strong holiday season sets the tone.

European markets are all a bit lower, again taking a breather after the recent 6% surge during the past 2 weeks. BREXIT is once again at the top of the list in Europe and the UK as the clock ticks. Differences over terms between the UK and the EU have supposedly narrowed a bit and raise hopes that the two-day meeting in Brussels that begins on Thursday will produce an agreement. Oct. 31 is now 15 days away and UK PM BoJo is insisting that it is make or break for a deal. Economic data in Europe includes Italian Industrial Production orders for August, Italian inflation data and UK inflation data.  FTSE -0.12%, CAC 40 – 0.26%, DAX – 0.27%, EUROSTOXX -0.11%, SPAIN – 0.38% and ITALY -0.05%.  

Oil continues to tease support at the $52 level as OPEC hints of further cuts to help support prices. Some strategists see it building a bottom right here as easing trade tensions are helping to restore demand. And while we won’t get any big deal, the risk of increasing tensions is clearly fading. Analysts all agree that any deal that avoids a “no deal” should also help to boost demand and economic growth, causing oil prices to rise (or that is the hope).  

Take good care.


Linguine with Shrimp, Tarragon & Arugula

For the dish you need:  Olive oil, shallots – sliced, garlic – sliced, 1 pound of cleaned large shrimp, S&P, 6 roma tomatoes (chopped), white wine, chicken stock, fresh chopped tarragon and fresh chopped arugula and mascarpone cheese.

Bring a pot of salted water to a rolling boil

For the dish – You want to heat some oil over medium-high heat in a large sauté pan. Add the shallots and garlic and cook, stirring frequently, until soft.

Season the shrimp with salt and pepper and add them to the skillet. Cook until the shrimp are pink and cooked through about 3 to 4 minutes.

Remove the shrimp – Set aside.

In the same skillet, add the chopped tomatoes and season with salt and pepper, to taste. Cook over medium-high heat until the tomatoes start to soften, about 4 minutes. Turn the heat to high. Add ¼ cup of wine and scrape up the brown bits that cling to the bottom of the pan with a wooden spoon. Cook for 2 minutes. Stir in a ¼ cup of the stock and cook until most of the liquid has evaporated, about 2 minutes.

Remove the pan from the heat and add the tarragon, arugula, mascarpone cheese, and shrimp. Stir until the mixture is creamy. Season with salt and pepper, to taste.

Cook the pasta – until al dente and then add to the large skillet and mix well.  Serve immediately – I would also have fresh grated Parmegiana cheese available – you know me – I can never have enough cheese.

Buon Appetito.