Thursday 7/18/19=DJIA -16 NASDAQ +13
The market was all over the map today. Gold and Silver stocks were on fire. Netflix got whacked. The U.S. dollar also got whacked. I sent out tweets on the following stocks today: ACST, COUP, PEN, and EADSY. I did a little buying in my premier growth portfolio for new clients.
Here was the mood of the market when it woke and got out of bed this morning.
- U.S. equity futures suggest a third session of declines on Wall Street, down 0.2%, as Netflix plunged 12% AH after posting its first dip in U.S. subscribers in eight years, as well as a big miss in global customer additions.
- The poor start to second quarter FAANG earnings unnerved the tech sector, while reports that U.S.-China trade negotiations are at standstill - due to Huawei restrictions - further weighed on sentiment.
- Be on the lookout today for the next wave of earnings, with reports from UnitedHealth, Honeywell, Morgan Stanley and Microsoft.
- Japan -1.97%.
- Hong Kong -0.46%.
- China -1.04%.
- India -0.70%.
- London -0.43%.
- Paris -0.45%.
- Frankfurt -0.57%.
Here is the current condition of the U.S. economy, however.
- U.S. economy keeps humming along- Beige Book
- U.S. economic activity kept expanding at a "modest pace overall", from mid-May to early July, the Federal Reserve says in its so-called Beige Book report.
- In most districts, sales of retail goods increased slightly overall and vehicle sales were flat.
- Home sales "picked up somewhat," however residential construction activity was flat; nonresidential construction activity increased or remained strong in most districts.
- Manufacturing production was generally flat.
- Employment grew at a modest pace, slightly slower than the previous reporting period.
- Rate of price inflation was stable to down slightly.
- Previously: U.S. economy steps up to modest pace - Fed's Beige Book (June 5)
CSX has a different view of the economy.
- CSX (CSX -10.9%) is by far the biggest loser on the S&P 500 after the railroad posted weaker than expected Q2 earnings and cut its full-year revenue forecast.
- Big losses in rail-related stocks drag the Dow Jones Transportation Index (IYT -3.1%) more than 3% lower: NSC -6.2%, UNP -5.2%, KSU -4.7%, TRN -3.3%, GBX -3.3%, RAIL -2.5%, CNI -1.8%.
- Logistics stocks also are hit after Knight-Swift (KNX -1.9%) warned about earnings, citing oversupply in the freight market: NAV -6%, YRCW -3.4%, CHRW -2.6%, WERN -2.3%, SNDR -2.2%, RRTS -2.2%, SAIA -2.2%, XPO -2%, UPS -2%, FDX -1.7%, JBHT -1%.
- Today's weakness comes after transportation stocks broke out to a two-month high yesterday.
- In CSX's earnings conference call, CEO James Foote called the current economic backdrop "one of the most puzzling I have experienced in my career," which has spanned more than 40 years.
- "Both global and U.S. economic conditions have been unusual this year, to say the least, and have impacted our volumes. You see it every week in our reported carloads," Foote said.
- "On the domestic utility side, our volumes are down relative to our expectations driven by continued lower natural gas prices," executive VP Mark Kenneth Wallace said on the call. "On the merchandise... there are signs of slowing the economic conditions in both IDP and GDP for Q3 and Q4, pointing to a less robust economy in the second half."
I had a brand-new article on CSX published today on Seeking Alpha.
The U.S. job market is still strong.
- Initial Jobless Claims +8K at 216K vs. +215K consensus, 208K prior (revised).
- Continuous Claims: -42K to 1.686M vs. 1.700M consensus, 1.728M prior (revised)
- July Philly Fed Business Outlook: +21.8 vs. +5 consensus, +0.3 prior.
Is Jerome Powell the best ETF salesman of all time?
- Exchange-traded funds have pulled in more than $20B in the first 11 days of July, with most ($16B) going into U.S. equities as investors prepare for a risk-on summer rally ahead of the expected Fed cut at the end of the month, according to State Street Global Advisors, the issuer of SPDR ETFs.
- High-yield ETFs have attracted almost $1B in July to bring AUM just under $50B; this performance follows its second highest monthly flow in May and the largest M/M flow reversal (+$7B).
- High-yield ETFs' highest monthly inflow was $52.7B in October 2017.
- By contrast, more than $1B have flowed out of government-focused fixed-income ETFs. If the trend doesn't reverse, July would be the first month since October 2017 in which government funds suffer more than $1B of outflows.
- Though U.S. large cap flows dominate, small-cap ETFs have gained more than $1B as risk-on sentiment grows, SSGA says.
Who isn’t cutting interest rates?
- Joining a growing number of central banks acting to shore up their economies, the Bank of Korea unexpectedly cut its benchmark interest rate overnight, and lowered forecasts for economic growth and inflation.
- The BOK cut the seven-day repurchase rate to 1.5% from 1.75%, and now expects the economy to grow 2.2% this year (vs. 2.5% projected in April), and inflation to rise 0.7% (vs. 1.1% previously).
- It's the first policy rate cut in three years amid a faltering economy that faces further risks from a heated trade dispute with Japan.
Gold and silver stocks are flying!
- Gold is poised to be a top investment, says hedge fund maven Ray Dalio, as central banks grow more aggressive with policies that devalue currencies and cause a "paradigm shift" in investing.
- Dalio says investors have been pushed into stocks and other assets with equity-like returns, thus too many people are holding these types of securities and likely will face diminishing returns.
- The investments offering the best returns "will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold," Dalio writes.
- August Comex gold has turned higher, +0.8% to $1,423.60/oz.
Tension with Iran is rising.
- Crude oil pops higher after Iran’s Revolutionary Guard said it had seized a foreign tanker in the Strait of Hormuz; U.S. WTI +0.8% at $57.22/bbl, Brent +1% at $64.27/bbl.
- The tanker and 12 crew members are accused of smuggling oil, according to Iranian state TV, which offered no further details.
When you are dealing with Iran, you are also dealing with Russia.
- Russia is prepared to join an EU payments channel designed to circumvent U.S. sanctions banning trade with Iran, but has called on Brussels to expand the new mechanism to cover oil exports.
- The vehicle, known as Instex, intends to allow for imports and exports without direct financial flows.
- "The more countries and continents involved, the more effective will the mechanism be as a whole," the Russian foreign ministry told the FT.
The biggest market mover of the day.
- Netflix (NASDAQ:NFLX): Q2 GAAP EPS of $0.60 beats by $0.04.
- Revenue of $4.92B (+33.0% Y/Y) in-line.
- Netflix (NASDAQ:NFLX) has slid 10.8% postmarket after a heavy miss on its subscriber numbers for the quarter, despite revenues coming in as expected.
- The company was expected to add 5M subscribers but added just 2.7M (also below the 5.5M from Q2 last year). It ended the quarter with 151.56M global paid memberships, Y/Y growth of 21.9%.
- Revenue grew 26% to $4.92B. ARPU rose 3% as reported (and 9% excluding negative forex effects).
- Operating margin was 14.3%, up 250 basis points.
- The missed subscriber forecast was across all regions, "but slightly more so in regions with price increases." It doesn't believe competition was a factor, but that the content slate drove less growth than anticipated, with perhaps some pull-forward effect from an outsize 9.6M net adds last quarter.
- For Q3, it's expecting to grow by 7M paid memberships (vs. 6.1M in Q3 last year). It sees Q3 revenues at $5.25B and EPS at $1.04.
- As for speculation about adding advertising: "We, like HBO, are advertising free. That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false. We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing
I hear a train a coming.
- Union Pacific (NYSE:UNP): Q2 GAAP EPS of $2.22 beats by $0.09.
- Revenue of $5.6B (-1.2% Y/Y) misses by $20M.
- Union Pacific (NYSE:UNP) +3.1% pre-market after beating Q2 earnings expectations, as it raised prices and helped offset volume declines caused by severe Midwestern flooding and ongoing U.S.-China trade tensions.
- UNP's Q2 operating ratio fell 3.4 points to an all-time best 59.6%, saying it is increasing network flexibility by reallocating investments.
- Total revenue carloads fell 4% Y/Y, as growth in industrial volumes were more than offset by flat agricultural products shipments and declines in energy and premium.
- The reasonably strong quarterly showing from UNP could ease worries over a railroad freight slump that sent CSX and peers plunging yesterday.