Stocks gave up sizable early gains yesterday, closing in the red for the day because bond yields continue to rise, relentlessly. According to the latest weekly job numbers, the labor market remains intact – good news for the economy and bad news if you are afraid of the big bad Fed.
The tallest short guy in the room. Here is a frightful scenario. Let’s say that you are on a boat in the middle of an angry sea and the boat starts taking on water. It is clear to you that the ship is on its way to Davy Jones’s Locker (that’s not good, if you don’t know the metaphor). Your heart is racing, and you spring into action as everything - really everything - is at stake. You gaze over the gunwales, first the port then the starboard and you see nothing but the boiling sea. The heavens, too, offer little hope, shrouded in cloud waves of black-grey, dotted only by vivid white bolts of lightning. It becomes clear to you that you cannot control that which now seeks to destroy you. You are going to have to figure out how to weather the storm. You turn your focus back to the lumbering ship under your feet. You rush below the deck and hurriedly inspect the bilge, which is rapidly filling with cold, briny sea water. You are looking for the source of the deadly soup around your ankles. Perhaps you can plug the hole, but you quickly realize that your efforts would be in vain, as the now knee-high water sends waves of chill through your body.
You have been at sea for many years, and this is not the first storm you have come up against. You have weathered many in the past. But this one feels different – all of your go-to fixes of the past don’t seem to have any chance of turning your dire situation around. Then you arrive at the unthinkable. Should you abandon the ship? That would mean accepting the reality that you cannot control and turn the situation around. It is about survival now. You scurry back above deck and there are several lifeboats. You make your way to one amidst the debris strewn about the deck. Thankfully, there are enough lifeboats for all on board. As you inspect the lifeboat you think of the challenge ahead. You are far from land and the foamy waves are cresting far above your head. In the chaos, you muse to yourself that this lifeboat may not be a “life” boat after all. The aside humor gives you temporary reprieve from the pandemonium that surrounds you, but you are quickly snapped back into the here-and-now as a wave washes onto the deck knocking you from your feet. You realize that you must act now if you stand any chance of survival. Each lifeboat can sustain 4 sailors. You, being an old salt, know each and every sailor on the ship and any one of them would rush at the opportunity to crew your lifeboat. You like all the sailors, but you can only pick 3. Which ones will you choose?
Ok, ok, take a breath and get back to your morning coffee. Look out the window. There is no angry sea out there, just your city or hamlet coming to life on a mid-fall morning. Did that story remind you of your experience with your portfolio in the past year? Sure, it did. Was it too extreme? Sure, it wasn’t. We are talking about your hard-earned savings, and it is under assault by factors which are out of your control. The vagrant markets, out-of-control inflation, seemingly out-of-touch politicians, and a 1980s-style war in Europe – these are just some of the challenges that are threatening your current financial health. Indeed, you cannot control those factors just as our seasoned alter-self-sea goer could not control the ocean, the heavens, or the injured ship. But, thinking back to the story, you could control the makeup of your lifeboat crew. Which sailors would you choose? Of course, you would pick the strongest of the strong. Yes, that would leave plenty of other very sound sailors to find different boats, but your crew would have to be the best of the best. Similarly, all companies today are facing similar challenges -economic headwinds, still-broken supply chains, rising employment costs, rising commodity prices, rising borrowing costs – these are all pressuring earnings and threatening the growth we have grown to expect. If we are forced to select which companies would be in our portfolios, given the stormy economic climate, we would want to pick the strongest of the group. This would surely give us the best chance of making it back to land. There are plenty of very good stocks which have been knocked on their ears in this most violent of tempests. All of them down, but still very capable of performance once the storm clears. We will have a unique opportunity to assess their capabilities in the weeks ahead with earnings season. Pay close attention! Back on our ship, there are enough lifeboats for all. Most boats will make it to shore. Some will get there quicker than others. Some will, unfortunately not make it. Choose your sailors wisely.
WHAT’S SHAKIN’
CSX Corp (CSX) shares are higher by +4.32 in the premarket after the company announced that it beat EPS and Revenue estimates by +5.43% and +3.95% respectively. The company, further, reaffirmed its full year guidance, quelling fears that parcel freight shipping growth is under pressure with a slowing economy. Dividend yield: 1.48%. Potential average analyst target upside: +20.6%.
Schlumberger NV (SLB) shares are higher by +2.12% in the premarket after it announced that it beat EPS and Revenue estimates by +14.89% and +5.24% respectively. In the past month, 24% of analysts have modified their price targets 4 up, 2 down, and 19 unchanged. Dividend yield: 1.53%. Potential average analyst target upside: +12.2%.
SVB Financial Group (SIVB) shares are lower by -19.08% in the premarket after the company announced that it missed estimated Revenues by -4.32%. While it beat EPS targets by +1.50%, the company lowered its full year guidance for net interest margin and growth. Potential average analyst target upside: +26.1%.
Also, this morning: American Express (AXP), Huntington Bancshares (HBAN), and Verizon (VZ) beat on EPS and Revenues while HCA Healthcare (HCA) came up short on sales.
YESTERDAY’S MARKETS
Stocks could not hold on to earlier earnings-driven gains, succumbing to rising bond yields. The S&P500 fell by -0.80%, the Dow Jones Industrial Average (no relation to Davy Jones) sank by -0.30%, the Nasdaq Composite Index declined by -0.61%, and the Russell 2000 Index dropped by -1.24%. Bonds pulled back and 10-year Treasury Note yields gained +9 basis points to 4.22%. Cryptos lost -1.90% and Bitcoin gave up -0.87%.
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