Bad weather kept shoppers out of stores

Stocks closed mixed yesterday as tech shined while other sectors languished. It’s all about earnings and exceeding a low bar is not enough these days.

Next up, more pressure. We are less than a week away from the Fed’s FOMC policy meeting and it is unclear what the Central Bank’s message might be. Let’s start with some tangible evidence. The markets, based on futures and overnight swaps give a +25 basis-point hike an 81% chance, which on Wall Street, is a pretty good bet. Bond yields, though volatile, have been largely range-bound. This tells us that the markets are gaining confidence that future hikes are less and less likely, based on expectations.

The stock market seems to be on its own journey as of late with interest rate sensitive stocks surging higher, despite richer valuations. Remember that stock prices, in theory, are directly tied to all of a company’s future earnings/cash flows/dividends (you pick) IN PERPETUITY. Prince would say “that’s a mighty long time,” and it is. Of course, returns in the nearer term are more heavily weighted, but they all have an impact on valuation. If those expectations go up, well, so do stocks… which makes sense even without all the fancy math. When Microsoft takes the stage and says something like we are leading the pack in AI, which will define the future of search, and our cloud business is doing great and it will only get bigger… because of AI, etc., investors ignore the earnings announcement, which reflects the performance of the past, and focus on the future. Microsoft gained +7.24% yesterday after saying as much. Many tech companies rose as well, by close association. That is tech telling us something. What can we learn from stocks in other sectors?

Well, I am sorry to do this, but Banking, technically an industry in the Financial sector, is sending us a message as well. It appears that the overall industry avoided a widespread meltdown, which is a good thing given the frailty of the global economy at the moment. But, as we have learned during earnings season, banks’ struggles are not completely behind them. To be clear, not all banks are the same, but regional banks, as a group, are experiencing challenges as fearful customers withdraw their funds and deposit them in large, diversified banks like JPMorgan Chase and bigger, super-regional banks like Fifth-Third and PNC Financial. Deposits have also been chasing higher money market rates at brokerage firms, leaving banks in a tough position. They must pay more to their depositors to keep funds from leaving. By doing that, their net interest margins are challenged, so they must charge more for loans, and may even possibly cut back on making loans. That represents a tightening of general credit conditions. That is also what the Fed is attempting to accomplish with its rate hiking and smack-talk. In fact, industry experts believe that the credit tightness resulting from last month's bank gaffe is equivalent to a +50 basis-point rate hike. That combined with the Fed’s now-expected +25 basis-point hike could leave a painful mark on the economy. The Fed will surely consider this in its deliberations next week. Seems like now would be a good time to keep one’s eyes on the road, because there is no telling what to expect around the next bend. Even Microsoft’s powerful AI would tell you that predicting the Fed’s next steps is difficult these days.

WHAT’S SHAKIN’ THIS MORNIN’

Meta Platforms Inc (META) shares are higher by +11.75% in the premarket after it announced an earnings miss but a revenue beat. Despite the EPS miss, investors were pleased to hear that ad revenues came in higher than hoped for and that ongoing cost-reductions are starting to have a positive impact on earnings. Over the past 30 days 50% of analysts have changed their price targets, 29 up, 0 down, 27 unchanged, and 1 dropped coverage. Potential average analyst target upside: +21.8%.

Eli Lilly & Co (LLY) shares are higher by +2.66% in the premarket after the company announced an earnings miss but raised its full year revenue and EPS guidance. Dividend yield: 1.20%. Potential average analyst target upside: +0.9%.

Tractor Supply Co (TSCO) shares are lower by -4.60% in the premarket after it announced that it missed EPS and Revenues by -3.66% and -0.29% respectively. The company attributes its misses to materially weak demand, some of which is weather-related, according to the company’s commentary. Dividend yield: 1.69%. Potential average analyst target upside: +2.9%.

ALSO, this mornin’: Honeywell, Brunswick Corp, Merck, Valero Energy, Caterpillar, Lennox International, Hershey, Kurig Dr Pepper, Harley Davidson, Crocs, Rockwell Automation, Northrop Grumman, and CBRE all beat on EPS and Revenues, while Hasbro, Valley National Bancorp, Sirius XM, Altria, American Airlines, Bristol-Myers Squibb, Newmont, and Southwest Airlines came up short.

YESTERDAY’S MARKETS

Stocks had a mixed close yesterday as earnings continued to underwhelm investors. The S&P500 lost -0.38%, the Dow Jones Industrial Average fell by -0.68%, the Nasdaq Composite Index gained +0.47%, and the Russell 2000 Index declined by -0.89%. Bonds gave up ground and 10-year Treasury Note yields added +4 basis points to 3.44%. Cryptos added +0.50% and Bitcoin climbed by +1.57%.

NEXT UP

• Initial Jobless Claims (April 22) is expected to come in at 248k, slightly above last week’s 245k claims.
• Annualized Quarterly GDP (1Q) may have declined to +1.9% from the prior quarter’s +2.6% increase.
• After the closing bell earnings: Capital One, T-Mobile, L3Harris, Cloudflare, First Solar, Intel, Seagen, US Steel, Digital Realty Trust, Amazon.com, Weyerhaeuser, Pinterest, LPL Financial, Gilead Sciences, Skechers, FirstEnergy, Carlisle, Snap, and Amgen.