Once again, the market fought off earlier pressure to climb off a major swoon. Would-be buyers were dissuaded late in the session on Wednesday when Sen. Ron Johnson of Wisconsin announced a “no” on the Senate tax bill.  However, Washington, D.C. continues to dominate the market, masking what has been a great earnings season.

Coming into the week, 91% of S&P 500 companies posted financial results and it was another blockbuster quarter. While the results have been great for the second consecutive quarter, the good news wasn’t greeted with investor exuberance.

Companies that beat saw small increases to share price based on historical norms, although last-quarter earnings beats saw knee-jerk selling.

In the case of both quarters, those companies that missed on earnings or gave subpar guidance saw their shares utterly destroyed. Thus far, 58 companies have waned for the current quarter.

The Results

• 66% beat Wall Street consensus on revenue
• 74% beat Wall Street consensus on earnings

According to FactSet, a blended revenue growth of 6.1% is almost twice the level anticipated on September 30th. Ironically, the super-hot utilities sector has posted the worst revenue results, while energy has enjoyed the best top line growth.

Global Reach

Buoyed by the weak U.S. dollar and surging demand, multinational corporations saw monster top and bottom line growth.  Companies with more than 50% of business outside the United States (OUS) saw an average revenue growth of 10% and earnings up more than 13%.

 

Geographic Impact	Revenue	Earnings
50% in US	+5.8%	+6.1%
50% OUS	+10.0%	+13.4%

Earnings Rolling

Speaking of earnings, materials have posted the biggest upside surprise followed by information technology and energy.

I continue to be very excited about the continual growth in materials and information technology. Energy, on the other hand, continues to hit speed bumps as there are numerous factors that move the needle.  However, the strong global growth will increase demand and that’s crucial.

After the close, earnings beats are propelling several names higher in after-hours trading:

• Restoration Hardware (RH) crushed on top and bottom line, sending some shorts scurrying. In a six month period from 2015 – 2016, the stock dropped 75%. And now, there is a chance it could recover all that lost ground.  Note: 71% of the float is shorted.
• Cisco Systems (CSCO) posted an earnings beat that has initially sent its shares higher.
• NetApp (NTAP) posted an impressive top and bottom line results and offered strong guidance.
• L Brands (LB) is the sole loser after the close, missing Wall Street consensus.

In addition, there was another loser after the close…Proctor & Gamble (P&G). P&G’s management bragged about beating activist investor Nelson Peltz in a major proxy battle, but they will have to eat their words. A recount has put him on the company’s board of directors.

The market loves the news as P&G shares are popping right now.

Direction & Valuation

Perhaps the market will open higher today as a reaction to the news, which would be a welcomed relief.  On that note, if the pressure continues, we have to look at places where the market must find support.  Right now, for the Dow Jones Industrial Average, here are the key support points:

• 22,931 (50-day moving average)
• 22,412 (prior key resistance point) 

As for valuation, the S&P 500 is still changing hands at a forward price-earnings (PE) of 18, which is high but it is nowhere near levels that have precipitated past market crashes.

Today’s Session

The big breaking news overnight was the record $450,000,000 paid for Leonardo da Vinici’s ‘Salvatore Mundi’ at Christies last night.

How appropriate the painting “Savior of the World” would be bought at an American auction house during such a difficult period for the nation and world.  On one hand, we are getting our spirit of accomplishment back, but there is so much simmering anger and animosity. 

Of course, I’m also waiting for the naysayers to say $450 million for a single work of art proves there is irrational exuberance in our midst.  I say it proves there is a lot of money out there seeking value (and perhaps personal redemption).

Wal-Mart Winning

Walmart was written off a year ago as too old, big and stogie and yet the retail giant has proven to be nimble and wise.  It’s made its retail experience better and is playing the online game as good as everybody else these days, including Amazon.

This morning the company posted results that beat the street top and bottom while raising its full year guidance. 

Key Highlights:

• Comp stores +2.7%
• Store Traffic +1.5%
• Ticket +1.2%
• Online +50%

I like the way the market is looking at the start of trading and I love the continued fundamentals underpinnings of the economy.  

Comments

Where are you going to hang that painting, Charles? ;) SK_AusTX on 11/16/2017 10:46:54 AM

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