MorningWord 7/26/13: High profile earnings and the stock’s subsequent reactions were across the board this week, and frankly from a 30k foot view, they were not very helpful to those looking at U.S. corporate earnings as a means to grade the health of the economic recovery, both here and abroad. But there were some themes to be taken away, and I will place them in 4 categories:
1. companies executing well in a difficult environment with high expectations, stocks were clearly rewarded, with new 52 week or all time highs: SBUX, F, UA & TXN
2. companies executing better than very low expectations saw their stocks gain, in some cases in violent fashion: AAPL, BIDU, FB, EA, JNPR & VMW
3. companies that just couldn’t live up to the stocks recent gains, where expectations were high, and the stocks retreated: BA, CAKE & PNRA
4. companies where expectations were low and the results basically stunk sinking the stocks: CAT, MCD & PHM
I guess my biggest take away was that unloved left for dead tech was the clear outlier on the weak, not really speaking to any economic recovery, more just getting their houses in order at a time where investors are looking for laggards, or the potential of newfound growth The other big take away was the continued weakness in U.S. multinationals with exposure to emerging markets, this does not come as a surprise, expect for the fact that I would guess at some point soon the same investors buying FB up 30% on the day yesterday will get around to taking a shot on CAT down 20% from the highs for the chance of a turn in EM.
And I guess the last point (more of a question) I will make, what are the results and price action from the homebuilders telling us about the pace of the housing recovery? The one year chart below of the SPX (white line) vs the one year performance (or lack there of) of PHM, LEN & TOL is fairly shocking given that the new “housing boom” is one of the pillars of our economic recovery.
SO whats my take here, as the SPX is desperately trying for that 1700 plus close? To use a cliche, it is becoming more and more of a “stock pickers market”, we are likely at a point where rising tides will not lift all boats, as investors will look to take some chips off of the table where some stories appear to be approaching that “as good as it gets territory”, while others might be worth taking a shot on for the chance that the combination of incremental improvement on the execution front, coupled with the possibility of a sustained economic recovery could see outsized gains.