MorningWord 1/14/15: Consumers Passing Gas

by Dan January 14, 2015 9:19 am • Commentary

We’re officially into earnings season and so far, investors are shooting first and asking questions later.  This week alone we have seen sharp share declines in stocks like AAL, BBBY, KBH, TIF & SNDK after disappointing results, while those with beats like AA reversed early gains to close down on the day.

As most you know, short term investment success in the stock market is often a matter of sentiment and expectations, and  I think it is important to note that all of the stocks listed above were far closer to 52 week highs than they were to their 52 week lows, with the backdrop of the broad market just a few % from the all time highs. Despite no shortage of headwinds to earnings growth (weak global demand, weak wage growth domestically, surging US dollar) it appears that investors placed greater optimism in the prospect for lower input costs to offset the negative impact of of the strong dollar.  So far, this has not been evident in the small sample of companies to report. And those waiting to see a surge in consumer spending as a result of lower gas may have to wait longer after retailers like BBY & TIF, and consumer facing companies like AAL all got hit (also see this morning’s disappointing December retail sales, the worst print in a year).

Let me be clear, the price action of five or so stocks that have reported does NOT make a trend and often times the early trend in earnings season has a tendency to reverse itself as sentiment shifts too much, too soon and investors become desensitized by the early themes.

This morning both JPM and WFC are trading down, for slightly different reasons. We’re not shocked. Who in their right mind thought that Q4 was a healthy capital market environment? That the volatility in European banks stocks would not give reason for concern relating to our banks? Or that regulation, low leverage ratios and rates that may never go up again don’t exactly make for an attractive return environment for U.S. banks.  Just sayin.

So for NOW, the earnings news looks poor, but how and why were people optimistic?? The early downward volatility in 2015 might merely be a matter of expectations, an overly inflated view that all dips should be bought and that the relative strength in the U.S. economy has the potential to cure the ills of the world.  I remain skeptical.

 

Oh, and if you missed it last night, must watch tv, last night’s Frontline on PBS, Putin’s Way watch here.  Crimea might have just been the start if Russia is truly bankrupt and a sovereign default is in the cards for 2015.