Stocks Rally During Heart Of Earnings Season
Stocks rallied last week as investors digested the latest round of largely lackluster economic and earnings data. The big winners (so far) from earnings season include: Amazon.com ($AMZN), Netflix ($NFLX), Hasbro ($HAS), Domino’s Pizza ($DPZ), Sketchers ($SKX), Dunkin (Donuts) Brands Group ($DNKN), Google Inc ($GOOG), Microsoft Corp ($MSFT), O’Reilly Automotive ($ORLY), and YUM Brands ($YUM). On the downside: Texas Instruments ($TXN), Travelers ($TRV), 3M ($MMM), Chipotle ($CMG), Pulte Group ($PHM), Biogen Inc ($BIIB), and American Express ($AXP), just to name a few. We mention this because history shows us that some of the market’s strongest performers occur from big gaps up on earnings and some of the weakest stocks gap down after reporting numbers. Separately, it is important to note that so far, the major averages continue to grind higher which suggests the bulls still remain in control – for now.
Monday-Wednesday’s Action: Earnings Continue To Be Released
Stocks rallied sharply on Monday after China took more steps to stimulate their economy. Over the weekend, China’s Central Bank, The People’s Bank of China, lowered the reserve requirement ratio for banks to 18.5% from 19.5%. The 100 basis point cut was the largest move since November 2008 and is intended to stimulate their economy. The move came one trading day after China raise margin requirements for traders and allowed short selling in their equity market. Stocks sold off hard on the prior Friday but bounced back on Monday after more interference from global central banks. Hasbro ($HAS) gapped up after reporting Q1 results.
Tuesday was a quiet day as investors digested Monday’s strong move. German economic sentiment fell to 53.3 in April, missing estimates for 55.3. Famous bond investor, Bill Gross was very vocal and said German bunds (their bonds) are “The short of a lifetime.” Shares of Fortinet ($FTNT) surged over 10% after it reported very strong Q1 results. Other cyber security stocks also rallied nicely on the news: FireEye ($FEYE), Cyberark ($CYBR), the Cyber Security ETF ($HACK), and Palo Alto Networks ($PANW) enjoyed a nice breakout on heavy volume. Teva Pharmaceuticals ($TEVA) offered $40Bin cash and stock to buy Mylan ($MYL). If the deal goes through, the new company would be worth $30B. MYL previously stated that they want to stay independent.
It was another quiet day on Wednesday as the major averages sit quietly just below their record highs. In other news, Visa ($V) and Mastercard ($MA) surged on heavy volume after China announced it will open its $6B bank card clearing market in June to outside companies. In other news, Tesla ($TSLA) shares rallied nicely after the company announced that its new home-battery product is currently being tested by 300 homes and it wants to power 15 Wal-Mart ($WMT) stores in California. The new products will be formally announced on April 30 at the Tesla plant in Hawthorne, California. Economic data was mixed on Wednesday. Existing home sales jumped +6.1% from February to an annualized rate of 5.19 million units, beating estimates for 5.05 million and hit the highest level in 18 months. Separately, the FHFA Housing Price Index for February rose 0.7%, beating estimates for a gain of 0.6%. The weekly MBA Mortgage index rose 2.3% which was more good news for the housing market.
Thursday-Friday’s Action: Nasdaq Hits 2000 Closing High
Stocks were quiet on Thursday as investors digested the latest round of mixed economic and earnings data. Weekly jobless claims rose to 295k, missing estimates for 286k. Manufacturing data remained weak across the globe. Markit’s German flash composite PMI slid to 54.2 in April from an eight-month peak of 55.4 in March. Factory data in China also missed estimates, HSBC’s preliminary reading of China’s factory activity fell to 49.2 in April, missing estimates for 49.6. In the U.S., the PMI Manufacturing index slid to 54.2, missing estimates for 56. In other economic data, New Home sales tumbled -11.4% in March and hit 481k, missing estimates for 510k. Stocks opened higher on Friday even as durable goods missed estimates. Google ($GOOG), Microsoft ($MSFT) and Amazon.com ($AMZN) all gapped higher and were the standout winners on Friday.
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. This has been our primary thesis since the end of 2012. We would be remiss not to note that this very strong bull market is aging (celebrated its 6th anniversary in March 2015) and the last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007). To be clear, the central bank put is very strong and until material damage occurs, the stock market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.