Earnings fears send stocks back to the red zone in Tuesday market action
WASHINGTON. Last Wednesday, we promised we’d be back with another column when the stock market got a little less boring. Unfortunately, today, Tuesday, April 9, 2019, is not that day. That said, however, since we’ll be off to review the new Disney super hero film Shazam!in about an hour, we thought it best to input some brief commentary today before our readers think we’ve abandoned the Wall Street ship. The market may remain in the boring zone for the rest of this week due to Q2 earnings fears. But we’d hate to have to play hooky for that long.
After all, the Q2 earnings season is already queuing up for its launch next week, so we might need to do some portfolio prep to help allay those earnings fears.
Earnings fears and other irrational pursuits
CNBC succinctly sums up Monday’s dismal trading action.
“The Dow lost 160 points as Boeing stock came under pressure again on concerns about 737 Max jet production delays. The S&P 500 fell 0.5%, led by losses in industrials, energy and financial companies. The Nasdaq Composite dropped 0.2%.”
CNBC, of course, and a host of others, have proclaimed that 2019 earnings will be lousy all year. As if that’s news. For weeks, perhaps months now, we’ve been telling our readers that this is no big deal. This year’s numbers will almost certainly fail to match last year’s big increase in corporate earnings. But the reason why is deceptively simple. Last year’s numbers were super-goosed by the effects of the massive 2017 GOP tax cut legislation.
In 2019, while those tax cuts remain in effect, they’re now part of every day business. So naturally, even if this fiscal year’s corporate earnings don’t post double-digit increases over those hyperinflated 2018 numbers, so what. Why all the earnings fears?
The corporate part of the tax cut bill is now today’s “new normal.” So why should huge numbers of companies score the kind of YoY comparisons as they did last year? In the main, most companies look forward to increased earnings this year. But those increases have become part of the system.
Problems at Boeing
At the moment, the Boeing 737 MAX chaos is killing that giant, overweighted Dow Jones Industrial Average component (trading symbol: BA), making that widely followed average look pretty anemic near term. But other stocks in the Dow, the S&P 500 and the NASDAQ are mostly doing just fine. So what, me worry?
Meanwhile, elsewhere in the financial and business universe, interest rates remain stable, housing seems to be coming back at least moderately, the US and China are “closing in” on a new trade deal, (just like they were 6 months ago), and the anti-Euro Elites parties in Europe are threatening to go Trump, which, contrary to Democrats and their media lackeys, is actually a good thing for us all.
Let’s not forget the Brexit and Theresa May (Not)
However, the Brexit – undercut all the way by British PM Theresa May and a number of Tory “RINOs” in Parliament who never wanted to leave the elite Euro Club – continues to vex markets in unknown ways. It would be helpful to all if these fractious, disconnected pols would just damn well do what the people told them to do two years ago. But then again, Paul Ryan and his fellow #NeverTrumpers failed to repeal and replace Obamacare last year or help Trump build his increasingly necessary wall. So in a way, our own Tories here are no better than May’s.
But it’s actually this politically divisive game that could weigh the most on 2019’s market action. With the opposing party taking a holiday from meaningful legislation to wage 24/7 war on the party in power; and with the party in power failing to have the courage to do what their voters and supporters want them to do, things are falling apart. The center can no longer hold, as Anglo-Irish poet William Butler Yeats once observed in a similar context. And that’s at least one reason why at least some of those earnings fears, at least for international businesses, might not be unreasonable.
All of the Brexit nonsense leads to real market uncertainty. That’s something that neither insurance companies nor Mr. Market like very much. Which is never good in the end.
A save for the Trump Team
Even so, it’s looking, tentatively, as if the US may have lucked out in the nick of time, avoiding a recession this year. This despite the Fed’s misguided zeal for interest rate increases – now paused indefinitely after withering criticism from The Donald and others – as well as the business-halting Polar Vortex and the prolonged Federal government shutdown. (Though the latter is grossly overrated by the politicized chattering classes.)
In other words, we’re probably okay in the longer run. But right now, it looks as if Mr. Market has decided to hunker down and go sideways to slightly negative for now until it starts getting those Q2 numbers. And until we can shake those 2019 earnings fears.
We remain perhaps dangerously over-invested right now. But that’s paid off for us thus far in 2019. What we probably need to do this week, however, is begin applying trailing stops to some of our more volatile but currently profitable positions. That way, if we’re off watching Shazam! at the local movie emporium of indulging in some other diversionary pursuit, we can escape any rapidly sinking stock holding even if we take our eyes off the trading floor for a New York minute.
— Headline image: Cartoon by Branso. *Reproduced with permission and by arrangement with Comically Incorrect.