WASHINGTON. US stocks are in moderate rally mode today. A pair of Dow components – Coca-Cola (trading symbol: KO) and United Technologies (UTX) – surprised and delighted investors with better-than-expected earnings reports Tuesday. Even more positive, both companies expressed optimism and raised earnings expectations for coming quarters.
Things go better with Coke. And United Technologies
Reuters drills down on the news. (Direct link unavailable.)
“U.S. stocks rose on Tuesday boosted by better-than-expected earnings and forecast raises from blue-chip companies including Coca-Cola and United Technologies, soothing concerns over the pace of economic growth.
“Over the last 24 hours investors have reacted positively to a series of second-quarter reports, albeit often against expectations for profits, which have been lowered due to this year’s concerns over growth.
“‘Analysts notoriously underestimate how well these companies will do, and part of it is that companies intentionally lowball the analysts so that they can beat their estimates,’ said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.”
Both Coke and United Technologies have been relative laggards in the Dow. So their positive earnings news kicked their share prices up 5.7 percent and 1.5 percent respectively. At least as of 11 a.m. ET. As Coke and United Technologies took off, they encouraged the Dow to do likewise. And that, in turn, proved a tonic for the other major averages and stocks in general.
Except, perhaps, for the oil patch. It remains under water today, given continuing fears of oversupply, despite the problems brewing in the Persian Gulf.
Stocks start Tuesday action in a bullish mood. But…
Stocks in general took off like a rocket at Tuesday morning’s opening bell, again largely due to investor happiness with Coke and United Technologies. But not long after that initial burst of irrational exuberance, stocks settled back somewhat. And as we write this, all three major averages are up only fractionally. Ditto a great many of the stocks that surged mightily at that opening bell.
Federal Budget Busters at it again
Helping Tuesday’s rally were reports that both the House and the Senate had finally compromised on what’s touted as a two-year Federal budget along with a no-worry policy on budget ceilings for the duration. All of which means that Federal spending will increase again – not a good thing – but, allegedly, the constant budget chaos will settle down a bit. And just in time for Election 2020, wouldn’t you know.
President Trump has been involved in the negotiations, but has yet to indicate he’ll sign the measure without modifications. So the market’s cheeriness on the Federal budget issue might be premature. Trump’s in a corner on this issue, as usual, because
- Republicans lack a strong majority in the Senate, and
- Impeachment-obsessed Democrats and Communists control the House
Which means the President and his own party can’t really get their way on the budget. So Trump and the GOP have to give the Democrats more and more taxpayer money they will use to pay off constituencies during Election 2020. Of course, it doesn’t help that many RINOs and other fake Republicans will go along because they want to do the same thing.
Earnings reports for American corporations continue to surprise on the upside
At any rate, going forward in 2019, while earnings season reports are proving uncommonly positive for July’s skeptical investors – particularly those who hold Coke or United Technologies shares our favorite market measure, the McClellan Oscillator, doesn’t look to hot. After spending some time in the bullish zone (above the zero line on the chart below), the Oscillator recently dove below that line and threatens to go lower.
But the McClellan Oscillator sounds a warning note
And as McClellan lovers know, if this indicator continues to collapse more deeply into negative territory, that move signals a likely unpleasant market correction. And we’re getting close, as you can clearly see in the following chart, courtesy of Stockcharts.com, an invaluable service to which I subscribe.
Working on our portfolios
As for our own portfolios, I continue to monitor our small but still costly position in Amazon.com (AMZN). It’s been a moneymaker for us in recent months, but it’s getting wobbly this week as the company’s latest quarterly earnings announcement looms this Thursday. That’s often not a good sign, as hedge funds, fat cats, et. al., who, I’m convinced, already pretty much know AMZN’s numbers (illegally, but they’re rich), and somebody has been keeping the stock’s price pretty flat, just below $2,000 per expensive share.
I’m still holding the position, which has a nice profit, but we shall see. Amazon is one of those very costly (per share) stocks that can blast off $30-$50 per share and more on a good day. But it can also sink by the same amounts, or worse, on a bad day. We shall see. Fingers crossed.
I just picked up a starter position in Micron Technology (MU) this morning, given that analysts are increasingly bullish on the stock. It’s taken a beating due to alleged vendor oversupply of the Idaho tech company’s primary product – memory technologies and memory chips, including flash memory and solid-state drives. The China-Huawei-tariff mess also hasn’t been helpful to Micron’s bottom line.
Chips in the News
Nonetheless, a big problem for Micron and other chip manufacturers over the past few quarters has been due to customers stockpiling stacks of chips a year or more ago to hedge against supply disruption due to the China thing. Analysts believe these inventories are nearly depleted. And that means customers will have to start buying bucket loads of chips again. Supposedly. At any rate, even the chip companies are optimistic. So a rally in these stocks, which include Micron, could be in the offing.
Other news on the chip front: A surprise announcement that Apple (AAPL) has apparently agreed to buy Intel’s (INTC) modem business lock, stock and employee. This according to the Wall Street Journal. (NOTE: I subscribe, but link may be behind the WSJ pay wall for some readers.)
Apple’s amazing announcement
“Apple Inc.is in advanced talks to buy Intel Corp.’s smartphone-modem chip business, according to people familiar with the matter, a move that would jump-start the iPhone maker’s push to take control of developing the critical components powering its devices.
“A deal, covering a portfolio of patents and staff valued at $1 billion or more, could be reached in the next week, the people said—assuming the talks don’t fall apart.… [The] transaction would be important strategically and financially.
“It would give Apple access to engineering work and talent behind Intel’s years long push to develop modem chips for the crucial next generation of wireless technology known as 5G, potentially saving years of development work. Apple has been working to develop chips to further differentiate its devices as smartphone sales plateau globally, squeezing the iPhone business that has long underpinned its profit. It has hired engineers, including some from Intel, and announced plans for an office of 1,200 employees in San Diego.
“For Intel’s part, a deal would allow the company to shed a business that had been weighing on its bottom line.”
Caution flags still up
Sounds like a good deal for both tech giants, but time will tell. We’re tempted to scoop up some Intel shares sometime soon, albeit for other reasons. We’ve been in and out of Apple shares, but feel they’re a bit treacherous right now, given the volatile China situation.
Stay tuned. That’s it for now from the business and investment front.
– Headline image: Things go better with Coke.Classic Coca-Cola bottle, circa 2015. Note:Although it appears in the Wikipedia entry on Coca-Cola, this image is not in the Public Domain.Although the image is under copyright, its creator and copyright holder, Ralf Roletschek, has made it free to use under a German license. Click here to visit his website.