April is in the books…

May 2, 2016


(Mount Hood, Oregon)

April is in the books…

The month’s Central Bank meetings are now behind us, as is the bulk of the Q1 reporting season. Investors continue to act like they want to rotate into higher risk as foreign worries decline along with the U.S. Dollar. Many assets, sectors and geographies that worked in 2015 remain for sale, while new money is looking at those assets that have declined the most. Even gold is winning—helped by the weak Dollar and declining investor appetite for negative yielding global debt. This will be the final big week for corporate earnings and it will be tough to match the reporting stock volatility from last week. The Nasdaq felt the brunt of the pain as several Large Cap technology and biotech names disappointed. But for those who picked their stocks correctly, it was a great week as evidenced by the Facebook and Amazon earnings reports. Let’s see if the current trends remain our friend and if Jobs Friday provides another weak Dollar data point. If so, the currency may have no fans until we get closer to the June Central Bank meetings.

US$ weakness broke to new lows last week…

The weakness in the dollar is making it almost too easy for stock and ETF pickers as the weekly trend follows the monthly and YTD…

(prices ended 4/29/16)

It was a very tough week for growth stocks…

The earnings results of some of the large and mega caps weighed heavily on the Technology and Healthcare/Biotech sectors.

Looking at the $10B+ market cap movers on the week showed the heavy impact of earnings on the winners and losers…

St. Jude broke the sector trend by merging with Abbot (which was one of the week’s top losers).

Among technology earners, it has been a tough season even for those reporting better numbers…

@bespokeinvest: Why has Tech been so weak? 8 of 10 largest Tech stocks that have reported have fallen

Amazon is not a tech stock so can’t help the XLK (Technology ETF), but what a great quarter from their cloud business…

The cloud division’s sales rose 64% to $2.57 billion. While that is less than one-tenth of Amazon’s overall revenue, AWS generated about 67% of the company’s operating income in the quarter.

In other words, AWS is supporting Amazon’s sprawling, 20-year-old business that spends billions of dollars in an effort to upend traditional brick-and-mortar retail by providing customers nearly everything imaginable in as quickly as one hour.

Chief Executive Jeff Bezos has said he expects AWS to reach $10 billion in sales this year, even as Microsoft Corp., Alphabet Inc. and others ramp up pressure. AWS’s operating margin was 28%.

(WSJ)

 

As for Facebook, wow…

The social network on Wednesday said advertising revenue jumped 57% in the first quarter to $5.2 billion from $3.3 billion. Mobile ads, which command a higher price than those shown on desktops, accounted for roughly four-fifths of that revenue.

“Businesses are no longer asking if they should market on mobile, they’re asking how,” Chief Operating Officer Sheryl Sandberg said in an interview. “This is a shift that we think we’re very well-positioned to take advantage of and build on.”

Facebook’s user ranks grew to 1.65 billion from 1.44 billion in the first quarter last year. The company derived more revenue from each of them—an average of $3.32, compared with $2.50 a year earlier.

(WSJ)

 

The market is recovering back toward highs. The difference this time is that so many more stocks are trading above their Long-Term Moving Averages than in November…

@Callum_Thomas: 1. “It’s different this time” – this rally happened on solid breadth, this is a good sign… $SPX

This is good news for David Tepper who looks like he placed a very sizable, leveraged bet on U.S. Equities in the Q1…

One of the biggest and boldest option trades of the first quarter was made by billionaire hedge fund manager David Tepper. Tepper has perhaps the best track record over the past 20 years, returning close to 40% annualized, before fees. According to his recent filing, he initiated a more than $1.3 billion call option on stocks, via both the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ). The notional value of this option position represents about one third of Tepper’s equity assets under management. This is no surprise, given he recently said he thinks the S&P 500 is still cheap and should return 15% this year. That’s another 11% from current levels.

(Forbes)

 

Back to earnings data points, some indication that China may not be falling off a cliff?

Tim Cook said that China is not as weak as people think…

“I think China is not weak as has been talked about. I see China as may not have the wind at our backs that we once did, but it’s a lot more stable than what I think is the common view of it. And so we remain really optimistic on China.” —Apple CEO Tim Cook (Consumer Electronics)

Jeff Immelt also saw improvements in China…

“I was in China last week and saw improvements in our business. Most of the portfolios are strong and we’re delivering. There’s plenty of business out there to achieve our goals.” —GE CEO Jeff Immelt (Conglomerate)

Caterpillar is seeing an uptick in China for the first time in three years…

“This is the first post-Chinese New Year in probably three that we have seen a continued industry uplift for the industries that we serve around construction. It’s not a hockey stick. It’s not a boom. It’s not a 2010. But it is the first time we’ve seen that happen, and we have lifted our schedules as a result of that this year.” —Caterpillar CEO Doug Oberhelman (Construction Equipment)

(Scott Krisiloff/Avondale)

 

Speaking of Emerging Markets, investors may no longer be pulling assets from active managers in the space…

@SardonicaX: May need to squint to see it, but last week first time nearly a yr that actively managed EM equity funds had inflows

U.S. Tobacco is a $90b business. U.S. Marijuana could be a $45b business. Another reason that CALPERs is looking to add back their smoke stocks after 16 years on the sidelines?

These companies still need a more sustainable growth plan, though. Lucky for them, a gigantic industry will soon be up for grabs: marijuana. There is a potential $45 billion of annual demand for recreational weed in the U.S. More and more states are moving toward allowing its sale, which will only build pressure on the federal government to legalize it. And that will open the door for the big tobacco companies to seize the marijuana market. It’s a natural fit.

(Bloomberg)

 

Can I add 10 minutes to your day? Stop rinsing your dishes. Just stick them in the washer…

One of the best things about being an analyst is that you get to see and learn random facts about all the company products and services that you research and own. Thanks to years of following and owning Colgate and Reckitt, I got to see the dishwasher detergent products evolve at a rapid pace. 10 years ago the product was developed to the point where you basically had to leave some food on the dishes for it to eat or else the enzymes would have nothing to process and so they would start attacking the dish enamel and washer itself. I am still amazed to see people wash off dishes before they put them into the dishwasher. So if this is your job nightly, stop it and go use the 10 minutes a day for anything else.

Dirty dishes jump-start the feedback loop that drives modern dishwashers. Enzymes are basically inert until they come into contact with organic matter—that is, the dried marinara, globs of mustard, and bits of spinach stuck to your plates, bowls, and forks. So when your dishes are dirtier, more of the detergent activates faster, and the process of actually cleaning the dishes (rather than just getting them wet) begins sooner. But if your dishes are mostly clean at the start of a cycle, the detergent may not fully activate, and any residue may stay stuck on the dishes. The soil sensors will see clean water and register a false positive indicating that the cycle is finished.

If all this is news to you, know that you’re not alone. Pre-rinsing was part of the ritual, the Right Way to do things, up until about six or seven years ago. Now it’s completely unnecessary and actually detrimental to performance. Several Sweethome staff members were shocked to learn about this change, but they made the switch away from pre-rinsing and have not looked back. As owner brian c writes in a user review of the Bosch 500 Series, “the dirtier the dishes, the better the result.”

(Sweethome)

 

‘Shoe Dog’, Phil Knight’s Memoir was released last week…

Given the 40-year Nike fanatic that I am, I set aside all of my current books to dive into it. It does not disappoint. I thought that I knew many of the early company stories but there is quite a bit of content in here that I have never come across. Also nice that Phil puts in quite a bit of his humor into the book. If you are graduating from high school or college this month, then I am going to spoil it for you: here is your best graduation gift.

“I wanted to dedicate every minute of everyday to Blue Ribbon. I had never been a multitasker and I didn’t see any reason to start now. I wanted to be present, always. I wanted to focus constantly on the one task that really mattered. If my life was to be all work and no play, I wanted my work to be play. I wanted to quit Price Waterhouse, not that I hated it, it just wasn’t me. I wanted what everyone wants, to be me, full time.”

(Phil Knight, ‘Shoe Dog’. Blue Ribbon Sports was the predecessor to Nike)

Finally, the Social Networking Tweet of the Month goes to @MerriamWebster…

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