Ready for Lift Off?

361 Capital Market Commentary | April 22, 2019

Lots of talk about the 2019 melt-up last week. Fingers pointed at the very accommodating Federal Reserve, rebound in 2019 U.S. economic data, bottoming in China, and risk-off positioning of investors. With the market near its highs and S&P 500 trading at 16 times next years earnings estimate of $180, I wouldn’t be the first to say that investors are scared right now. Private equity firms are taking in new capital by the truckload. Every unprofitable tech unicorn is looking to get public before the IPO window closes. And existing unprofitable companies are doing drive by secondary offerings anytime their stock jumps by a meaningful amount. What a great year to be an equity investment banker.

We will have another big week of company data as over 30% of the S&P 500 reports their earnings. Last week’s top earners included: Union Pacific, Honeywell, United Airlines, CSX, Pepsi, Progressive. The most troubling earnings call last week was the United Healthcare one, which coming on the heels of the Bernie Sanders town hall, led many investors to send their healthcare stocks to the emergency room. “Healthcare for All” will now be a challenge for any healthcare stock investor now that Senator Sanders is leading in the polls.

30% of the S&P 500 reports this week…


Most Anticipated Earnings Releases - April 22,2019


Some encouraging comments from one of the largest players in semiconductors…


Taiwan Semiconductor earnings conference call: “While the economic factor and mobile product seasonality are still lingering as we move into second quarter, we believe we may have passed the bottom of the cycle of our business as we are seeing demand stabilizing”.

And global demand comments from Alcoa…


“Global aluminum demand growth for 2019 is estimated to range between 2 to 3 percent, down from 3 to 4 percent in the previous quarter, predominantly due to lower demand growth in China, especially in the transportation and electrical sectors.”

United Rentals is always a good player to watch to note demand in the construction, industrial and energy sectors…


“By reaffirming our guidance, we’re emphasizing our confidence in the cycle. The year is unfolding as we expected – customer sentiment remains positive, and feedback from the field points to healthy end-market activity”.

This energy services giant calls the bottom on their earnings call…


Halliburton on Monday called a bottom for the prices charged for oilfield services in North America even as the company reported a drop in revenues for the region.

The Houston-based company’s chief executive Jeff Miller said Halliburton “experienced pricing headwinds throughout the quarter” in North America but added “we believe the worst in the pricing deterioration is now behind us”.

He also struck a more upbeat note on the future as he noted: “For the next couple of quarters, I see demand for our services progressing modestly.”


Very important to a major U.S. industry employer…


The auto industry is still waiting for a final decision on tariffs.

The industry is in “wait-and-see mode,” but the tariffs would be a bad idea, Bob Carter, head of U.S. sales at Toyota Motor Corp, told Reuters on Wednesday.

“If the tariff happened on the auto industry, quite frankly that’s pulling the pin out of the grenade,” he said at a conference on Tuesday held in conjunction with the New York International Auto Show. “I don’t believe the U.S. economy can run out of the room fast enough if that happens.”…

At a conference held ahead of the New York auto show this week, IHS Markit’s chief U.S. economist, Joel Prakken, forecast 2019 U.S. new vehicle sales of 16.8 million units, down about 500,000 units from 2018 but still high historically.

However, tariffs could reduce sales by another 2 million vehicles and shave half to two-thirds of a percentage point off U.S. gross domestic product, he said.


A new reminder that it would be easier to write six figure checks to new job seekers than to place tariffs on U.S. purchased consumer goods…


Research to be released on Monday by the economists Aaron Flaaen, of the Fed, and Ali Hortacsu and Felix Tintelnot, of Chicago, estimates that consumers bore between 125 percent and 225 percent of the costs of the washing machine tariffs. The authors calculate that the tariffs brought in $82 million to the United States Treasury, while raising consumer prices by $1.5 billion.

And while the tariffs did encourage foreign companies to shift more of their manufacturing to the United States and created about 1,800 new jobs, the researchers conclude that those came at a steep cost: about $817,000 per job.


The head of the largest U.S. Bank is feeling good about the U.S. economy…


“If you look at the American economy, the consumer is in good shape, balance sheets are in good shape, people are going back to the workforce, companies have plenty of capital,” Dimon told analysts during a conference call.

“It could go on for years,” he added. “There’s no law that says it has to stop. We do make lists, and look at all the other things: geopolitical issues, lower liquidity. There may be a confluence of events that somehow causes a recession, but it may not be in 2019, 2020, 2021.”


Meanwhile, his peer at BlackRock is seeing investor signs of FOMO (fear of missing out)…


The U.S. economy is speeding up again after a slowdown in recent months and cash could soon start rushing into stocks as most investors are underinvested in the markets globally, BlackRock Inc’s Chief Executive Larry Fink said on Tuesday.

“What we are seeing worldwide are clients just struggling in putting their money to work,” Fink told Reuters in an interview after his company reported first-quarter earnings.

“We still saw, as an industry and at BlackRock, outflows in equities and this is one of the reasons why I believe the market is getting set up for huge inflows into equities,” he said…

“People are still under-risked despite the big rebound,” Fink said.


And over at Blackstone, the sentiment has gone ethereal…


Stephen Schwarzman has a bullish view almost everywhere he looks.

The chief executive officer of the world’s largest alternative asset manager is confident the U.S. isn’t headed toward a recession any time soon and is certain the nation will strike a trade deal with China, Schwarzman said in a Bloomberg Television interview Thursday. At his firm, Blackstone Group LP, assets have soared and shares surged in pre-market trading after the company announced it would change its corporate structure.

Blackstone raised $43 billion in the first three months of the year and has gathered $126 billion in the past 12 months. Schwarzman likened it to “an out-of-body experience” compared to fundraising when he started the firm in 1985.

His behemoth investment firm reported earlier in the day that assets under management crossed half a trillion for the first time — to $512 billion.


I agree with Walter Deemer that this is a truly amazing chart…


Technology Select Sector SPDR

Railroad stocks continue to lead the Industrial sector of the market…


Dow Jones US Railroad Index

It appears so…


Is #China winning the #tradewar? Its stock market is surging, but soybeans are breaking down $FXI $SOYB

China Large Cap ETF

If you haven’t noticed it at the pump, here is the next worrying data point for Consumer Stocks…


NYMEX Gasoline (May)


If only someone could find a way to get households to turn off their TVs, the average U.S. household income would soar…


@WilcoxNMP: Whoa: TV consumption, by Income. HT @CharlesFLehman

Television Consumption Vs. Family Income

And in the category of worst graphic for the year, CBS News will not be beaten…


American Who Have Tried Marijuana - CBS News Poll


Pressure continues at the highest end of real estate prices…


The median price for a home in Greenwich dropped by 16.7% last year to $1.5 million in the fourth quarter of 2018, according to a recent report by brokerage Douglas Elliman. On the luxury end of the market, characterized by the top 10% of sales, prices dropped by 18.8%. Mr. Miller said that trend continued into the first quarter of 2019, estimating that the median price was down by more than 25%.

The average time a luxury home sits on the market in Greenwich is 357 days from its most recent price adjustment, Mr. Miller said. The only segment of the market performing well appears to be smaller, entry-level homes close to the train station, which are being snapped up by a new generation of buyers. The lowest priced condos currently on the market in that area start at around $330,000, according to Zillow.


One FT reader’s succinct summary of the Uber prospectus does a good job of laying out all the risks…


Uber Prospectus

Crazy TED statistic of the week…


Bill Gross Tweet

Finally, your next commercial free you tube binge…


Homebuyers Get Choices - In the first quarter, these markets had the biggest gains in listings

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