`High Water Mark' Confusion Grabs Hold of Markets: Taking Stock

(Bloomberg) -- Stock futures have hit session lows, the 10-year yield presses higher (peaked at 3.03% overnight), and the S&P 500 200-day moving average of 2,608 is very much back in play.

There wasn’t a ton of macro news to point to, though China boosting its limit on foreign investment for the first time in three years is getting attention. The bulk of the focus is on earnings, with Credit Suisse gaining over 4% in Zurich, TXN delivering for the semis (more on this below), defense name NOC with a beat and raise (could this reverse the spill in defense?), and TWTR shooting up more than 10% on a better-than-expected print.

Boeing is the most anticipated earnings left before the opening bell, scheduled for release at 7:30am, while the gigantic volume of tonight’s reports stretches throughout tech (Facebook, AMD, Qualcomm, eBay, ServiceNow, F5 Networks, Samsung) in addition to big names like PayPal, Visa, AT&T, Chipotle, Ford, Las Vegas Sands, and U.S. Steel.

Peak Confusion

Yesterday’s 67-handle reversal in the S&Ps was brutal for the bulls and a marvel for anyone sitting on the sidelines. The action was anywhere from panic-inciting, like CAT’s "high water mark" comment (which some said was misinterpreted as meaning this was the peak of the cycle) that sent the machinery space off a cliff and spilled over into the rest of the market, to straight-up vicious (mega-cap MMM sinking 6.8% after slashing the top end of its forecast, building products maker MAS tumbling more than 8% on a miss, and copper bellwether FCX nosediving 15% on a host of concerns), to just downright confusing.

Take GOOGL, which traded up in the pre-market after delivering huge top line numbers, but sank like a rock off the open (the massive spending figures didn’t help), taking its FAANG friends with it and closing down nearly 5%. Or look at defense major LMT, which had a near 9% peak-to-trough intraday reversal -- some cited the lack of a boost to cash flow forecast (though that’s a heck of a delayed reaction given the release hit at 7:30am) while other traders threw their hands up and said the sector selling felt program related.

Not to mention the rotation into the yield-sensitive groups, with telecom, utilities, REITs, and consumer staples all closing atop the S&P 500 leaderboard on the same momentous day that the 10-year yield finally breached the 3% milestone. Sure, the break above that spooky 3% number was anticipated for months now and many could chock it up to a risk-off move, but the flows, and the precarious action in the banks (BKX closed flattish after trading up as much as 1.9%), don’t sit well.

Another Relief Rally Attempt for Semis

Chip stocks are looking higher, and the SOX is poised to bounce off its 200-day moving average of ~1,245 (which it practically closed at last night), after Texas Instruments gave the first well-received earnings report in the group. TXN is climbing nearly 5% (a rarity after disappointments from Taiwan Semi, Lam Research, ASML, and several others) and all signs point to a relief rally for the sector.

Bulls will point to strong auto and industrial numbers (a plus for peers like CY and ON), few signs of double ordering (a risk flagged by some in recent days), and overall a report that should ease concerns over a possible cyclical correction.

But we’ve seen this movie before, so don’t be surprised if the reaction gets muted or reverses (like we saw yesterday after the broader tape tumbled) as the day wears on. For it wasn’t all rosy news for the space, with TER crumbling as much as 23% last night on forecasts that missed the Street by a mile; Keybanc believes the miss is primarily tied to "soft Apple demand," which has been a theme so far. Other reports in the space include mid-cap MKSI (lifting ~3% last night) and Apple supplier STMicro (up over 4% overseas).

Notes From the Sell Side

Analysts and their juniors are busy churning out earnings previews and reviews (not an easy task after what transpired yesterday), but there are some big calls out there.

Stifel moved GOOGL back to buy, after downgrading the stock in early February, which skews the total analyst count even more bullish than before (now 35 buys vs 6 holds and 0 sells)... Pivotal Research analysis of digital content consumption data shows positive trends for GOOGL and "continuing erosion" for FB’s share of usage... BMO upgraded DIS after rating the stock an underperform for almost a year and a half... and VZ gets its rating lifted to buy by two shops (UBS and SunTrust) after yesterday’s beat.

Tick-by Tick Guide to Today’s Actionable Events

  • Today -- NEXA, FSCT, MBIN IPO lockup expiry
  • Today -- AAN presentations include AVXS, BIIB, RGNX
  • 6:59am -- TRVG earnings
  • 7:00am -- TWTR, CMCSA, SIRI, NDAQ, ROK, TUP, GSK earnings
  • 7:05am -- SLAB earnings
  • 7:15am -- GT earnings
  • 7:30am -- BA, GD, TROW, HES earnings
  • 8:00am -- NSC, VIAB, USG, BTU earnings; TWTR, TER earnings calls
  • 8:30am -- ACN investor conference, CMCSA earnings call
  • 9:00am -- ANF investor day
  • 10:00am -- GE annual meeting, VIAB earnings call
  • 10:30am -- DoE oil inventories
  • 10:30am -- BA earnings call
  • 11:00am -- BTU earnings call
  • 1:45pm -- Trump scheduled to meet with Apple CEO Tim Cook
  • 4:00pm -- FFIV, ALGN earnings
  • 4:01pm -- T, NTGR, LVS earnings
  • 4:03pm -- QCOM earnings (roughly)
  • 4:05pm -- FB, AMD (roughly), CTXS, AZPN, V, KNX, BMRN earnings
  • 4:10pm -- NOW, AXTI, PYPL, CMG earnings
  • 4:15pm -- EBAY, F, LSTR, LM, CAKE earnings
  • 4:20pm -- XLNX, AFL earnings
  • 4:30pm -- CMG earnings call, ORLY earnings
  • 4:45pm -- QCOM earnings call
  • 5:00pm -- FB, EBAY, PYPL, V earnings call
  • 5:30pm -- AMD, F earnings call
  • 6:00pm -- X earnings (roughly)
  • 8:00pm -- Former FBI Director Comey partakes in CNN town hall event
  • 9:00pm -- Samsung earnings
  • Tonight -- Ceridian HCM Holding (CDAY) IPO scheduled to price

©2018 Bloomberg L.P.