The Bulls Need to Have Their Pulses Checked Pronto: Taking Stock

(Bloomberg) -- Some of the earnings-fueled lift in stock futures overnight has faded, even with Facebook shares up over 6% and yields pulling back: 10-year returns to the shiny 3.00% mark, after hitting 3.03% several times in the past 24 hours, while the 2-year is back to ~2.48%.

Today is another uber-heavy day of earnings, with a large amount of focus overnight on the developments in European banks (Deutsche Bank’s abandoning its global ambition after a "disaster" report, while Barclays hit with $2.8 billion of misconduct charges). We’ll also get the ECB decision at 7:45am followed by President Trump being interviewed on "Fox & Friends" shortly after.

Checking the Pulse of the Bulls

The post-close earnings dump provided a parade of positive share reactions (FB, GM, AMD, QCOM, XLNX, CTXS, PYPL, V, F, ORLY, CMG, LVS, Samsung, Volkswagen, Total) vs just a few negative ones (T, EBAY, Nokia, Nintendo, Shell). But how confident do the bulls really feel that any rally has legs?

They can’t be -- I mean, look at how quickly futures gave up their overnight gains, and even traded in the red for much of the morning. It must be almost expected at this point that any relief rally gets sold given the price action that we’ve seen lately, like the weakness in the banks on good reports, the post-earnings breakdown in the semis (SOX plunging almost 9% in six days) and staples (down >6% in same time frame), and the blast to investors’ psyche that took place on Tuesday with that mind-numbing reversal.

And it’s not like there aren’t plenty of catalysts in the wind that could derail the whole thing. For one, there are plenty of big earnings reports this morning that could mess things up, especially in some currently out-of-favor sectors like staples (MO, HSY) and defense (RTN).

And even if the earnings don’t change the narrative, the ensuing conference calls might, like how CAT’s "high water mark" comment set off a twinge of panic across desks and prompted a flurry of market sell orders. One thing that’s become certain this season is that beats-and-raises don’t matter if management gives the Street a reason to take profits on the call.

Points of Derailment

But let’s say the rally does stick today and we creep up a bit further away from the S&P 500’s 200-day moving average at ~2,609 (we came a few points from testing it yesterday). It’s not like there aren’t a boatload of more events to be wary of, first and foremost being a rash of results after the bell from some of the biggest names in tech (AMZN, MSFT, INTC, BIDU, WDC, KLAC, and more) that might not come in as sanguine as the ones we received last night.

On top of that, we have an inflation data point tomorrow morning in the Employment Cost Index that is being talked about much more than usual, and might even steal the show from the GDP print that hits at the same time. The spotlight on the ECI makes sense given the tick-by-tick focus by traders on the 10-year, after it just crossed the 3% milestone (3.05% is the next spooky level to watch), and the 2-year, which is arguably the more important yield to watch for spillover weakness in the equities markets. And if tomorrow is benign or turns out to be inconsequential, there are plenty more eco figures hitting next week that might move the needle.

And we also have the general macro overhangs that may have subsided a bit given distractions from all the micro news, but haven’t gone away in the slightest: China trade tensions (Huawei probe reports aren’t helping, and the news knee-capped the optical component stocks for a second time in two weeks), the worries over Nafta, the possible break of the Iran nuclear deal, the twists and turns with the Cohen case and the Mueller probe, and so on.

Notes From the Sell Side

Some of the biggest calls so far... TWTR has received four upgrades since reporting earnings yesterday morning, two of them hitting this morning (Macquarie and Atlantic Equities) and another (UBS) hitting right before the closing bell... CMG also getting similar love, with three analysts (BTIG, Cowen, Guggenheim) so far boosting their ratings after the beat... AMD trading up ~9% pre-market, though Goldman reiterates it sell on questions surrounding the crypto business while Morgan Stanley is cautious on the company’s graphics growth.

Bernstein cutting its iPhone estimates for AAPL, though noting buyside expectations have been ratcheted down considerably in recent weeks. Also Socgen upgraded BA on strong earnings and cash flow growth optimism..

Tick-by Tick Guide to Today’s Actionable Events

  • 6:59am -- BMY earnings
  • 7:00am -- UPS, LEA, OSK, HEES, MO, HSY, SHPG, COP earnings
  • 7:00am -- Kynikos founder Jim Chanos to appear on CNBC
  • 7:30am -- GM, AAL, PH, CME, DPZ earnings
  • 7:45am -- ECB rate decision
  • 7:45am -- MGM earnings, PEP earnings call
  • 8:00am -- Trump to be interviewed on Fox, according to a tweet
  • 8:00am -- UNP, ITW, TWX earnings; DNKN earnings call
  • 8:00am -- DVMT business update call
  • 8:30am -- Trade Balance, Durable Goods & Initial Jobless Claims
  • 8:45am -- UNP earnings call
  • 9:00am -- RTN earnings; MO, SHPG earnings call
  • 9:30am -- GM earnings call
  • 10:00am -- DPZ, NEM, VLO earnings call
  • 10:30am -- EIA natgas storage
  • 11:00am -- Kansas City Fed
  • 12:00pm -- COP earnings call
  • 12:30pm -- LUV earnings call
  • 4:00pm -- INTC earnings
  • 4:01pm -- AMZN, EXPE, ATHN earnings
  • 4:02pm -- FSLR earnings
  • 4:03pm -- BJRI earnings
  • 4:05pm -- MAT, MHK, FBHS, SYK, MXIM, CY, PFPT, VRSN earnings
  • 4:09pm -- MSFT earnings
  • 4:10pm -- WDC earnings
  • 4:15pm -- KLAC, X (roughly) earnings
  • 4:17pm -- DFS, FTV earnings (roughly)
  • 4:24pm -- SBUX earnings
  • 4:30pm -- BIDU, EMN earnings; FSLR earnings call
  • 5:00pm -- INTC, SBUX earnings call
  • 5:30pm -- AMZN, MSFT, WDC earnings call
  • 6:00pm -- KLAC earnings call
  • 8:00pm -- NFL Draft starts with the Cleveland Browns on the clock
  • 9:30pm -- China Industrial Profits
  • Tonight -- DocuSign (DOCU) IPO scheduled to price

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