It's Tough to Trade With These Violent Mood Swings: Taking Stock

(Bloomberg) -- The leg up in stock futures at ~5am is tough to attribute to much, though Trump did release a flurry of tweets after 6am that could be helping the market’s cause. One was throwing shade on the NY Times report that said he wanted to fire Mueller in December, while another said an attack on Syria may be "not so soon at all," which is a bit less draconian than his "Get ready Russia" tweet from yesterday morning.

As for non-Twitter news, it’s been relatively quiet in the overnight session. European industrial production wasn’t a good print (actual -0.8% vs estimate +0.1%) and we received some mixed earnings, with retailer Bed Bath & Beyond down ~16% pre-market (more on this below) and some decent prints out of the financials with asset manager BlackRock and regional bank Commerce Bancshares both reporting huge bottom-line beats. Also the IPO for cloud software company Zuora (ZUO) priced above its range.

From Panic to Whimper

What started as a frantic bout of selling in the S&P E-minis after Trump tweeted about firing missiles into Syria fizzled out unconscionably fast. The market bounced immediately off the open and traded choppy throughout the day, while volumes were so anemic that they actually ended up the lowest daily figure for all of 2018.

We did end the day down, with some blaming the Fed Minutes for the post-2pm weakness. But it’s hard to make the case given the events that have transpired since the rate decision, the overall lack of conviction in the tape, and the fact that a "hawkish"-looking Minutes was one of a slew of excuses that investors could have used to justify a predictable pullback (given how range-bound we’ve been lately) after Tuesday’s massive rally.

Bloomberg Economics touches on this: "While some market participants initially judged the minutes as signaling a hawkish evolution, it is important to note that this sentiment was widely evident at the time of the meeting, so the minutes are not evidence of a further drift."

Still Pumped for Earnings?

It seems like everyone can’t wait to shed all of the macro distractions and get back to business with the informal kickoff to earnings (JPM, C, WFC, PNC) this Friday. But, for one, the BKX traded very weak yesterday (down 1.2%), which seems like a bad omen just days before the rush of bank results.

Secondly, the questions begs how much of the optimism over the strong quarterly results is already baked in, and what happens if managements are overly cautious on guidance. And lastly, is everyone still confident after the market punished three big reports in a row?

The first two are in the same sector, the industrial distributors. We saw MSC Industrial underperform Tuesday on a mixed bag of results; many sell-siders saw more good than bad in MSM’s numbers, but regardless the market didn’t react positively as the day wore on. And yesterday, larger-cap peer Fastenal brought the entire sector down (at one point FAST was off almost 9%) after disappointing gross margins.

Worst of all might be retailer Bed Bath & Beyond, which is plummeting ~16% in the pre-market after a weaker-than-expected earnings forecast. This comes at a pretty unfortunate time for retail stocks, as we just saw some signs of life in the XRT for the first time in what seems like forever. And as for BBBY, if the stock doesn’t recover from what we saw last night, we could see a close at levels not seen since the year 2000!

The Final Word on Zuck

While the vast majority of the Street came away feeling good about how Zuckerberg performed in the Capitol Hill hot seat, (FB up more than 5% in last two days), it’s refreshing to hear a bear’s take.

Pivotal Research’s Brian Wieser, one of only two analysts with a sell rating (out of 47!), agreed with the bulls that Facebook likely avoided incremental damage from the testimony, but he still sees significant regulatory risks for the company and others, like Alphabet. He also cites a ton of other reasons to be worried, including increased risks around higher costs and/or decelerating revenue growth from the whole episode.

Another fresh note comes from Cowen policy analyst Paul Gallant, who says regulatory risk appears manageable for Facebook. He had three interesting takeaways: 1) privacy legislation is unlikely in next couple of years, 2) Republican commentary didn’t push FTC toward harder line, which is "important and good for Facebook," and 3) if the House goes Democratic in the Fall, risk of privacy legislation increases.

Tick-by Tick Guide to Today’s Actionable Events

  • Today -- Financial Stability Oversight Council to discuss PRU’s designation as systemically important non-bank financial company
  • Today -- Europe liver meeting presentations from AGN, CBAY and LLY
  • 7:00am -- DAL, RAD, CBSH, OZRK earnings
  • 7:30am -- ECB Minutes
  • 7:30am -- LB monthly sales
  • 8:30am -- Import Price Index and Initial Jobless Claims
  • 9:00am -- CLDR analyst day
  • 10:00am -- House holds hearing on tariff effects
  • 10:00am -- DAL earnings call
  • 10:30am -- EIA natgas storage
  • 5:00pm -- Fed’s Kashkari speaks in Q&A

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