Weekly Wrap: The Tale Of Two Cities Between Facebook And Amazon Earnings

The Week At A Glance

This was the busiest week in earnings season thus far with more than 225 companies reporting including 174 S&P 500 companies and 11 Dow Jones Industrial Average companies reporting. So far beats are exceeding long-term averages, but those that beat are getting rewarded less than usual and those that missed are getting hit hard… just ask Facebook.

Facebook’s earnings call was nothing less than a brutal faceplant, which led to shares losing the most of any company in US history in one day, while Amazon EPS was 2x estimates despite a modest revenue miss.

Housing data once again was brutally bad with every metric weaker than expected with the data over the past three months painting a clear picture of a sector that has rolled over.

The market’s tariff tremors were eased by the apparent progress to try and reach an agreement with the European Union, but no one seems to have noticed that French President Macron is not enthused.

The US has become a $20-trillion-dollar economy in the second quarter, the first for any nation, with Q2 growth at 4.1%. As expected, we saw a massive jump in the export of goods and in federal spending.

This week the Nasdaq broke out to new highs — that was before the Facebook (FB) faceplant. As the Nasdaq has gone on to make new highs, however, more and more stocks within the index have been falling below their 150-day moving averages, which shows this rise has been on poor breadth – meaning few stocks are pushing the index up.

The S&P 500 has yet to make a new high since its 2018 lows. There have been only three times during the current bull market where the S&P 500 did not make a new high in a 6+ month period. If it does not make a new high by August 10th, this will be the third-longest streak without a new high. The FAANG stocks [Facebook, Apple (AAPL), Netflix (NFLX), and Alphabet (GOOGL)] have been responsible for nearly half of the S&P 500’s gains in 2018, rising from 11.6% of market cap to 13.6% by Thursday’s close. We’re pretty sure that deadline will sail right on by given the market’s reaction to earnings from these folks last week and this week. Next week has Apple’s earnings report, but let’s remember the June quarter is the seasonally slowest one for the company.

Wednesday, equity markets accelerated up into the close on the news that the US and the European Union are working towards a series of agreements to avoid a trade war and reduce existing tariffs. So far this is great news, but the European Union is becoming an increasingly more complicated beast as the economic performance of the countries within it are diverging further. This likely means these agreements are unlikely to be achieved neither quickly nor smoothly.

Thursday we were once again reminded that Mr. Market hasn’t been acting terribly contemplative when French President Macron tossed out a, “Wait just one second there, buddy” on this grand sweeping tariff agreement proposed by President Trump and European Commission President Jean-Claude Juncker. Shut the front door. You mean sovereign nations may actually want to have a say in their own trade agreements? Like we said, great headlines, but implementation is going to be dicey and that European Union is dealing with some testy infighting these days, so the drama is just getting started.

As even a casual market watcher knows, trade has been a major topic so far this earnings season. Three major automakers saw their shares hit hard this week as Ford (F), General Motors (GM) and Fiat Chrysler (FCAU) scaled back their 2018 earnings forecasts in the face of rising raw material prices and unfavorable exchange rate moves. GM, the largest US automaker, said that rising commodity costs on top of moves in the Brazilian Real and Argentinian peso hit its bottom line to the tune of $1 billion. GM CFO Chuck Stevens told analysts on the earnings call that the company will pass along some of the increased costs due to the tariffs. Its shares lost over 8% despite having beat estimates.

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Disclosure: None.

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