Friday, August 7, 2015

Earnings Beat…Stock Sell-Off

Nothing like the sound of the Fed starting up its interest rate machine to destroy the gains in the stock market…as the 2nd quarter of earnings releases are announced, and approximately 90% BEATING estimates, one would surmise that this market would have taken off. Heck, historically years ending in 5 which are the last year of a lame duck presidency are the BEST…but alas it is not to be the case.

The flu started with the infection of Google which completely destroyed earnings (hey, it's great to be a total and utter monopoly and control the fate of the internet…that pays handsomely) to the upside. After crushing earnings and spiking some $60B in market cap during a single day, Wall Street lined up like a pack of hyenas for the next killing…Apple. That didn't turn out too well; over the past 2 weeks the largest public company on Earth gave up nearly 20% of its market cap. Facebook and Twitter would save them, right? Not to be. Billions more lost the following trading days. Well surely blue chips like Disney wouldn't disappoint? Scratch that; because beating is no longer beating if the current trading cartels can justify after a call (in hindsight naturally) what was wrong in a beat. We're seeing any excuse to sell. Case in point, start-up Fitbit nearly quadrupled earnings yet is off some 25% since their announcement. Benjamin Graham said it well, "…in the short term the stock market is a voting machine." 

The list goes on and on, but the trend has taken place; biotech broke and the majority of tech got whacked too…the blue chips followed and underpinning all of this is a compete collapse in commodities.

Barron's had a great piece on commodities versus GDP growth…it wasn't pretty. If investors are to put stock in their article lower and lower commodity prices signal the end of robust growth.

In short order the most powerful (and unelected) person in the world, Fed Chair Janet Yellen will almost certainly raise the Fed funds rate.  The data and rhetoric has been too strong not to make a move now.

Recent results we've seen globally are, unfortunately, I believe, a precursor of what is going to happen over the coming months as global growth stalls, the Fed raises rates, and investors cash in significant gains accumulated since the last recession in the hopes of buying even lower. And lower. And lower still.

Probably a better idea to wait until there is not only clear inflation, but several sustained quarters of it before raising the Fed funds rate; cutting the fuel and pulling up the stick isn't a good combination.