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Market Update

Earnings Season! Meeting Expectations Is Great, But Revenue Is Greater

July 14, 2015

Yesterday’s trading saw a second day of strong gains—once again most major indexes were up nearly 1%. The Greek deal continues to set a positive tone for the market overall; the S&P 500 (SPX) stalled right at the key 2100 level. 

In other areas, although crude was down more than 2% overnight and was flirting with the $50 level, a rally this morning brought the black gold back above $52 as we headed into the open. Still unclear: the possible effects of a nuclear deal with Iran that may result in lifted sanctions—and additional supply (even glut?) for crude.

The other interesting overnight news came in the form of an article from the Wall Street Journal reporting a bid for Micron Technology (MU) from China’s Tsinghua Unigroup. This is a 19% premium to Monday’s close; Micron is down almost 50% this year. 

Expectations. JP Morgan (JPM) beat earnings expectations as their second quarter profit increased 5.2% on slashing costs and strong deal-making activity. They reported a profit of $1.54 per share, but the key revenue metric fell 3.2%. A similar story was seen at Wells Fargo (WFC); the bank met consensus expectations, but it too fell short on revenue expectations. There was a bit of a mixed picture on housing. Originations were higher, but applications were 13% lower for the quarter. The auto loan front was strong. Although companies are meeting or beating on EPS, the concern remains that these are lowered expectations. Without revenue growth, the economy and GDP could continue to be stuck in the mud. 

Impulse Buys. Retail sales numbers, out this morning, will be important to confirm the solid employment numbers we have seen. But the numbers were basically unchanged, which shows we’re still not seeing the consumer coming back in the way we might like.

Streaming. We’ll keep an eye on Netflix (the company, not the flicks!) as the online streaming company (NFLX) has continued to flow higher in the last few sessions. That’s ahead of its 7:1 split on the close today. More must-sees include earnings from Yum! Brands (YUM) and CSX Corporations (CSX).

Good trading,

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