Earnings Reactions Are Upside-down

Inflation was out of control, interest rates soared, bonds screamed caution and a recession seemed imminent. Yet, here we are, 20 months later with the S&P 500's bear market nearing a full recovery, just 260 points short. Talk about market resilience!

Market

Prices as of 4 pm EST, 7/24/23

Macro

As it turns out, the honor system doesn’t work in the banking sector.

• The FDIC has accused some banks of misreporting deposit data following the banking crisis in March.

• According to the S&P, 55 banks restated their Q4 numbers, up more than 3x from a year earlier.

• You see, many banks underreported to reduce their liability for the “special assessment” proposed by the FDIC in May.

• Now, the regulator has called on banks to correct those figures.

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Private sector business activity expanded at the slowest pace since February in July.

• Manufacturing activity increased more than expected but remains in contraction.

• Services missed estimates but continue expanding, albeit at its slowest pace since February.

• Price pressures, meanwhile, are still a cause for concern (particularly in services):

S&P Global

Stocks

Here’s something you don’t see every day (or, ever)…

• Stocks that beat earnings estimates are underperforming those that miss.

• That’s right: beats are getting punished more so than misses.

• In BofA data going back to 2000, this is the first such earnings reaction.

Bank of America

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Many headlines over the past 24 hours claim Morgan Stanley’s Mike Wilson has thrown in the towel.

• Despite offering clients a “we were wrong,” Wilson doesn’t appear to be flipping on his position just yet.

• The uber bear warns progress on inflation now represents a headwind for sales growth and falling prices could lead to reduced pricing power/lower margins.

• He also notes 2023 EPS revisions have reversed and resumed their decline into negative territory.

• The verdict: Mike Wilson, still bearish.

Morgan Stanley

Energy

WTI crude closed above its 200-day moving average yesterday for the first time since late August.

• US oil prices now sit at the highest since April.

• Driving recent gains: tight supplies, Chinese stimulus, and a weaker dollar.

Earnings

Yesterday’s highlights:

Cadence Design Systems CDNS: $1.22 EPS (vs. $1.18 expected), $976.58 million in sales (vs. $975.99M expected).

• Demand for design software remains resilient amid a cyclical downturn for chipmakers.

• While current quarter guidance disappointed, the company raised its full-year outlook above analysts’ estimates.

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What we’re watching today:

• Microsoft MSFT

• Google GOOGL

• Visa V

• Danaher DHR

• Texas Instruments TXN

• NextEra Energy NEE

• Verizon VZ

• Raytheon RTX

• Unilever UL

• General Electric GE

• Chubb CB

• Waste Management WM

• Sherwin-Williams SHW

• Moody’s MCO

• 3M MMM

• General Motors GM

• PACCAR Inc PCAR

• Kimberly-Clark KMB

• Archer-Daniels ADM

• MSCI Inc MSCI

• Biogen BIIB

Top Headlines

• Vehicle sales: US auto sales are expected to rise 18% YoY in July.

• Help wanted: A labor shortage is threatening the US chip industry’s planned expansion.

• Archegos fine: UBS will pay ~$390 million in fines for Credit Suisse’s involvement with Archegos Capital.

• Pricing power: Apple is thinking about jacking up the price of its new iPhone Pros.

• Buffet BTFD: Warren Buffett is buying the dip in his O&G holdings.

• Debt bill: The UK is projected to have the highest debt interest bill among high-income countries in 2023.

• Euro loans: Demand for business loans in the Eurozone dropped to its lowest level since 2003.

• Music streaming: TikTok has launched a music streaming service in Indonesia and Brazil to compete with Spotify and Apple Music.

Crypto

Prices as of 4 pm EST, 7/24/23

• Government Accountability: The US government did a whole study to conclude that its regulators do a lousy job regulating crypto.

• SEC vs. XRP: The SEC plans to appeal Ripple’s recent legal win regarding XRP tokens on secondary markets.

• SBF gag order: A federal judge may soon bar Sam Bankman-Fried from talking to the public.

• Binance vs. CFTC: Binance plans to seek dismissal of the CFTC’s lawsuit against it.

• Russian CBDC: Vladimir Putin approved a bill to introduce a digital Russian ruble.

Deals

• Self storage: Public Storage is acquiring Simply Self Storage from Blackstone for $2.2 billion.

• EU antitrust: The EU will launch a full-scale antitrust investigation into Adobe’s $20 billion bid for Figma.

• Cybersecurity M&A: French group Thales will buy US cybersecurity firm Imperva in a $3.6 billion deal.

• Ride-sharing: Lyft is considering strategic options for its bike and scooter unit so it can refocus on its core business.

• Insurance M&A: US insurer Chubb is exploring a 49% stake in India’s Kotak General Insurance.

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