foxex: Faded Gains

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Wednesday's Headlines

1. Markets Rebound, but Sell Off into the Close

2. China Exports Slow

3. Uber Prices Low

Markets Closed

Dow
25,967.33 +0.01%

S&P
2,879.42 -0.16%

Nasdaq
7,943.32 -0.26%

VIX
19.57 +1.29%

INV Anxiety Index
94.29 Low

US 10-Yr Yield
2.482 +1.39%

U.S. Markets Bounce Back with Slight Gains

Stocks staged a small rebound today, but the gains did not hold into the close, as U.S. markets ended the day basically flat. This, as the White House expressed confidence that a trade deal with China will indeed get done this week. Meanwhile, Chinese officials promised 'retaliatory measures', if the U.S. does raise tariffs on additional imports this Friday, as President Trump has threatened. It's impossible to know what will actually happen, although it's both politically and financially expedient for both sides to come to a favorable agreement, and soon.

Chinese exports slowed in April by 2.7%, compared to a year ago. That's a big reversal from March's 14.2% growth, according to China customs data. Imports rose 4% to $179.6 billion, bouncing back from the previous month's 7.6% decline.

Imports of American goods fell 26% from a year earlier to $10.3 billion. Exports to the United States, China's biggest foreign market, were down 13% at $31.4 billion.

chart courtesy tradingeconomics.com

Jamie Dimon is Optimistic

In an interview with Bloomberg News, JPMorgan Chase CEO Jamie Dimon puts the odds of a trade deal at 80%. He's probably a lot closer to the situation than we are, so let's hope he's right. Dimon was speaking at the bank's China summit in Beijing - so he's physically closer to the situation, in any case. In the interview, he also said that he doesn't think there will be a 'hard Brexit', when that new deadline approaches at the end of October. Jamie is optimistic.

photo courtesy:jpmorganchase.com

Corporate Earnings Check Up

Back to fundamentals... corporate earnings season is starting to wind down. Credit Suisse has been keeping score, and here is where things stand as of this morning:

88.0% of the S&P 500's market cap has reported 1Q.
Earnings are beating by 6.7%, with 73% of companies exceeding their bottom-line estimates. This compares to 5.4% and 71% over the past 3 years.
1Q expectations are for revenues, earnings, and EPS growth of 2.6%, 0.1%, and 2.3%, respectively.
EPS growth is on pace for 2.9%, assuming a typical beat rate for the remainder of the season. Although aggregate S&P 500 EPS is expected to rise 2.3%, the median company is expected to grow 5.6%.
Companies beating on both the top-and bottom-lines have outperformed by 1.1%, while those missing on both have lagged by -3.6%. This compares to 1.8% and -3.4%, historically.

Translation: Companies are reporting better results than forecast. Those forecasts have been overly pessimistic on the earnings front. Aggregate revenue growth of 2.6% is kind of weak, but we expected that going into this earnings season as the global economy slowed and the trade war loomed large. Companies that missed forecasts have been punished badly. There is not a lot of margin for error in this current environment.

More News:

Why The S&P 500 Is Poised For Another 20% Meltdown

How To Make a 12,000% Return On Uber's IPO

Electronic Arts Stock Hits Key Resistance Before Falling Lower

Uber Prices Low

Timing is everything in the IPO market, and it looks like Uber's timing is slightly off as the company prepares to go public. According to various reports, Uber is pricing its shares in the mid to lower end of the range it previously set with the SEC.

Per CNBC: "...Uber set a price range of $44 to $50 per share for its initial public offering in an updated filing last month. On a fully diluted basis, that would put Uber's valuation at $80.53 billion on the low end of the range and $91.51 billion on the high end. At the midpoint of its stated range, Uber's valuation would be about $86 billion on a fully diluted basis."

Translation: Demand for its IPO is not as strong as it was a few months ago.

Read More: Uber's Rough Ride Ahead

Besides the fact that Uber is losing money and the path to profitability is a bit of a mystery, Uber is following Lyft's IPO, and that stock has not performed well since it went public on March 29th. Shares are down more than 36% since that day, and the company reported its first earnings since going public yesterday. In its report, Lyft did not provide gross bookings data, which is a key metric for investors to understand whether demand is increasing or falling. LYFT shares fell 11% today.

Here's LYFT since it IPO, courtesy of tradingview.com.

Uber's CEO, Dara Khosrowshahi is incentivized to keep Uber's valuation high. According to a NYT report, Khosrowshahi will receive $100 million in stock compensation if he is able to keep Uber's valuation above $120 billion for 90 days following the IPO. LYFT's poor performance is not helping investor confidence in the ride-sharing business, but Uber is bigger, global and entering into all kinds of new businesses. Shares are expected to price tomorrow and begin trading on Friday.

Charts courtesy of www.koyfin.com

Diamondback Energy posted strong quarterly results today and the company says it has been having a lot of drilling success in the Permian Basin in West Texas. That's the same drilling area when Anadarko Petroleum is well established, which is why Occidental wants to pay $37 billion for it.

TripAdvisor had a bad miss on its earnings report and said that its hotel booking business experienced a slowdown last quarter. That's its biggest revenue driver, and investors checked out.

A better day for global markets, especially in Latin America. Brazil and Argentina are not immune to the U.S.-China trade war, as those countries are some of their biggest customers.

Word of the Day

This week, the Senate will vote to confirm a new head of the Export-Import Bank of the United States, and two other nominees to the board. The Export-Import Bank offers different kinds of financial support to encourage American exports. Given that news, though, it's a good time to get a bit more familiar with the Export-Import Bank, as well as research suggesting that the bank has "no effect on total exports."

You can read an op-ed from one of the authors of that research here, too.

Export-Import Bank of the United States

The Export-Import Bank Of The United States (Ex-Im Bank) is the official export credit agency (ECA) of the United States. An ECA is a public entity that provides loans, guarantees and insurance to companies in the home country that seek to do business in emerging markets. This reduces the risk to an individual company of doing business in those markets, and thus helps promote the exports of the home country.

photo : Investopedia

Today in History

May 8, 1929: John Clifton Bogle, future founder of the Vanguard Group of Investment Cos., is born in Montclair, N.J., to homemaker Josephine Hipkins Bogle and William Yates Bogle, Jr., a manufacturing executive and former aviator.

"Jack", as people called him, is widely recognized as the creator of the index fund and did more for individual investors than anyone in history. He passed away on January 16 of this year, but left an enormous legacy and footprint on the world of investing. I had the pleasure of interviewing him several times, and you'd be hard pressed to find a more thoughtful, caring, intelligent and committed person anywhere, and in any industry.

Read more: John Bogle, the Legendary Investor

Watch: Jack Bogle on Starting the First Index Fund

Watch: A video tour of Jack Bogle's Office inside Vanguard

Chart of the Day

We wrote yesterday about the return of market volatility, after 5 months of relative calm. LPL Financial put the lack of volatility into context for us, and shared the following chart given yesterday's sell-off.

The S&P 500's largest pullback this year has been unusually small relative to previous years. Since 1970, the S&P 500 has made it through the first five months of the year without at least a 2.5% pullback only once—in 1995.

Just because it has been calm so far, doesn't mean it will stay that way -- but the historical perspective is always interesting.