 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Thursday's Headlines 1. U.S. Markets Fall on Earnings Misses and Fed Concerns 2. ECB Holds Rates and Doesn't See a Recession 3. Earnings: Amazon, Alphabet, Starbucks 4. ECB Doesn't See a Recession Markets Closed
 Markets Today
U.S. markets wore red all day today as weak earnings from Ford and American Airlines set the tone for sellers, while a stronger than expected economic report on durable goods in the U.S. alighted fears that the Federal Reserve may not feel the need to cut interest rates when it meets next week.
Ford reported earnings and sales slightly below analysts' estimates, but gave a dour outlook for the rest of the year. The automaker cut thousands of jobs already this year in the midst of a broad restructuring of its global business. Sales in China fell 21.7% in the last quarter. Ford is also shifting most of its production away from sedans towards electric and hybrid vehicles, as well as light trucks and SUVs, which produce better profit margins. The company issued an earnings forecast for the rest of the year—something it rarely does—but it was below most analysts expectations, which may explain why shares fell more than 8% today.
American Airlines actually beat analysts forecasts for sales and profits, but it may have been infected by Boeing's issues, as it had to cancel 7,800 flights in the second quarter since it was forced to ground the 737 Air Max as mandated by the FAA following those two fatal crashes.
Shares of Tesla continues to slide today, down 14%, after the automaker posted weaker than expected results yesterday, casting doubts about its chances of returning to profitability anytime soon.  Amazon, Alphabet, and Starbucks Earnings A quick summary of three of the most high profile companies reporting on the busiest earnings day so far.
Amazon.com
Operating margins, and therefore earnings, were lower than forecast as the company spent more money on building out the infrastructure to execute on one day shipping for prime members. Amazon also forecast its operating income to be lower for the rest of the year as it continues to spend money on this strategy. The stock is down 2% after-hours, but up 35% so far this year.
Alphabet (Google)
Google's advertising revenue (where all the money comes from!) totaled $32.6 billion, compared to $28 billion a year ago. Its Cloud business pulled in $8 billion and is growing, but nowhere near the scale of Amazon Web Services or Microsoft's Azure. It is still an advertising business at its core, and a very good one. Shares are up 9% after-hours as investors love the smell of a good buyback... and a $25 billion buyback smells mighty good.
Starbucks
Speaking of smelling good, Starbucks stock is at an all-time high and set to go higher as the company has really turned things around. It is growing sales in the ultra-competitive U.S. market by 7%, while making real headwinds in China and Europe. The fact that it was able to add 400,000 new subscribers to its loyalty program is astonishing, but coffee lovers love to place the latte order on the app, and just walk in and grab their drink without speaking to anyone. What happened to the old-fashioned coffee shop? This is 2019.
U.S. Economy Might be too Strong for a Rate Cut
Another case of the good news in the economy may be bad news for the market. U.S. durable goods orders for June came in stronger than expected. The U.S. Commerce Dept. reported that orders for durable goods (think heavy equipment like car and plane parts, or washing machines) rose 2% in June after falling 2.3% in May and 2.8% in April. It's just one month of data and not a trend by any means, but with the Federal Reserve about to decide on interest rates next week, signs of economic strength weaken the case for a rate cut.  Traders are still betting that the Fed will cut rates next week, with more than three quarters of them betting on a 0.25% cut, according to the CME. But, that doesn't mean the Fed will do that. It could decide to hold its ammunition until the economy shows more signs of weakness. The idea of cutting rates now is to head off future weakness and avert a recession. But, the U.S. economy is proving to be rather resilient right now.
One thing we do know that is that rate cuts are like protein powder for stocks. They lower borrowing costs, and they make other asset classes like bonds less attractive.
LPL Financial tallied the S&P 500 reaction to the last several rate cuts, and in the six months after a cut, the market rises 11% on average. In the 12 months after a cut, it rises 15.8%. Those figures exclude 2001 and 2007, when the U.S. economy was coming out of, and heading into a steep economic downturn.  The ECB Holds Firm on Rates Some of today's anxiety may have started in Europe, where the European Central Bank left interest rates unchanged, as widely expected, but indicated the potential for a rate cut some time this year. However, ECB President Mario Draghi downplayed the need for more drastic easing measures by saying that the risk of recession in Europe is "pretty low." This language was somewhat of a surprise to analysts and economists who were expecting a more dovish approach.
The European economy is on much thinner ice than the U.S. Germany, the largest country by GDP in the EU, is dealing with a dangerous manufacturing slowdown, while countries like Greece and Spain are dealing with high unemployment. And then, there's Brexit, which is a great unknown but becoming clearer every day that Boris Johnson gets comfortable at 10 Downing Street.
It will be an interesting second half for the EuroZone.
chart courtesy www.koyfin.com  The home products manufacturer Masco surpassed its Q2 earnings estimates, resulting in an over 8% change in its stock. TechnipFMC was another big winner today; the oil and gas company beat both its earnings and sales expactations, while its backlog also rose significantly, causing its shares to rise by just over 6%.  Align technology suffered a heavy loss of nearly 27% today; although its Q2 earnings were strong, the orthodontic aligners manufacturer reported lower third-quarter earnings guidance due to concerns regarding China's consumer market. Shares of American Airlines fell by almost 9% amid several worrying reports, such as New York City suing the airline for punishing workers taking sick leave and the ongoing Boeing 737 Max grounding.  Word of the Day A stock buyback, also known as a "share repurchase," occurs when a company buys back its shares from the marketplace. You can think of a buyback as a company investing in itself, or using its cash to buy its own shares. The idea is simple: because a company can't act as its own shareholder, repurchased shares are absorbed by the company, and the number of outstanding shares on the market is reduced. When this happens, the relative ownership stake of each investor increases because there are fewer shares, or claims, on the earnings of the company.  photo courtesy https://historydaily.org/panic-of-1893
Today in Financial History July 25, 1893:
Walter Werner and Steven Smith, Wall Street (Columbia University Press, New York, 1991), p. 280.
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Thursday, July 25, 2019
Mixed Signals
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