Be in the know. 18 key reads for Sunday…

  1. Tiger Woods Has Bookmakers Sweating After Third Round of Masters (Bloomberg)
  2. Stifel Has 5 Top Energy Stocks to Buy Under $10 With Massive Upside Potential (24/7 Wall Street)
  3. The Winklevoss Twins Discuss Gemini and Facebook (Podcast) (Bloomberg)
  4. Hedge Fund and Insider Trading News: AQR Capital Management, Greenlight Capital, Soros Fund Management, Lonestar Resources US Inc (LONE), Bassett Furniture Industries Inc. (BSET), and More (Insider Monkey)
  5. Why the NHL’s best team in decades is unlikely to win the Stanley Cup (Economist)
  6. Here Are the 21st Century’s Best Supercars (So Far) (Robb Report)
  7. Here’s A Pretty Cool Magic Coin Trick (Digg)
  8. You Can Buy a Vacation Home in Italy for Just $1, But There’s a Catch (Maxim)
  9. No Trespassing! 16 Celebrities Who Own Private Islands (People)
  10. Episode 906:The Chicago Boys, Part II (NPR Planet Money)
  11. Episode 19-15 Beyond Moonshots? There’s Loonshots (Tech Nation)
  12. 7 Secrets From a Grilled Cheese Master (MentalFloss)
  13. Behind the Buzz: How Ketamine Changes the Depressed Patient’s Brain (Scientific American)
  14. Why Foreign Investors Aren’t Buying As Much U.S. Debt (Podcast) (Bloomberg)
  15. These are Amazon’s 38 rules for success (Fast Company)
  16. Majority of highest-earning hedge fund managers and traders are at quant firms (Mathematical Investor)
  17. 1958 Maserati 3500 GT or 1969 Lamborghini Islero 400 GT S (Thelifeofluxury.com)
  18. What Is CBD Oil? (Reader’s Digest)

Be in the know. 20 key reads for Saturday…

  1. Uber reveals it has 91M users in IPO filing (New York Post)
  2. Risk of earnings recession rises, as S&P 500 profits to fall for first time in 3 years MarketWatch
  3. Wells Fargo’s bottom line is growing despite shrinking deposits and loans (CNN)
  4. Cash Out, or Go All In: When Stocks Are Up 16% and It’s Only April (Bloomberg)
  5. Hedge Funds Fretting U.S. Stock Doom Have Nimble Counter-Plan (Bloomberg)
  6. Disney’s Answer To Netflix Wows Wall Street With ‘Unparalleled’ Content, Lower Price (Investor’s Business Daily)
  7. CVS Wants to Fix Health Care. It’s Time to Buy the Stock. (Barron’s)
  8. Great Escapes: Phnom Penh & Cambodia’s Luxurious Coast (Barron’s)
  9. Maple Leafs Fans Pay Big for Slim Chance of Stanley Cup Glory (Bloomberg)
  10. GM teases 2020 Chevy Corvette C8 in bid for Ferrari, McLaren luxury sports car market (MID-ENGINE) (CNBC)
  11. JPMorgan Posts Record Profit, but Interest Rates Cloud Outlook (Wall Street Journal)
  12. The Market Loves Tax Day (QuantifiableEdges)
  13. You can now lease the Tesla Model 3, but don’t expect to buy it in the end (USA Today)
  14. U.S. establishes $20.4-billion fund to bring 5G to rural America: What 5G means for you (USA Today)
  15. NASA Asks SpaceX to Help It Save Earth From Incoming Asteroids (Futurism)
  16. Eric Schmidt — Lessons from a Trillion-Dollar Coach (#367) (The Tim Ferriss Show)
  17. Most Anticipated Earnings Releases for the week beginning April 15, 2019 (Reddit)
  18. U.S. Retail Stores’ Planned Closings Already Exceed 2018 Total (New York Times)
  19. The Making of Saudi Arabia’s Energetic, Ruthless Crown Prince (Wall Street Journal)
  20. April’s Option Expiration Week Historically Bullish: DJIA Up 30 of Last 37 (Almanac Trader)

Q1 Earnings Estimates bump up modestly…

Data Source (above): Factset

Q1 earnings estimates bumped up 10bps from -4.2% last week to -4.1% this week.

As we stated last week, the bar is now so low that companies don’t even have to jump to get over it.  They can stumble over like a drunken frat boy and still win.    That’s the good news. 

The bad news is that with estimates down to -4.1% for Q1 versus -3.9% two weeks ago and +2.8% on December 31, it is unlikely that earnings will be flat for Q1 – even after they beat.  They will most likely be negative year on year.

Smart folks will say, “that’s priced in – it’s all about guidance.” I agree, to an extent.  Where I’m cautious is if we get another sequential drop (Q4 2018 vs. Q1 2019) in OPERATING earnings (versus ‘as reported’).

Data Source (below): Howard Silverblatt – S&P Global

The significance of this is that it would signal a deterioration in the underlying economy last seen only in late 2007 and 2000. As you can see, we have a $1.79 “margin of safety” against this happening on Operating Earnings (difference between Q4 2018 final – $35.03 and Q1 2019 est – $36.82).

The difference is that while “as reported” earnings tend to beat by ~3%, “operating earnings” have recently DROPPED as the reporting period progressed. For example, operating earnings estimates for Q4 2018 were estimated at $38.82 with just four weeks left of reporting in early March and they finished out $3.79 LOWER by the end of the Q1 reporting season last week (for a 15.34% sequential drop from Q3 2018-Q4 2018).

So while it is not our base case that we will get a second sequential drop, it is now within the realm of possibility. Whether that yields an outcome similar to 2007/2000 periods when this last happened is to be determined, but I would err toward unlikely as the pressure will be on for the fed to ease.

Furthermore, the 2/10 part of the curve has not even inverted yet (stock market peaks are usually ~1.5yrs AFTER 2/10 inversion, so the countdown clock has not even started). The 2/10 had been inverted for almost 2 years prior to the double sequential operating earnings drops in 2007 and 2000.

I covered these subjects extensively in this recent article:

UPDATE (newest data): Bull vs. Bear Death Match: Why Q1 Operating Earnings are “Make or Break”