See No Virus, Hear No Virus, Speak No Virus
Welcome to 2020, where the earnings reactions are made up … and the coronavirus doesn’t matter.
That’s right, folks. The Wuhan coronavirus just passed 6,000 confirmed cases in mainland China — making it bigger and faster than SARS — and no one on Wall Street cares. I think I’ve said this before, but I don’t expect Mr. Market to start caring until this virus spreads independently in other countries … particularly Western countries.
But that doesn’t mean you shouldn’t prepare now. (After all, just because you’re not paranoid doesn’t mean they’re not out to get you … right?)
What’s Wall Street’s focus right now?
Corporate earnings and the Federal Reserve.
Corporate earnings, I completely understand. Here’s a brief rundown of the headline highlights:
- Apple Inc. (Nasdaq: AAPL) posted blowout results last night with rising iPhone demand.
- General Electric Co. (NYSE:GE) revealed solid cash flow. Forget silly things like poor earnings and revenue — cash flow is apparently king for GE.
- Boeing Co. (NYSE: BA) apparently doesn’t suck as much as everyone thought … or does it? (We’ll have more on Boeing in a bit.)
The confusing part is the focus on the Fed. The Federal Open Market Committee concluded its two-day policy meeting today … and basically, nothing happened. So we have that going for us, which is nice.
There was no movement on interest rates, barely a nod to the Wuhan virus situation and a smattering of talk about balance sheets and “not-quantitative easing.” Very thrilling indeed.
According to Banyan Hill expert Ted Bauman, editor of The Bauman Letter (who saw that coming?), the Fed is essentially “monetizing federal debt via the repo market.”
I’ve talked about the repo market and the problems therein before. I’m not going to rehash that topic again … unless I need a nap later.
Here’s a quick rundown of Great Stuff repo market coverage, if you’re into that kinda thing:
- September 18: The first Fed liquidity injection since 2008.
- October 23: The repo man is coming.
- December 11: Not-quantitative easing: The Fed drops $70.2 billion on the market.
Seriously, though, this is an important market topic and can influence your portfolio returns going forward. If you really want the details on this situation, I highly recommend you follow Ted Bauman.
Here’s Ted’s take on the Fed and the repo market: “The Fed’s Printing Money Again — but Not for You.”
(And you thought Great Stuff was the only publication with snark!) When Ted’s research is right on the money, he doesn’t hold back … especially when it comes to Wall Street/the Fed clobbering everyday people. (Hey, that’s us!)
If Ted’s market outlook jibes with you, be sure to check out The Bauman Letter. Click here to see how you can get the investing research that Ted doesn’t share with just everyone.
Dear God, the virus, man! What about the virus!?
I get from your feedback that many of you are rather interested in the Wuhan virus. Since I can’t be there to update you with every little detail, I found a site where you can track things for yourself right here. Have fun watching your own mini version of Outbreak!
I’m heading back to my bunker now to make sure I have enough bourbon to ride this out.
The Good: The Daddy Mac Will Make You
If you’re looking for a true earnings highlight in today’s deluge, McDonald’s Corp. (NYSE: MCD) will make you jump (jump!).
The burger master reported impressive earnings this morning, with same-store sales growth coming in at its strongest pace in 10 years. That’s wiggity, wiggity, wiggity whack. (What, no Kris Kross fans out there? Oh well.)
By the numbers, McDonald’s beat earnings expectations by a penny per share, with revenue topping targets by $50 million. The aforementioned same-store sales rose 5.9%, versus Wall Street’s guess of 5.1%. This particular point in McDonald’s earnings was a major confidence booster, after the company missed sales growth expectations last quarter.
Still, analysts remain cautious on the Golden Arches. About 9% of McDonald’s global locations are in China — virus territory.
The Bad: Boeing Inverts
Want to see a neat trick? Look at Boeing’s earnings report. Then look at Boeing stock.
The company reported a surprise loss of $2.33 per share on revenue of $17.91 billion. Wall Street anticipated a profit of $1.73 per share and revenue of $21.67 billion. Now, I’m doing a little back-of-the-envelope math here, but that’s a 234% miss on earnings and a 17% miss on revenue.
Let’s repeat that, shall we? Boeing missed earnings targets by 234%. Whoosh. Missed them by a country mile.
It gets better. Commercial airplane revenue plummeted 67%. Defense revenue dropped 13%. Global services revenue slipped 5%. Boeing even announced $9.2 billion in charges related to 737 Max customers and $4 billion in “abnormal production costs.”
So, where’s Boeing stock after this crash-and-burn performance? Why, it’s up nearly 3%. It defies gravity! It’s literally flying inverted.
This has to be a sentiment rally. The numbers don’t add up … which has me thinking: If these results weren’t as bad as investors expected, how bad is investor sentiment on Boeing right now?
The Ugly: 4.1 Million Subs … Gone
The company even added more wireless subscribers than Wall Street anticipated, pulling in 229,000 subs on the quarter, compared to targets of 145,000 subs.
But the focus on AT&T has shifted away from wireless subs in the past year. The company is now positioning itself as a major player in the video-content market. Along those lines, AT&T failed miserably.
The company lost roughly 1.2 million pay-TV subscribers (including 219,000 subs lost at DirecTV Now). In total, AT&T shed a record 4.1 million pay-TV subscribers on the year. That’s more than the total population of Los Angeles, California.
The revenue miss is somewhat forgivable. AT&T is spending tons to get its new streaming service, HBO Max, up and running by May. In the meantime, however, the company will be lucky to have any subs left to send to HBO Max. That means more marketing and promotional costs to get new sign-ups.
But wait, scratch those promotional costs. AT&T also said in its earnings conference call that it’ll no longer pursue promotions for low-profit customers.
Where’s my popcorn? This is going to be fun when HBO Max finally launches in May … without a Game of Thrones style headliner to draw subscribers in.
It’s new feature time here at Great Stuff!
Don’t worry, Comic Corner isn’t completely gone … yet. But, to get a better handle on your takes on the market and investing (and whatever other off-the-wall topics we can think of), we’re kicking off the Great Stuff Poll of the Week today.
This question has been burning in the back of my mind for some time now — especially since so many of you have such strong opinions on companies such as Beyond Meat Inc. (Nasdaq: BYND) and Tesla Inc. (Nasdaq: TSLA).
So, here goes. Click the button below and get started. Oh, and you know that we’ll discuss the results later:
Did you answer the poll?
With that out of the way … hey, put down the virus tracker and get back here. I’m trying to learn you something here. It’s time to refresh your investing edge.
(Not that edge! Put the blade down! What is this, ADHD day?)
Sigh … let’s face it: The Fed is always gonna feed the big boys on Wall Street. With a steady stream of easy money, these market goliaths will keep getting bigger and bigger … their stocks hitting consecutive all-time highs. It’s like quantitative easing with extra steps.
But remember that every Goliath has its David. And surprise … that’s you! (Well, in the stock market, that is. Unless your name’s David … then you’re David all the time anyway.)
Even with all their millions and billions, big-money investors are actually held back because of their size.
They can’t buy the next tiny tech darling. They can’t stick through volatility or wait for market trends to rise.
But you can. That’s your edge.
I wasn’t joking around on Monday: There’s truly no way to plague-proof your portfolio other than holding stable, well-run companies. And in the coming weeks, you’ll have the perfect opportunity to do so.
Keep an eye on your inbox — Somebody’s coming, woah! — and I’ll be sure to pass along every chance I see to beat Wall Street’s goliaths at their own game.
Until next time, good trading!
Great Stuff Managing Editor, Banyan Hill Publishing