China's Stumbling Economy

Yesterday’s session reminded me of the old saying “it was like pulling teeth.”  On one hand, the market wouldn’t stay down. On the other hand, the upside moves couldn’t gain traction, as the lack of conviction from either side was apparent.  Investors are waiting and waiting for the right signals, including more earnings reports.  

It was encouraging to see the broader indices move higher without Technology in the leadership role.  Conversely, I’m very impressed with the action in the Industrial sector.   A couple of my favorite names (United Rental- URI and JB Hunt-JBHT) posted financial results and opened lower only to reverse and power much higher, which is a clear sign of future confidence in the domestic economy.

Health care continues to rebound after a year of pressure from political saber rattling and the avalanche of legal troubles.   Sans those questions and anxieties, this could still be the cheapest sector in the market.   Of course, pressure to lower drug prices and the potential of the entire medical industry being blown to bits by a Warren presidency are dark clouds.

(For the record, I think at this moment she would win the democrat nod but not the White House.)

Manufacturers See a Deal

The Philly Fed Manufacturing report came in slightly below consensus, but inside the data is a development that I think is bigger than the headline miss – it looks like manufacturing sees a deal on the China trade front.

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CHINA ECONOMICS FINANCE

All the major categories, including general activity, new orders and work week, are sharply lower this month, and conversely, sharply higher looking six months out.

Right now manufacturers are lowering work weeks because they don’t want to lose high skilled talent, as it would cost a lot more to train new workers in the future.

You don’t have to be a chartist to see the sharp and very rare divergence in between how manufacturers feel now versus their optimism about the future.  My interpretation is many are seeing a true trade deal being signed, sealed and delivered in the next six months.

China’s Stumbling Economy

China’s third quarter GDP number was released last night and landed with a thud.  The official 6.0% (wink-wink) rate of growth is the lowest in almost 28 years.

Officials state that 90% of the downside pressure came from the trade war.  Otherwise, the print would have been 6.5%.  The news makes a deal more likely even if the public bluster suggests this news was no big deal.

Today’s Session

Most of the big-name earnings releases have beaten the street, which makes it surprising the futures aren’t higher.  Some of that might have to do with anxiety over today’s Fed speakers offering the last glimpse into a potential rate decision (after today the Fed goes into blackout).

KO

• Earnings $0.56 vs $0.56 estimate
• Revenue $9.51b vs 9.42b estimate

Organic sales growth 5% vs 4.1% estimate

• North America +3%
• Asia +3%
• EMEA +4%

Reaffirmed FY19 guidance, organic revenues ~5%, EPS growth -1% to +1%. CAPEX $2.2 billion vs $2.4 billion prior guidance and $2.24b consensus

AXP

• Earnings $2.08 vs $2.02 estimate
• Revenue $10.99B vs $10.94B

Reaffirmed guidance Adjusted EPS $7.85-$8.35 vs $8.10 estimate

SLB

• Earnings $0.43 vs $0.40 estimate
• Revenue $8.54B vs $8.5B

In connection with the preparation of its third quarter financial statements, Schlumberger (SLB) recorded a $12.7 billion pretax charge primarily relating to the impairment of goodwill, intangible assets, and fixed assets.

SYF

• Earnings $1.60 VS $1.13 estimate
• Net interest income $4.4 billion beats by $970M

Purchase volume grew 5% to $38.4 billion; and average active accounts grew 2% to 76.7 million

KSU

• Earnings $1.94 vs $1.79
• Revenues $747.7M vs $734.39M