Well, here we are with the market back in reverse. Major indices never had a chance yesterday, as Technology led the way down, under the most pressure from the opening bell. So, the sigh of a relief rally is over, and now investors are back to wondering when the broad market finds terra firm. It’s no secret the market was due to pull back, as the last two sessions have been rocky, both closing near the lowest points of the session. The swoons aren’t the breathtaking freefalls of March, but they are big moves. It’s time to assess key support points and potential outcomes.
Key Support Points: Dow Jones Industrial Average:
- 22,653
- 21,052
Key Support Points: S&P 500:
- 2,660
- 2,500
Key Support Points: NASDAQ:
- 8,220
- 7,900
Key upside levels are where the major indices closed last Friday – taking those levels out would spark a stampede of cash off the sidelines…a stampede.
PPP Bump
There is a chance Congress is closer to funding the Paycheck Protection Program (PPP), which ran out of money in a blink of an eye, and will probably need a lot more money than the additional $310 billion being discussed.
Moral Dilemma? There continues to be an uproar over publicly traded companies and bigger businesses, such as Shake Shack (SHAK), Ruth’s Chris Steak House (RUTH) and Potbelly Sandwich Shop (PBPB) having access to the Payroll Protection program. Ironically, these are examples of successful businesses that started with one person and a dream. We’ve had Ruth’s Chris in the model portfolio, and I featured the company on one of my first shows because it is a quintessential American success story. A widow with no business experience, making curtains for extra cash, sees an ad in the classifieds for the sale of a failing restaurant: Chris’ Steak House. She uses all her savings and gives it a shot. Potbelly got $10.0 million from the PPP, and they paid the CEO a $100,000 bonus. But there is no doubt they need financial help. The company went public in late 2013 at $14.00, which was well above the range of $9.00 to $11.00, and the shares more than doubled to $30.00. Net Income
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Earnings Parade
Texas Instruments (TXN)
The first chipmaker to post results beat on the top and bottom lines, but the rest of the story gets a little murky.
Second-quarter (2Q) Guidance
- Revenue: $2.61 billion to $3.19 billion, the Street: $3.10 billion
- Earnings: $0.64 to $1.04, the Street: $0.93
We give management credit for trying to give guidance in the face of a second-quarter abyss. The shares initially moved higher on the news, but it’s a tough period for the company, which relies heavily on chips used in automotive and industrial systems.
Chipotle Mexican Grill (CMG)
Revenues were in line. The company beat consensus on earnings of $3.08 per share. The bottom line came in above the Street’s $2.90, powered by 3.3% same-store growth. The headline is digital sales, up 81% to $372 million of $1.41 total billion.
Netflix (NFLX)
The revenue and earnings numbers don’t matter, as everyone zeroed in on a net subscriber growth of 15.8 million, bringing the total to 182.9 million.
It’s an astonishing number, which was double the guidance of 7.0 million. Management says that growth will decline, resulting in slower year-over-year growth in the coming quarters. The shares initially soared but pulled back from after-hours highs.
For me, the company and its growth story remain more fascinating than its programming. I must be out of touch because I didn’t see their top programs:
- Spenser Confidential: 85 million viewership
- Money Heist: 65 million viewership
- Tiger King: 64 million viewership
Snap (SNAP)
Oh, snap! (I couldn’t help it.) The company posted revenue of $462 million, beating the Street’s $430.0 million, although -$0.08 was a penny worse on the bottom line.
The stock rallied big time in after-hours trading on 229 million active users and signs of widespread use among families during this shut-in period.
Portfolio Approach
We took profits on two positions that I like long-term, but I’m worried about yielding ground near-term. So, I felt it would be wiser to take good short-term gains and raise cash in the model portfolio.
Today’s Session
As remarkable as the equity rebound was, the fact bond yields didn’t budge, and actually drifted lower, has gnawed at me. At the very least, I would like to see the 10-year yield above 0.60. Ultimately, I will breathe a greater sigh of relief above 1.00, and it will help me hold equity positions longer.
The earnings parade continues and has been much better than expected; although, withdrawing guidance doesn’t help, despite it being understandable.
Trading this morning is getting a boost on the Senate passing the $484 billion in additional aid, albeit still not enough for small businesses. Oil is also rising with WTI up 15%.
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