EARNINGS SEASON BEGINS

EARNINGS SEASON BEGINS

The stock market opened lower this morning after some soft Chinese economic data (see below). The Dow is currently down 98 pts and the SPX is off .5%. Ten of eleven market sectors are lower, led by utilities (-3%), tech (-.9%) and materials (-.7%). One of the only groups working today is the banks, up about 1%. European markets closed down by roughly .5% and most of Asia was lower overnight. The dollar is lower after a report showing US exports to China fell flat. WTI crude oil is down about 1% to trade at $51/barrel. Bonds are trading lower today. Junk bonds (-.3%) are following the stock market. Treasuries are slightly lower as well as yields rise. The 10-year Treasury yield ticked up to 2.71%.

China’s exports fell 4.4% in December from year-ago levels, the biggest monthly decline since December 2016. Over the past year, exports have grown at double-digit rates, but it’s clear that the trade dispute with the US (and slowing global economic growth) is now taking a toll. Imports showed an even larger decline, down 7.6% and that’s why China’s overall trade surplus expanded during the month. The country’s exports to the US This report could put more pressure on Xi Jinping to cut some kind of deal with the Trump Administration to de-escalate trade barriers. And you can expect further monetary & fiscal stimulus in an attempt to re-escalate growth.

CNBC reported that Citigroup’s (C) fourth quarter results missed analysts’ consensus projections, but somehow the stock is up 3.5% today. What gives? First, the bank’s operating earnings-per-share actually beat expectations for the quarter. The miss was on the top-line (revenue). Second, while quarterly revenue fell 1% from year-ago levels, earnings were up over 30%. Third, on the conference call the CEO pointed out, “There’s clearly a disconnect between what our businesses show and what markets are seeing.” Loans and deposits “grew nicely,” and the revenue shortfall was due to the securities trading operation. Traditional banking is healthy and the read-through to overall consumer & business health is positive. And finally, with the stock having corrected more than 30% you can imagine that a worst-case announcement was already priced-in. So there is a bit of relief here.


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