Not to get all Nat Geo on you but, when it comes to trading, I highly encourage you to act more like a cunning fox than a slow-moving whale as the market tries desperately to whistle past a graveyard. Think about it: Whales are inefficient eaters, taking in large amounts of water just to gain small numbers of precious plankton. On the other hand, foxes are full of energy, boasting the killer instincts required to survive atop the crowded food chain. Today, needless to say, I'll be channeling my inner fox as I tackle the messages coming from the market.
There are only a few days left in the year -- so you would think that Texas Instruments (TXN), that perennial operations and guidance laggard, would have knocked it out of the park with a comeback quarter. After the company issued guidance Monday night, the stock initially rose in the after-hours session, and the Twitter universe lit up with modest outpouring of affection. (Twitter moves stock prices, you didn't realize?) But, listen, if you fell into that sucker after the market close, allow me to extract you from it.
If you'll remember, on the third-quarter earnings release Texas Instruments CEO Rich Templeton noted the economy and semiconductor market "likely will get weaker in the fourth quarter." Well, that did happen, and the company's revenue declined noticeably on a sequential basis -- as will the fourth-quarter gross domestic product reading. In my view, the revenue and earnings guidance is unsupportive to equity bulls, and it also doesn't support the upward trajectory of the Philadelphia Semiconductor Index (SOX) since it bottomed in early November.
But hold on a second -- I neglect to mention the spin, otherwise referred to as "market psychology." Here's how this has played out for Texas Instruments.
1. The $2.89 billion in sales was not as bad as the worst-case scenario of the $2.83 billion, as previously articulated guidance -- so clearly the demand environment has stabilized.
2. There was no ultimate downside in revenue, and no unplanned inventory spike that destroys average selling prices (ASPs) in 2013.
3. Sure, customers around the world must have finished de-stocking.
4. Revenue guidance was dropped, but the earnings-per-share range was well-maintained -- there was a slight narrowing, excluding special items. That hints at an improved supply-demand dynamic.
That said, here are the two larger questions I pose. First, is any hopeful sign from Texas Instruments completely irrelevant, assuming equity prices are nailed between now and month's end? Second, given the "fiscal cliff" overhang, isn't it hard to extrapolate the fourth quarter as being an inflection point for Texas Instruments? Further, also given the fiscal cliff, won't the first quarter constitute the start of a fundamental sequential recovery?
Remember, these questions will apply to basically every company in fourth-quarter earnings season, and most acutely to early-to-mid-cycle economic plays that fell on rough patches in the middle of this year.
When we last heard from the household-wealth savior -- a.k.a. Double B, a.k.a. Fed Chairman Ben Bernanke -- in a Fed policy setting, markets rallied strongly. Back then, the market embraced the idea of open-ended bond-buying, further dovish language in the policy statement and a modest upward revision to growth estimates for 2013 to 2014. As we are now aware, that extravaganza was the climax for equities, and it has been a battle to return to that once-fertile ground. Refresh your memory with these comments made by Bernanke at his news conference:
"The weak job market should concern every American."
"We don't have the tools that are strong enough to solve the unemployment problem."
"We are looking for policymakers in other areas to do their part."
For all the bond-buying that began immediately after the Fed meeting, the U.S. unemployment rate has only fallen by 0.4%, and that is primarily a function of people leaving the job market. Granted, the Fed may actually enlarge the balance sheet, but I have concerns about this gathering. While it's likely to announce new initiatives, I'm worried the market will react to them with a snooze-fest, given larger fiscal issues.
Moreover, the fiscal policy adjustment process will blunt any monetary policy measures. This is to the point at which one must wonder if two key linchpins to 2012 economic growth -- housing and consumer spending -- will become meaningfully unmoored. Again, in this environment we have to err on the side of skepticism, as this is important to forming the basis for a reasonable set of forward expectations on companies.
Finally, Chew on This
Consumer discretionary stocks are crumbling in plain sight, yet external debate has been scant. But ignore the market's messages at your own peril -- they tell a story about the future. I am seeing massive technical breakdowns -- that is, failures to break through resistance and declines through support -- on the type of volume that warrants a giant red flag on real consumption patterns in the first half of 2013.