Read-throughs and derivatives. That's what earnings season is all about and the election of Donald Trump can't and won't change that. It's what makes the market move here and while the Trump factor is ever with us, it isn't the be all and end all.
The numbers and the read-throughs are.
What do I mean by these derivative concepts? Why do they matter so? They are all important because I want you to be a better investor and to be that you need to know why stocks move -- or why they don't.
Let's start with the Nasdaq. Did you notice the intraday pep in its step?
Do you know what caused it? I am sure most people don't but it has everything to do with ASML Holding (ASML) , a Dutch semiconductor equipment maker that reported outstanding numbers last night, causing the stock to rally more than seven bucks.
Alright, you may not know this $53 billion company. However, it has clients as wide-ranging as Intel (INTC) , Samsung, Taiwan Semiconductor (TSM) and Texas Instruments (TXN) , which order giant, expensive pieces of equipment to make all kinds of semiconductors that go into all kinds of devices, from the internet of things, to cellphones to personal computers and autonomous cars.
That's not all. To buy equipment from ASML is to make a real commitment, a commitment to producing smaller, faster better chips that will be used well into the next decade.
You can't turn this spigot on and off. You believe in the future of your business cycles and demand, you place orders. If you don't then ASML does poorly.
So, what happens when ASML gives you such a forecast? Everything that has anything to do with these devices goes nuts. You get major rallies in the cellphone chip providers like Skyworks Solutions (SWKS) and Qorvo (QRVO) . You get a big lift in Broadcom (AVGO) , which gives you chips for all sorts of telecommunications. You get an up day in Micron Technology (MU) because its kinds of chips were singled out in the conference call as very strong. Advanced Micro Devices (AMD) , which has traded so heavily and is down 13% for the year, stems its decline.
There's a nice move up in Western Digital (WDC) because flash memory gets mentioned as being in high demand. Analog Devices (ADI) and Qualcomm (QCOM) get a lift, the latter being pretty amazing given all of the negative charter about an FTC investigation over pricing. Even the formerly red hot now ice cold Nvidia (NVDA) sees its stock go higher. Yep, it's bull-chip jailbreak!
Yet, these are all simple derivative moves of this one remarkable Dutch semiconductor equipment manufacturer. I admit to being surprised that Intel and Texas Instruments didn't budge. However, that could be tomorrow's business.
Then, however, there's the negative read-through. Target (TGT) this morning really got walloped and for good reasons. It's reported terribly disappointing numbers, with its bricks-and-mortar business down 3%. You got a major slash in the numbers. What's it all about? Simple. It's about the incredibly positive e-commerce numbers, amazingly strong -- I think you could say too strong because they cannibalized the actual stores. That's very negative because Target sells a lot of food and if you don't come by the stores you don't food shop, hence why that business was down low single digits. And if you don't swing by you may not purchase some entertainment or electronic gadgets, driving that business down high single digits. That's the problem with old-line retailing. The whole edifice was built around the store so, as Matthew Boss from J.P. Morgan has said over and over again, you open yourself up to countless competitors that can price compare and don't drop in to buy something that they never intended to do so.
So there goes Kohl's (KSS) and Macy's (M) and Walmart (WMT) and all of the other usual suspects. Sure, it didn't help that the president-elect, after telling the Wall Street Journal that he thinks a so-called border tax that would ding these companies would be too complicated now seems open to one. You can't bank on Trump to be predictable because he himself would tell you he is unpredictable. But Target's stock, down four in heavy trading was the tinder for these derivative fires that won't be easily put out.
Ah, but how about some winners from the strength of Target's online business? You know what people reach for? They reach for companies that are part of the awesome switch from off-line to on companies like FedEx (FDX) and UPS (UPS) , hence the nice rallies in both.
Now I know you want to hear about the banks. Was Goldman Sachs (GS) so bad that the stock deserved to be down a buck and change? Was Action Alerts PLUS holding Citigroup (C) hideous enough to justify a smackdown of its stock? No, no and no. These are just victims of circumstances, the circumstances that come from reporting after magnificent rallies.
As I said in the Mad Money game plan last Friday, it might not even matter what they report. Goldman Sachs was up some 40% in advance of the quarter. It's a chance to take profits. It isn't over either as the firm's partners are heavily compensated in stock and they are allowed to sell as the window opens for them to take profits. Given that everybody has a profit from the last moment this company reported and given that they are shrewd people who believe, as I do, because they taught me there, that no one ever got hurt taking a profit, I think more selling lies ahead.
Let it happen.
There's room to fall. And then there's room to buy. But not yet. Why would you ever buy? Because if you listen to these banks' conference calls these companies are having the best profits in years and we haven't even had the rate hikes and the promised deregulation. They remain a great place to be after people ring the register. Oh, and how sure am I of this? Which bank stock hasn't yet produced big profits for shareholders? The bank nailed for overly-zealous cross-selling. Today, it starts going higher. Why not? All of the banks are saying business is better, it is time for Action Alerts PLUS holding Wells Fargo (WFC) to play catch-up.
Finally there are the transports. United Continental (UAL) reports and management says business has turned the corner. Well, I sure hope so. Seven months ago this $73 stock was at $37. I think all of that good news warrants an "attaboy" and an unchanged stock. And that's what you got.
The rails have been as strong as the banks and the airlines so when CSX (CSX) says many business lines are doing better you get a little profit-taking because its stock has been the strongest of the rails. But the others go higher to catch up.
I know that it seems a little lame that there could be these kinds of correlations made so easily. Yet, that's how this business works. If you didn't know ASML you wouldn't know why the Nasdaq held up well. If you didn't know that the e-commerce portion of Target was en fuego you couldn't understand the moves of FedEx and UPS. If you hadn't calculated the moves of the bank, airline and rail stocks ahead, you would be flummoxed about today's action.
Instead, in a world where it seems like there's a ton of things that aren't making any sense at least you know these moves aren't random. Somehow, considering the craziness of pre-inaugural Washington I find the whole exercise rather comforting!