Jim Cramer: It's All About Expectations

 | Apr 16, 2018 | 3:10 PM EDT
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You're kidding me, right? You mean to You mean to tell me that the stock of some trucking company that barely made the quarter, just squeaked by, soared while banks that just crushed it, that just blew away the numbers got clobbered?

This makes no sense whatsoever and yet it, and a bunch of other reports and news bits, could be defining this earning season creating insane values and sorrowful disappointments right before our eyes.

How is this possible? Expectations, it is always expectations.

But first let me set the stage. This weekend we expected some real bad news out of Syria, a huge missile strike that might hit some Russian advisors. Instead we got a limited strike. We expected some devastating things out of the former FBI director, James Comey about President Trump. Oh it was salacious and judgmental but it sure wasn't a silver bullet.

So, with those two pitfalls out of the way -- more on that glib view later -- we knew from the S&P futures that we were going to power higher and perhaps make up what we lost on Friday.

Sure, enough that's what happened, Washington receded and earnings and research came to the fore.

That's where the wackiness begins. First, Bank of America (BAC) reported a spectacular quarter with fantastic earnings growth, reminding us just how spectacularly positive the banks are. It came right on the heels of the amazing numbers from JPMorgan (JPM) and Citigroup (C) from Friday.

And what happened? It got the same booing that those two did. I read over every bit of info just like I did with JPMorgan and Citigroup and I came away thinking, this is just ridiculous. These are precisely the kind of quarters that I dreamed of. Just fantastic.

Yet, the stocks just got hammered. It's incredible that this is happening because for the longest time what we cared about if we wanted to make a judgment about bank stocks is how much money they are making off your deposits. The balances are soaring. They are making so much darned money simply by opening their doors every day and paying you very little and investing your money risk free and coining money.

So what's the problem? I don't' think there were any problems. Sure, was lending very strong? No, but it was good enough, as these banks, are making so much money on your deposits they don't need to take any risks lending to people who can't pay the money back. Was there enough money made on investment banking? I wish there were.

But that misses the whole point. You mean to tell me that for years all we really cared about was net interest margin, the money they make off your deposits and finally its terrific and getting even better with each rate increase and now that's not enough? What gives?

Okay, here's the problem. These stocks, all the bank stocks, ran into the quarter. They have been fantastic performers. So when the companies reported we just said so what, thanks for nothing we needed to see every line item be better.

I think this is just plain stupid. The bank stocks are among the cheapest in the market. They trade as a fraction of what we pay for the always competitive consumer products companies like the stocks of Colgate (CL) or Coca Cola (KO) or Clorox (CLX) or even Kraft Heinz (KHC) .

The banks have better, much more consistent growth than those companies. In many cases they have better balance sheets. They can buy back more stock -- Citigroup bought back 7% of the company's stock last year. That's awesome. And it said it will do it again. Yet, this group, because it ran into the quarter, sold off. Is the market wrong? I think for the short-term no, and who am I to disagree with the market. But for the long-term we have four big banks, Citigroup, Bank of America, JP Morgan and Wells Fargo (WFC) and the first three just slammed it while the fourth was hobbled by regulation. I think that Morgan Stanley (MS) and Goldman Sachs (GS) , the latter of which I own for my charitable trust, as I do JP Morgan and Citigroup, could disappoint, too. The run before it, including Goldman's plus 4 points, may be the kiss of death.

But now we have the other side of the trade. You know what led this market today? The trucking company JB Hunt (JBHT) . It did a barely in line number. I didn't even focus on it for Squawk on the Street because it seemed so unimportant, so in line.

I looked at the research and it wasn't much different. Get a load of this headline from Deutsche Bank "First quarter look not as bad as feared." And that's from a buy recommendation! Or how about this one from BMO: "First quarter, 2018, Results in line; revenue bear but higher costs limit operating leverage." Yawner.

But by midday when I looked at the market winners and losers, I see the banks in the loss column and the winners? The transports, led by none other than this trucker, JB Hunt. How did this happen? First I looked at the chart and it is so clear that people were expecting really bad news. We know from Tuesday's off the charts, that the most deadly chart pattern in the world, is the head and shoulders pattern. Well, wouldn't you know it? That's precisely the pattern JB Hunt's stock was tracing out. Second, there was one line item in the whole quarter that stood out: spot loads, which has to do with non-contract demand. They showed a surge of 43%. So even though the quarter was totally nothing to write home about on the top or bottom lines -- the opposite of JP Morgan or Bank of America -- the fact that there is such short-term demand is a shocker, one that no one expected. The pin action off this number was extraordinary. Trucking stocks soared. Fedex (FDX) , UPS (UPS) and XPO Logistics (XPO) zoomed. The railroads, perceived as both friends -- with intermodal -- and enemies -- straight out competition -- had their best day I can remember.

None of these stocks had been acting well. All had been thought to have been soft. Because of that, and nothing else, the hate-fest turned into a lovefest.

It was like that all over the place. The stocks of the drug store chains and distributors have been horrendous ever since Amazon (AMZN) , the death star, made it known that it wanted to get into the drug selling business. All the distributors have been hammered down relentlessly. Anyone who bought Walgreen's (WBA) or CVS (CVS) when they reported very fine quarters was blown out of the water. Today was the revenge of the drug business with the drug store chains leading the brigade but the distributors like Mckesson (MCK) and Cardinal Health (CAH) not far behind. No one seemed to think, hmm, perhaps that new consortium of Amazon, JP Morgan and Berkshire Hathaway (BRK.A) is taking aim at all of these companies. All they cared about is Amazon isn't going to put them out of business like it did the book stores and so many marginal retailers.

Now there's a low bar, but one that everyone was happy to vault.

Speaking of retail, last week Costco (COST) blew the roof off with some pretty good monthly numbers. I am not saying the market ignored them. But I was shocked that no analyst made a big deal of what were simply spectacular numbers. Then today Wells Fargo said pretty much exactly what I just said to myself, and boom, Costco screamed higher, and almost took out its all-time high. Of course, another recent dog, Home Depot (HD) , saw its stock fly, too.

Same thing with Ulta (ULTA) . I actually recommend Ulta's stock March 22, saying that people at one time paid too much for the stock, but now they are paying too little and it has gotten way too cheap. It's loved by customers because it has superior products and it is integral to my "look your selfie best" thesis.

Today Guggenheim goes hold to buy saying after meeting with management and doing a survey the stock has gotten too cheap and it is time to buy. The only difference I can see between Guggenheim's recommendation and ours? How about seven points? We pushed it seven points lower.

What's the takeaway here? If you are sitting on a down and out stock with a real bad chart, you need to hold on at this point as an analyst or a quarter could come to your rescue. And if you are sitting on a stock that's rallied gigantically ahead of the quarter? Well, take a look at the stock of JP Morgan, down a quick five points on the best quarter it's ever reported.

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