Did American chief executives suddenly pull in their horns at the exact same point where interest rates hit levels that make investors queasy? Are these captains of industry just plain scared? Or did they just try to lower expectations all at once?
That's what it feels like and while I have been cautious on the market for certain, this kind of selloff is almost self-inflicted by everyone.
Let's go over the constituencies so you know what I mean.
First, we had three separate key companies say the wrong thing today and it obliterated their stocks. Frankly, I think that every one of these execs wish they could take their statements back, but there are no do-overs in this game.
I want to start with Caterpillar (CAT) . First, the quarter was by far the best quarter I have ever seen from Caterpillar. Everything, I mean everything, was hitting on all cylinders and every market was on fire. Caterpillar sells into mining and mining was incredibly strong. It sells into oil and gas. That market's come alive with a frenzy. It sells into construction and infrastructure. The demand is insane. The company's coining money like I have never seen it and I have been a Cat watcher since 1984.
It was as good as it gets.
And that was exactly the problem, because the chief financial officer, Bradley Halverson, in an otherwise joyous, rapturous litany, dropped a bomb that might as well been nuclear: "the outlook assumes that first quarter adjusted profit per share will be the high watermark for the year."
Yep, it was literally as good as it gets.
Now you can't hear a pin drop on a call. Nor, frankly, can you hear any analyst throwing up. But had the lines been open to all, there would have been a moment of quiet and then a cacophony of vomiting, literally, as analysts and investors who had bid the stock up furiously right until that very moment just puked up every share that was within miles of the blast zone. It was a spontaneous combustion, and everyone on the call is still shaking from the collective projectile eruption.
It gets worse. The shocked analysts didn't even seem to know what to ask. Was it commodity raw costs? Was it weakness in particularly areas? Was it worries about global trade? Competition? Anything?
Or perhaps it was a mistake, something that CAT didn't mean? You could sense the desperation when an analyst asked that perhaps the term "high water mark" wasn't accurate? But the investor relations person who answered made it real clear. There was no mistake. It was for real, it was as good as it gets, yes, indeedy, and "high water mark" fit the situation to a T.
The stock plummeted like a piano off of the top floor of the Empire State Building.
But, as they say on late night TV, there's more. 3M (MMM) , one of the most reliable companies there is, lowered the top of the earnings per share range that it expects for the year. That's right, because of some softer markets and some commodity pricing, the company shaded down its forecast. The only thing worse than calling the top, as Caterpillar did, is to say that things are actually weaker. That's five pianos flying off the Empire State Building.
Now I have gone over this conference call maybe ten times and I am telling you that outgoing CEO Inge Thulin did not mean to wreck his own stock. Far from it. I think they must have been stunned about what occurred here, with the stock at one point, dropping 18 points, because, unlike CAT, all they really intended to do was follow up on some comments given earlier this quarter about how March was weaker. 3M's a company I follow closely, we own it for Action Alerts PLUS, and we were stunned at the reaction given that the company had totally telegraphed this news just a few weeks ago, yet it was the biggest decline in nine years for this, the bluest of the blue chips. I think you are getting a chance to buy one of the great American companies at a discount, but nobody wanted to hear that and I figure there will be more selling Wednesday. That's what happens when you open the floodgates, the big sellers can't finish their selling and they reload. A decline like this takes another day before it can be stemmed and believe me the company will be in there buying aggressively as execs were stunned that a slight shade-down after the company already told you that there was some weakness in March could produce such a selloff.
But the pianos weren't done falling. The most dependable part of this tape, the best bull market out there, is defense. That's why it was so exciting to see a blowout number from defense giant Lockheed Martin (LMT) . The numbers looked stupendous and you got a terrific guide-up. But, and this was a huge but, the company on the conference call said that its cash flow forecast wouldn't rise along with the earnings.
This was one of those where you felt like Scooby-Doo when he goes "Yerrriop?" I mean, huh, no increase in cash flow? To me the company was simply trying to play it safe, but this market is unsafe at any speed and the stock was clobbered as if it were hit by a missile fired by an F-35, which we learned has corrosion damage, a bit of info that the Air Force Secretary picked to point out on this of all days.
Oh and now, let's throw over the rest of the symphony orchestra's instruments, because Alphabet (GOOGL) reported what looked like one of the most exciting, electric, explosive quarters of all. No matter, the company made it clear that it spent fortunes and will step up spending because, well, who knows, because they can? They want to? They have to? They have no choice but to?
I don't even know what pushed these instruments to rain down on everyone just when it seemed like it was safe to take a stroll down Fifth Avenue.
Look, I think the market could have handled any one of these, or two of these, or, yes, even three. But at the exact same time that the pavement concerto played on, the 10-year Treasury traded at the fabled 3% level and that was all she wrote.
I have been saying that trade and tariffs are the two Achilles' heels of this market and today they ruptured, ruptured like when you pull down on a window shade and then let it fly. Mind you, I am talking about not one, but both Achilles and that's too much for even the greatest athlete -- and not long ago this market was an Olympian -- to handle.
Now, have all of the instruments fallen? Have all the Achilles' been ruptured? I think that we are closer to a bottom than to a top at this point because we hit the three on the ten and we have such collateral damage to everything, every part of FANG, every industrial, every consumer packaged-goods stock, every tech, that unless the companies say "Look, look, it's our high water mark, too. We 're done for the year. We are crippled by raw costs. We see softness around the globe," then they might actually bounce.
But here's how I see it: Today we saw a panic like we haven't seen in ages where every little bit of softness, every negative was blasted out from the observatory and the S&P 500 happened to be underneath when it happened. It won't be able to recover all that quickly, as pianos hurt, as do tubas and basses, trumpets and even piccolos smart when they come from that high. Still, it was so incoherent, so random, so ferocious and so thoughtless, that it created bargains in the chaos. I just don't think people feel like strolling down to look for buys after today's carnage.