We're going into the heart of earnings season with results that have, once again, defied the skeptics simply because there's so much good and so little bad.
Let's start, rather than finish, with the elephant in the room. While there are certainly some real losers with tariffs and trade -- more to come this week for certain -- we have struggled to pin the tail on the bears, as good companies have addressed the issues head on and so few can be considered knocked for a loop by current events.
Certainly, far more are willing to talk about tax code positives. I am not saying that TNT (tariffs and trade) is stable and can't blow up. We all know that is not true, as long as President Trump appears erratic on these issues, or, more accurately, often at odds with his staff. I think that, for example, chief economic adviser Larry Kudlow may not be correct -- already! --when he talks about the possibility of a surprise in trade talks with Europe over cars. That said, if the Europeans come bearing gifts -- including dropping all auto tariffs -- I think we could go to all-time highs.
What's most important about TNT is that the longer it drags on, the more the analysts will get bored of "quantifying" the damage and potential damage and will start saying it is baked in. They will concentrate more on actual weakness than shadow-boxing weakness.
Fortunately, we have enough earnings from all different sectors to start making judgments. Let's begin with tech: The world is divided between cloud tech and non-cloud tech, especially telco -- Microsoft (MSFT) versus Skyworks Solutions (SWKS) is the most withering example. In many ways Microsoft delivered the perfect quarter, because it offered you sharply better than expected cloud in Azure, fabulous social with the still-red-hot LinkedIn and then gaming galore.
China? Hardly a focus so far, except for blast-zone stocks like Skyworks. Even as the company reported a strong upside surprise, the reliance on China and cellphone was just too powerful a gravitational force. Even 5G couldn't save a legitimate estimate beat from sunsetting the stock. I think these two, Microsoft and Skyworks, are the metaphor for the weeks to come.
Wouldn't you know it, just like all anyone cared about with the banks for ages was net interest margin on the short end, now all we care about is net interest margin from the long end. That's why the decline in price of the 10-year boosted the banks, not their earnings. The cognoscenti has spoken: They are paying too much for your money and not getting enough on your loans. JP Morgan (JPM) reacted best to last week's rate rise with Citigroup (C) not far behind. Both ActionAlertsplus.com names remain ridiculously inexpensive, but no one will care unless 3% on the 10-year is breached soon.
Soft goods? More Pepsico (PEP) than not. People like what they see so far. Can it last? I think the stocks just got too low, but any higher and we will backslide if rates go higher.
Health care names? Good pin action and then limited follow through. I think Johnson & Johnson JNJ deserves more of a boost than it has gotten. Same with Abbott Laboratories (ABT) . These were really good quarters. UnitedHealth Group (UNH) now looks like it will be the weakest of the insurance quarter, because the company beat itself up on the call. Danaher (DHR) is the surprise healthcare so far, especially with the offloading of dental.
Industrials? Ex-GE (GE) , we've been seeing some really good action led by anything aerospace. If it weren't for power, GE would have been fine. But that may be like saying to Mrs. Lincoln, "but how was the play?" I am calling it a work in progress. Of course, Steve Tusa over at JP Morgan has a new negative thread -- the accounts receivables of regular GE offloaded onto capital. Boy, was their accounting squirrelly, something you would never know as long as things stayed strong. As we all know, they didn't.
Can you believe, though, how much money Honeywell (HON) is making and how deft relatively new CEO Darius Adamczyk is about telling the story, break-up and all? A tour de force for certain.
Retail is a question mark. It could be resolved, however, by the positive commentary and forecast boost last Friday from V.F. Corp (VFC) . Wow, nice quarter.
That's pretty much it for the generalizations. But, with the possible exception of the industrials, I think the course is well-blazed and these results and their aftermath will serve as a template for things to come.
