The lead story of the Wall Street Journal this weekend brought instant shivers to me on the eve of the earnings season that begins this week: "Corporate Profit Squeeze Looms, Threatening Stocks' Climb."
The article notes that the dozens of companies have slashed numbers and that "companies that miss earnings estimates could respond by cutting spending, which could trigger stock market selloff." Yes, as the top of the article cries out, "Expected Earnings Pullback Sets Up Big Test for Bull Market" that is one of the longest streaks in two decades.
As someone who has been all over these three companies, all I can say that if this is what awaits us, we might be okay -- if not better.
Here's why: There's a huge disconnect between stocks and their fundamentals right now, which tells you something else -- or more specifically, many other things are hard at work here.
Let's start with 3M. When it reported last and some analysts shaved numbers, the stock stood at $193. There were not one but two scathing analyses of the quarter by Steve Tusa, the influential analyst who nailed GE (GE) , saying the stock belonged about 35 points below where it was. His sell call was cogent, calling out a number of weaknesses that could be accentuated by a weakening economy -- which is exactly what we got.
And yet, where is the stock? How about $215. More than twenty points higher than the so-called guide-down quarter that the Journal keys in on.
How about FedEx? I was on the FedEx call, which was pretty darned negative about Europe and China, the latter being clouded by the tariffs. Fred Smith came on Mad Money and talked about how business has gone south because the world's economy has gone south -- and the demand in the U.S. has required a higher level of investment than he would have thought.
The stock came into the quarter at $179. Two days and much number slashing later, the stock was at $171. Now? Fedex's stock has rallies 19 points to $190.
Finally, there's Walgreens Boots Alliance. The drugstore chain truly had a terrible quarter. I mean miserable... The company wouldn't cop to it, but the front of the store is being hurt by Amazon (AMZN) as well as a newly aggressive Walmart (WMT) . The back? The huge margins prescription drugs bring are being threatened by government reimbursement cutbacks and generics that don't allow the company to make as much money.
There wasn't anything having to do with the economy, unless the economy has led to such labor tightness that the company couldn't get management that could execute.
3M and FedEx, to me, are creatures of a benign Fed that is more likely to cut rates than raise them, therefore ridding the stock market of the inverted yield curve curse. Certainly, 3M is susceptible to another knock when it reports April 25. There's auto exposure and a tariff issue, as 3M is huge in China. But if you get a trade deal, then people will most likely overlook this quarter, as they did when FedEx just reported.
The disconnect is painful for those who write these stories -- or at least should be -- because they could have been written three weeks ago and they could have really cost people a ton of money.
Now the Journal doesn't have to grade itself. For the most part, the writers are uniformly good and the thesis here is logical.
But here's the thing, we are at a moment "when logic and proportion have fallen sloppy dead" and what matters is if stocks go up or down a few days after the report. If the Journal can only come up with those three companies, then if any stock gets hit on earnings, scoop them and feed your portfolio.