That adage “accentuate the positive and eliminate the negative” is getting flipped on its head these days, as Wall Street sets up for what could be a wobbly Hump Day.
“When the majors are reporting stellar earnings and the market sells off like it did today, it means we’ve got a serious breakdown in sentiment,” said Peter Schultz, chief strategist of The Winning Secret newsletter.
He was commenting on that 400-point-plus swan dive for the Dow yesterday, as 10-year bond yields galloped into 3% territory and even forecast-beating earnings got tossed aside. Asia and Europe picked up the stock-selling baton this morning, as the 10-year shows little sign of backing down from 3%.
Schultz blames “nit-pickers” for failing to see the good from Alphabet — the strong quarterly sales growth — and profit-outlook-boosting Caterpillar, and for “grasping at reasons to justify the selloff.” But our call of the day, from JonesTrading’s Michael O’Rourke says they’re just facing up to the cold truth about how much juice is left in stocks.
“We would describe today’s action as one in which investors realized this may be as good as it gets, and they started taking profits where they could,” says O’Rourke.
“It doesn’t appear worth holding onto names with elevated multiples when rising inflation may start slicing into margins, or the commensurate interest rate hikes may slow business,” he says.
Check out: Here’s the threat to the stock market from rising bond yields
So when Caterpillar’s CFO called the first quarter the “high watermark for the year,” investors sat up and took notice, says O’Rourke, who has been banging on about over-optimism ahead of earnings for a while.
The market strategist sees “no levers left to pull” for a market that has been supported by factors such as a decade of ultra-easy money policy and, most recently, a big juicy corporate tax cut.
Michael Kramer, founder of Mott Capital, strikes a similar note in a blog post. “I think in some cases, there are merely stocks that advanced so much ahead of these big earnings expectations, now it is time to sell the news,” he says. Stocks like Boeing — up 112% since the start of 2017 — are trading at some of their highest earnings multiples in some time, he notes, pointing at the chart below.
Key market gauges
Thank Boeing for helping Dow YMM8, -0.50% futures turn higher and S&P 500 ESM8, -0.58% and Nasdaq NQM8, -0.78% futures pare losses. That’s after a steep fall for the Dow DJIA, -0.71% , S&P 500 SPX, -0.76% and Nasdaq COMP, -1.09% yesterday, triggered by the 10-year tapping that psychological level. It has moved further past 3% this morning.
Read: What it means for the market that the U.S. 10-year government bond yield hit 3%
European markets SXXP, -1.23% are pretty deep in the red, and Asia ADOW, -0.72% dragged lower by tech stocks.
No sign of that “explosive potential energy” for gold that DoubleLine's Jeff Gundlach was talking about last night , as the metal GCM8, -0.76% gets kicked. The dollar DXY, +0.33% is firing on all cylinders, but oil CLM8, +0.22% isn’t doing much.
Bitcoin BTCUSD, -4.33% is pulling back to just over $9,100 after busting through $9K and its 100-day moving average yesterday.
See the Market Snapshot column for more.
Earnings
No earnings gloom around Twitter TWR, +0.00% or Boeing BA, +0.90% are up after results. Goodyear GT, -5.81% , Boston Scientific BSX, -0.88% and Comcast CMCSA, +2.19% also reported.
After the close, Facebook FB, -1.92% , eBay EBAY, -2.21% PayPal PYPL, -1.41% AMD AMD, -4.86% Ford F, -0.36% and Chipotle CMG, +1.15% are among those on the docket.
Earnings previews: Facebook | AMD | Ford | Microsoft | Amazon
Texas Instruments TXN, +1.68% is also up after results last night.
The buzz
Comcast CMCSA, +2.19% has rolled out a $30.72 billion bid for U.K. broadcaster Sky SKY, +3.63% , sending those shares higher and trumping a bid from 21st Century Fox FOX, +0.91% .
Shire SHP, -0.76% says it’s ready to accept Takeda Pharmaceutical’s 4502, -7.03% last-ditch $65 billion takeover bid.
Herbalife HLF, +0.75% is splitting its stock and changing its name to Herbalife Nutrition.
Apple AAPL, +0.20% CEO Tim Cook is scheduled to meet President Trump Wednesday at an event closed to press. Cook was one of the few big name guests at the White House state dinner last night.
Meanwhile, a federal judge says Trump has to resume the Dreamers program. And elsewhere, Veterans Affairs nominee Ronny Jackson says he’ll fight on.
There are no top-tier economic reports or Federal speakers scheduled today.
The chart
Its not all gloomy out there. GE GE, -3.82% investors and hard-hit retirees, who haven’t had much to cheer about lately, may like the chart above from The Wall Street Journal’s Daily Shot.
It shows how some rotation has been happening, only not away from GE, but toward the stock on the assumption that most of the bad news is already out and perhaps the turnaround will begin to take shape.
The stat
600,000 — That how many copies of former FBI Director James Comey’s “A Higher Loyalty” have sold, says publisher Flatiron Books. The former FBI director’s memoir is the hottest political tome since Michael Wolff’s “Fire and Fury,” which sold more than 1 million copies after three weeks in stores.
Random reads
Murder charges for the suspect in the Toronto van attack
Danish inventor gets life in prison — around 15 years — for murdering journalist
A Cal State Fresno professor who criticized Barbara Bush will keep her job
Lawsuit for one of world’s biggest cryptocurrency exchanges
The reviews are in for ‘Avengers — Infinity War’
It’s nearly summer, so beware of ‘dry drowning’
New study shows that drinking raises your risk of bad bacteria
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.