StockTwits 50, July 30
- Posted by Ivanhoff
- on July 28th, 2012
A massive buying wave lifted most stocks in the second half of the week as the market believed European officials one more time that they will do anything in order to avert the worst case scenario. Expectations are high and growing and they better be met with proper actions, because the next European committee meeting might turn into another “sell the news” event.
In financial markets, price strength begets more strength and confidence; weakness begets more weakness and fear. Such is the structure of the market. All of a sudden, the S & P 500 is at a new 10-week high, up 10.6% for the year. Many money managers find themselves in the precarious situation of underperforming their benchmarks and reluctantly starting to run towards equities as someone who is afraid to miss the last train. And all of this, despite one of the most horrific earnings season in quite some time:
U.S. companies are more negative in their earnings outlooks than they have been in 11 years, due to mounting worries about Europe and slower overseas demand.
With pre-announcements so far from 54 Standard & Poor’s 500 companies, the negative-to-positive ratio for the third quarter stands at 5 to 1, the most negative since the second quarter of 2001, according to Thomson Reuters data.
The third-quarter pre-announcement ratio is the latest bit of data to point to a deteriorating picture for U.S. earnings.
While the majority of companies who have reported results so far for the second quarter have beaten earnings expectations, just 40 percent have beaten revenue estimates, the lowest amount since the first quarter of 2009, Thomson Reuters data shows.
The technology sector has led in negative earnings guidance.
To be fair, judging by price action, expectations coming into this earnings season were quite low. Given the positive market reaction to many lackluster earnings reports, we could easily conclude that the results weren’t as bad as feared and that in many occasions (especially among semiconductor stocks), the market overdiscounted. The stocks that have suffered the most so far in this earnings season are the ones that carried the highest expectations. There were quite a few momentum darlings with reasonably good earnings reports that were slaughtered. $CMG and $ISRG come to mind.
$AAPL also missed estimates, but the reaction hasn’t been that melodramatic for the simple reason that $AAPL was not priced as a momentum stock. Market has been expecting a slowdown in its sales for quite some time and this has been already reflected in its multiple.
For the week, the St50 momentum index appreciated 1.22%.The weakest spot on the list were social media and internet stocks. Tripadvisor ($TRIP) missed the estimates and its market cap was slashed 20% overnight. Zillow’s ($Z) and LinkedIn’s ($LNKD) declines were a side effect of the negative market reaction to Facebook and Zynga’s earnings reports, which failed to inspire and gain investors’ confidence.
Trust is really important in the investing world. Look at $AMZN. They had a terrible earnings report – slowing sales growth, missed the estimates, guided below expectations – and yet, it managed to rally 7% to a new 6-month high. Amazon has created its long-term shareholders substantial wealth over time and as a result it has gained faith in its management’s ability to execute. The occasional quarterly hiccup is not something that will scare them away. Facebook, on the other hand, might have more than one billion users, but its has not created a cent for most of its public investors. With a poor track record like this, even decent earnings reports will be met with suspicion as investors ask “What have you done for me lately?”
While the media attention has been largely devoted to the Facebooks and Zyngas of the day, there were a dozen stocks that hit multi-year highs: $MLNX $EXPE $EQIX $ALXN $DDD $SSYS $ULTI $ALGN $AZPN $EBAY $BGS $ASH
You can easily follow any or all of the stocks in the ST50 on StockTwits by clicking here.
Have A Great Weekend!
~ Ivan Hoff (@ivanhoff)
Download the list from here: St50 July 30
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus