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MARCH 9, 2020
STOCKS: CSCO, BA, MSFT, BAC, MU
MACRO: SPY
READING THE MARKETS PREMIUM CONTENT
- Market Pricing In Declining Earnings In 2020
- Lots Of Fear -Midday3.9.20
- Carnage Ensues – Morning Commentary
MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN CSCO AND MSFT
Well stocks got crushed today, with the S&P 500 falling by 7.7% to 2,736. At this point, the S&P 500 is running out of lifelines on the technical side. Once this level around 2,730 goes, it gets even worse, with the next significant level down around the 2,634.
The relative strength index failed to make a new low and could be the first signal of a reversal of trend. But that might not be for a while.
The VIX rose to a crazy level today at 62.1 and closed below 54.5. But again, these are very high levels of fear in the market.
The put to call ratio rose to 2018 low levels
The Advance/Decline ratio was, well, you can see how low it was.
On a fundamental basis, if we assume no earnings, but a 5% contraction in earnings. The S&P 500 would have earnings per share of about $149 in 2020, and assuming a rebound of earnings in 2021 by 10% to around $164, at 16 times earnings, the S&P 500 is worth about 2,650.
Do I think we are going to have an earnings contraction? At this point, the evidence would not support that. GDPNow is forecasting growth of 3.1% for the first quarter, and it is already March 9. Could it fall considerably, sure. But other than hearing about work trips being canceled from friends and family, the stores are still packed, and schools are open. Could it get worse, I guess so. I don’t know.
If you want to get all doomsday, the S&P 500 could even be heading back to the December 2018 low around 2,330. It could certainly make for a big-time double bottom. But still, I’d rather not go through that experience. It would amount to a 31% decline for index from the top.
If we fell to that level of 2,330, at a PE of 16, the S&P 500 would be pricing in earnings for 2021 of $145. Currently, my model is estimating earnings for 2021 of $190. That is a drop of 23%.
Boeing (BA)
Boeing fell sharply today, and $213 is the next level, where it fills a gap. After that, maybe it finds some support at around $197.
Cisco (CSCO)
Cisco is another stock looking to fill a lower around $35.
Microsoft (MSFT)
Microsoft could fall to around $142.
Bank of America (BAC)
Bank of America needs to stop falling here around $22, or it could fall back to $18.25
Micron (MU)
So much for Micron, not even it could survive the day, and now finds itself on support at $45.50, with the potential to go to $42.
Anyway, I have nothing left for you… I’m sorry.
-Mike
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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