Why The Stock Market and Micron Went Down, And Where They Go From Here
Trade Wars? Again with this? So lets see $50 billion in tariffs with China? Well, Apple, Microsoft, Amazon, Facebook, and Berkshire lost a total of nearly $81 billion in market cap today. According to data, I compiled from Ycharts, all the stocks that make up the S&P 500 lost a total of $648 billion in market cap today! More than ten times the tariffs. Sorry folks, it was more than tariff concerns.
Look at the banks; the XLF was down over 3.75 percent on the day, the best performing sector the utilities, up about 35 bps. Why? Well because the treasury yield on the 10-year yield has fallen in recent days from roughly 2.91 percent to 2.81 percent, while the two-year yield fell from 2.36 percent to 2.28. That means the spread of the 10-2 yield is continuing to contract, and when spreads on yields contract that’s bad for banks. Utilities are interest rate sensitive, so when yield falls, the prices on the utilities rise.
But the dollar also continues to trade poorly and doesn’t seem to reflect an overly hawkish Fed either.
So what is going on here today? I don’t know. It appears to be a massive combination of the Facebook issue, the Fed, and a hint of tariffs. But where we go from here is all that matters. The next significant level again comes at 2,633, and I would not be surprised to see the S&P 500 retest the lows from early February.
But tomorrow is Friday, and Friday in the past has seen pretty sharp rallies, we shall see.
Bottom line, I’m trying to figure this all out just like you are! Seriously.
The vix is also once again in backwardation.
Micron is bouncing around after hours, and the outlook is what I wanted to see, and I found it in the prepared remarks. On a non-GAAP basis, the company is looking for revenue at $7.4 billion at the mid-point, with EPS of $2.83, in the fiscal third quarter. Ycharts is showing that analysts had been looking for earnings of $2.67 and revenue of $7.297 billion, which is solid guidance, but not a blowout and that is likely problem #1. But if you look hard enough, I can find one more minor detail that might be what the market is reacting too in the estimates. The rising expenses.
At the mid-point, we get Revenue of $7.4 billion, gross margins of 58.5 percent, operating expenses of $725 million, and operating income of $3.7 billion. But when start filling in blanks, we get the table below. Notice what happens to operating income if we use the mid-point on all the items above it. It comes at the low end of the companies guidance and results in the operating income and operating margins declining, sequentially.
|Revenue||$ 7,351.00||$ 7,400.00|
|COGS||$ 3,055.00||$ 3,071.00|
|Gross Profit||$ 4,296.00||$ 4,329.00|
|Operating EXP||$ (666.00)||$ (725.00)|
|Operating Income||$ 3,630.00||$ 3,604.00|
Well see what happens tomorrow. Otherwise I think these numbers are good, and the guidance was solid, but not blow out.
There were nearly 7.6 million shares traded after-hours a healthy dose of volume, and the stock was down to about $56.50 off a close of $58.92. I think there is more downside to go.
I think you need to be careful with Amazon if this breaks $1500, I think it will have much further to fall, maybe below $1300.
Microsoft is broken now, and the odds of a fall to $84.50 just increased dramatically, and getting back over $91.50 just got that much harder.
Facebook is hanging by a thread, and should it fall, $148 is next.
Apple found a bounce for now at $168.
I still think Netflix is head to $295.
Mott Capital’s Reading The Markets – An In-depth Global Macro Stock Market Commentary – In Video Format – See How Michael Dissects The Markets
Free Articles Written By Mike:
Join our 731 Daily Subscribers And Get This Commentary In Your E-Mail! Subscribe
[vc_tweetmeme type=”follow” follow_user=”michaelmottcm” show_followers_count=”true” large_button=”true”]
Michael Kramer and the Clients of Mott Capital own NFLX
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.
© 2018 Mott Capital Management, LLC. Use, publication or reproduction in any media prohibited without the permission of the copyright holder.