It was a tough session for stocks on Tuesday, but in many ways, it’s the kind of session the market must endure before it can find its footing and move higher.
The market was in an unforgiving mood. Any shortfall was sniffed out either at the start of trading or as the day went on, which is why the initial cheer over Home Depot’s (HD) numbers became a sneer. Some worried about slower comparable store sales during the quarter and some margin pressure. No company gets the benefit of the doubt anymore…none!
Buy Signal Amid the Carnage?
Still, it wasn’t a disaster for the market. Market breadth was very compelling, as there was more conviction among buyers than sellers, especially for the NASDAQ:
NYSE
- Advancers 1,447 - Decliners 1,552
- Up Volume 1.96 billion - Down Volume 2.0 billion
There were 7.3% more decliners than winners, but the down volume was only 4.4% greater than the up volume.
NASDAQ Composite
- Advancers 1,492 - Decliners 1,562
- Up Volume 1.31 billion - Down Volume 983.9 million
Despite more decliners than advancing issues, there was significantly more up volume than down volume.
I think smart money began to accumulate positions yesterday, however, there is no sense of urgency. The greatest growth names and the most stable value names cannot withstand the engulfing selling swoons witnessed during the past six weeks.
The Stock of the Session
Beazer Homes (BZH) is only a $380 million market cap stock, but it soared 30% on earnings that beat on revenue and earnings. There was margin expansion and solid guidance. The company also announced it would be buying back its own stock.
- Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA): $90.1 million +17%
- Average Selling Price (ASP): $372,600 +6.6%
- Guidance Material (GM) 17.3 +10 Basis Points (bps)
The stock traded 4.6 million shares or 900% more than average. While there was a 9% short interest, I think the news was a reminder of how cheap many stocks have become. Moreover, the buyback seems to have put a floor in the share price.
Return of the Buyback
After the close, the 3M Company (MMM) announced a $10,000,000,000 buyback program. Many on the Street have been waiting for these announcements to flow like rain and to float the market.
Crude Oil Crash
OPEC Letter
On Monday, crude oil was higher on reports Saudi Arabia was preparing to cut production. Then came a tweet from President Trump that turned crude lower, setting up the biggest one-day decline in three years. Crude is crashing, and while it’s causing some questions about demand and the global economy, most experts agree with the Commander in Chief on supply.
In its monthly newsletter, the Organization of the Petroleum Exporting Countries (OPEC) made intriguing admissions:
Global Demand 2019
- 31.5 million barrels a day from a prior forecast of 32.0 million and September’s 32.9 million
- Non-OPEC supply (read America) is beginning to look “alarming,” forcing OPEC’s cut of 1 million barrels/day
These low prices are a cause for concern for American oil producers and why it’s exhibited no restraint as the U.S. oil rig count increased by 12 to the highest level since March 6, 2015.
I suspect American producers will start to turn off those rigs. It’s unlikely the industry will show any restraint once crude has stabled and begins the next rally higher.
Today’s Session
Earnings this morning, including Macy’s (M) and Burlington (BURL), underscores that strength in the American consumer remains, and it might actually be gaining strength from higher wages, sturdy confidence and the positive tailwinds of lower gasoline prices.
Macy’s
- Revenue $5.4 billion +2.3%
- Earnings $0.27 from $0.21 y/y estimate $0.14
Comp store sales
- Company 3.1% year ago 2.4%
- Total 3.3% year ago 2.7%
Strong dollar hurt tourism sales.
Market Reacts to News that Should Keep the Fed at Bay
Consumer Price Index
- Headline 2.5% in line with street
- Core only +0.2%