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Trader Talk with Bob Pisani

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  Wednesday, 8 Apr 2015 | 10:10 AM ET

Alcoa starts earnings season...or does it?

Posted By: Bob Pisani

While Alcoa is not the big name it used to be, and it is arguable that the earnings season does not really start until banks begin reporting next week, it still represents the kickoff to earnings season, at least among old-timers.

And since we have a huge new data sandbox to play in, I asked our partners at Kensho what happens in the quarter when Alcoa reports earnings above or below expectations. Here's what the data revealed:

Since 2005, Alcoa beat 16 times, and missed 23 times.

When Alcoa did beat, the S&P 500 was up 75 percent of the time for quarter and averaged a return of 4.4 percent.

When Alcoa missed, the S&P 500 was up 65 percent of the time, but the average return was -0.24 percent.

In other words, an Alcoa beat does seem to correlate with a somewhat stronger S&P 500.

»Read more
  Tuesday, 7 Apr 2015 | 10:45 AM ET

These stocks may be primed for a bounce

Posted By: Bob Pisani
Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange.

Earnings season does not look good, but are some stocks washed out and ready to bounce?

I've noted for weeks that we are in an earnings recession, with two consecutive declines now expected for profits in the S&P 500, according to FactSet. First-quarter earnings are expected to come in 4.7 percent lower, while second-quarter earnings are expected to come in 2.1 percent lower. Third-quarter earnings are expected to come in 1.6 percent higher.

Wall Street is gripped with this frenzy that earnings will be much weaker than expected even a month ago.

The good news is many stocks may be reflecting this disappointment already and may be ready to stabilize and even bounce.

»Read more
  Monday, 6 Apr 2015 | 1:22 PM ET

A short-covering rally, but earnings a big worry

Posted By: Bob Pisani
Traders work on the floor of the New York Stock Exchange.
Getty Images
Traders work on the floor of the New York Stock Exchange.

Very strange day, since the futures were no indicator at all of the way we opened. We had one of the biggest opening rallies I have seen all year...S&P futures were at 2,044 at 8 a.m. ET, by noon we were over 2,070, with 3:1 advancing to declining stocks at the NYSE. Huh?

1) The big move up at the open suggests short covering, the "bad news is good news" crowd, as expectations for a rate hike get pushed further into 2015. The weaker dollar has been a big help for commodities and commodity stocks; we are back to $50 in West Texas Intermediate, which is that magic number that seems to make a lot of people more comfortable owning energy assets.

2) There was also fairly dovish comments from the New York Fed's William Dudley this morning.

3) Stocks moved up again at 10 a.m. ET on a stronger than expected ISM Services report, suggesting the March jobs print may be an anomaly. Remember the economy is 80 percent services, and the employment component also strong.

I know, stocks move up on "bad" jobs report news, than keep moving up on "good" ISM services news. Bottom line...don't give too much weight to pre-market trading!

Still, this does not address what I call the "growth-earnings problem," the fact that we are two percent from historic highs with earnings that look like this for the next two quarters:

S&P 500 Earnings:

Q115: -4.7%

Q215: -2.1%

Q315: +1.6%

Source: Factset

Yikes! Two quarters of negative growth, and third quarter looks like it's going negative as well.

Here's the problem: we need growth to support earnings. We can't get the kind of crummy economic data we got in February, because weak economic data means lower topline growth.

And that's what the Street is starting to expect! You think earnings growth is weak, take a look at revenue growth:

S&P 500 Revenue Growth:

Q115: -2.7%

Q215: -3.3%

Q315: -1.5%

Source: Factset

Yikes again! THREE quarters of negative revenue growth! And valuations are not cheap! One thing's for sure: it's going to be tougher to argue that the market deserves a higher multiple, say, 17 or 18 times forward earnings.

By definition, a higher multiple implies expectations of higher earnings growth. Not happening!

No, if the market is going to advance it has to find a way to improve topline.

That's why these numbers are so worrisome. Even with a dovish Fed, it suggests choppy, sideways action for 2015.

Which is exactly what we are seeing.

»Read more
  Tuesday, 31 Mar 2015 | 5:38 PM ET

Strange close in some ETFs Tuesday

Posted By: Bob Pisani

Strange close in a few ETFs Tuesday: Oil & Gas Exploration and Production ETF, Biotech ETF, Metals and Mining.

XOP, for example, was tooling along going into the close around $49.39, then the closing print comes in at $51.66.

That is about four percent away from the last trade. That's a big difference for a closing print, on the last day of the quarter.

Similar strange moves for XBI and XME.

What's strange is that immediately after that last print, XOP went back to trading at $49 and change in the after-hours.

In other words, the closing print was an outlier.

It's not clear what happened. Because these ETFs all started with an "X" in their symbol, it's possible this is related to earlier problems NYSE Arca reported with symbols in the range of UTG to ZSML on Tape B, which consists of most of the ETFs.

Beginning at 10:24 AM ET, Arca reported that trading was unavailable in those symbols, apparently due to a server glitch.

NYSE reported that all trading issues had been resolved at 11:05 AM.

As for what happened at the close, it's possible there was problems disseminating market on close imbalances related to the earlier glitch. If that's the case, the market makers would not know how much to pare off, which could lead to the strange closing prices that we saw.


»Read more
  Tuesday, 31 Mar 2015 | 2:40 PM ET

The IPO business: an anemic Q1, a cloudy Q2

Posted By: Bob Pisani
Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange.

After an historic 2014, the first quarter of IPO activity has seen a notable dropoff.

Thirty-four IPOs raised $5.4 billion, according to a report out today from Renaissance Capital. That's half the number of IPOs and roughly half the dollar amount raised in Q1 2014, making it the least active quarter by IPO count since Q1 2013.

The good news: Biotech IPOs continued strong, accounting for roughly half of all the deals.

The bad news: Technology and Energy saw a drop off.

What happened? The drop in energy IPOs is no surprise, but tech IPOs dropped off partly because so much private funding was available that valued the companies at high levels. That left little incentive for many companies to go public.

In Tech, there's too much (private) money chasing too few opportunities. But the public IPO market has a certain amount of discipline, and they are usually reluctant to bid things up to the moon.

This has led to a problem: recent high-profile tech deals like Box, HortonWorks and New Relic went public at levels that were below their most recent private funding rounds.

Renaissance speculates—rightly so—that this may have caused some tech firms with significant venture funding behind them to delay their IPOs.

What about private equity (PE) deals? There were fewer of them as well: only five, the least active quarter for PE since 2009. The speculation is that the market has cycled through the big deals of 2005-2008, and is now pausing.

Here's what's strange: what did go public did fairly well. The average IPO traded up 15 percent during the first quarter. That may be because the market has been very disciplined, not allowing pricing to get into the stratosphere.

Why do I say that? Because a third of IPOs priced below the range. That's good news for buyers!

And IPO prices have held up fairly well longer-term. One good gauge is the Renaissance Capital IPO ETF (IPO), a basket of roughly 60 of the most recent IPOs, up seven percent this quarter, easily outperforming the S&P 500. The group includes Twitter , the largest holding, and Alibaba, the second largest holding.

GoDaddy, the world's largest domain registrar, will be pricing tonight and will trade Wednesday on the NYSE. Even though this is not a fast-growth tech company, it does have significant cash flow and will be a good test of investor appetite.

The outlook for the second quarter? It seems a bit cloudy. Energy IPOs will remain fairly small (except for MLPs). Tech is the big issue: there has to be some reconciliation between the easy money in the private market and the more disciplined crowd in the IPO market that wants a better deal.

The calendar is a bit slow because we are going into Easter, but Transunion, the big credit bureau, just filed Tuesday. That will be a fairly large deal.

And big names like Uber, First Data, iHeartMedia, Palantir, Snapchat, Pinterest, Dropbox, Airbnb, Ferrari, and Univision are also out there, all of whom haven't filed but everyone is expecting to file. These are IPOs with BIG valuations.


»Read more
  Monday, 30 Mar 2015 | 3:44 PM ET

Pisani: What's behind the global rally?

Posted By: Bob Pisani
A trader works on the floor of the New York Stock Exchange.
Adam Jeffery | CNBC
A trader works on the floor of the New York Stock Exchange.

TheMonday rally was stronger than most traders expected. Whenever this happens, it pays to take a look at the trading action and try to determine what hypothesis best fits the facts.

Here's what I see:

China: gaps up, ends near high

Germany: gaps up, ends at high

U.S.: gaps up, highs for day

Hmm, there's a pattern here, and it's clearly global in nature. Comments from the People's Bank of China official that China has "room to act" in combating deflation and slow economic growth is yet another sign that some type of stimulus is coming.

And confidence indexes were strong in Europe, indicating that the ECB is having some kind of influence on investor attitudes.

Here in the U.S., three or four healthcare deals don't hurt, neither does much better than expected February pending home sales.

But still, is that it?

I think there's another crucial factor: it's the end of the quarter, with a lot of outperformance and underperformance. Just look at the performance spread between some of the S&P sectors:

Sectors, year to date

Healthcare—up 7.7 percent

Consumer Disc—up 5.1 percent

Industrials—down 1.0 percent

Energy—down 2.8 percent

Utilities—down 5.7 percent

This is for just one quarter, not a full year.

I look at the trading in the U.S. in the last week, and it sure seems like some people are moving some stocks around...buying losers (energy, some industrials) and lightening up on the winners (biotech).

It makes perfect sense to buy underperformers going into the end of the quarter, particularly if you think they have put in some kind of bottom.

This drop in energy stocks is the classic buy-the-dip. Traders simply refuse to believe that oil will remain in the $40s for any length of time.

There have been attempts to buy dips in energy ETFs like the S&P Oil & Gas Exploration ETF, where we saw volume spurts when oil dropped in January and mid-March.

Here's another seasonal factor: April starts on Wednesday, historically the best month for the Dow, up 1.9 percent on average since 1950, according to the Stock Trader's Almanac.

One final observation: traders have been waiting for this mythical 10 percent correction for several years, and it still seems a ways off, despite lower earnings and a Fed poised to raise rates sometime this year.

I do anticipate that the Fed tightening will have a dampening effect on stock multiples (the S&P is currently at roughly 17 times forward earnings, a bit high), but if it's just one rate hike this year, is that going to tank the market?

Not likely. Instead, choppy trading is the most likely path, flat for the year.

And if rate hikes are going to be slow and moderate, and economic growth is steady buy subdued, why not go back and focus on dividend payers, like everyone did last year?

My biggest worry remains the down earnings projections for Q1 and Q2. But, let's assume this is a washout year for earnings. If that's true, it's perfectly reasonable to expect sloppy sideways trading.

But once companies start increasing earnings projections next year, guess what happens? Anyone for a late-year rally?


»Read more
  Monday, 30 Mar 2015 | 9:50 AM ET

Deals, China stimulus news fuel strong market open

Posted By: Bob Pisani
Trader on the floor of the New York Stock Exchange.
Getty Images
Trader on the floor of the New York Stock Exchange.

We're off to a strong start to the week. Several factors are moving global stocks:

1) In the United States, several health care deals were announced, including a $12.8 billion deal in which UnitedHealth is acquiring Catamaran.

2) Another Chinese officials implies stimulus is coming: The People's Bank of China Governor Zhou Xiaochuan warned that the country needed to be vigilant on deflation and slower economic growth, saying that China "can have room to act."

On that, the Shanghai Exchange rose 2.6 percent, the highest level since March 2008, and the Hang Seng in Hong Kong rose 1.5 percent.

3) In Europe, many of the national bourses are up 1 percent or more, and economic confidence indices were strong, with Italian business confidence rising to the highest level since March 2008.

Profit recession? Regardless of the rally, I noted last week that a potential profit recession is looming for the first and second quarters, and now even Q3 numbers are coming down.

EPS (source: S&P Capital IQ)

  • Q1: -2.95 percent
  • Q2: -1.96 percent
  • Q3: 1.44 percent

The only good news is that this week is usually the bottom for earnings revisions for the reporting quarter (Q1 in this case); my bet is that there is a good chance companies will report better than expected numbers and may avoid an actual decline in profits.

Elsewhere:

Bernanke blogs! Ben Bernanke began his first blog at the Brookings Institute this morning with these words: "When I was at the Federal Reserve, I occasionally observed that monetary policy is 98 percent talk and only two percent action."

He went on to comment on the value of public statements by the Fed, focusing on the high cost of sending the wrong message, which is why, he notes, "Alan Greenspan once told a Senate committee that, as a central banker, he had 'learned to mumble with great incoherence.'"

Bernanke said he will blog "periodically, when the spirit moves me." Wonder how much he will criticize the FOMC?

»Read more
  Friday, 27 Mar 2015 | 10:53 AM ET

The Street is finally worried about earnings

Posted By: Bob Pisani

The list of companies with earnings warnings is growing. SanDisk lowered its outlook Thursday, and overnight regional freight railroad company Genesee & Wyoming also guided lower on revenue forecasts. Not surprisingly, the company said traffic was suppressed due to severe winter weather and also cited weakness in commodities like metals and steam coal.

It's been an especially ugly weak for transports, down 5 percent and far away the worst major performer with worries about weaker economic data and poor commodity traffic dragging them down. Earlier this week, Kansas City Southern also gave disappointing guidance for the quarter, citing soft demand among energy customers.

Railroads this week:

  • Kansas City Southern: down 10.9 percent
  • Union Pacific: down 7.9 percent
  • Norfolk Southern: down 5.9 percent
  • CSX: down 5.4 percent

It's certainly true this is the season for warnings.

The best piece of news is that the entire Street—including the analysts—is fully engaged with the idea there is a bit of an "earnings recession" going on, and not just in energy, which is clearly a debacle.

Q1 2015 earnings (est.):

  • Energy: down 63 percent
  • Materials: down 5 percent
  • Utilities: down 4 percent
  • Telecom: down 3 percent
  • Consumer staples: down 1 percent

Five of the 10 S&P 500 sectors are showing negative earnings growth. This is good news because it is putting pressure on analysts to take numbers down, which is increasing the chances they will overshoot.

Right now, first-quarter earnings are expected to be down about 3 percent. If estimates stay there, my bet is earnings will end up being slightly positive, thus avoiding a first quarter of negative earnings growth since 2009.

Financials (up 10 percent) and health care (up 9 percent) are the only two sectors with robust earnings growth, though industrials and consumer discretionary also have modest mid-single-digit growth.

»Read more
  Thursday, 26 Mar 2015 | 9:53 AM ET

Geopolitical risk adds to stock issues

Posted By: Bob Pisani

There are lots of moving parts affecting stocks Thursday.

We already had issues around negative earnings growth and comparatively high valuations for both the first and second quarter.

We also had issues with the timing of the Federal Reserve's interest rate hike, with the only certainty being the market believes some type of hike is coming later this year.

Negative earnings growth with the Fed raising rates down the road is not a good combination.

Read MoreFed Lockhart: Rate hike may come after midyear

On Wednesday, as we approached the end of the first quarter, we saw clear signs of rotation: The biggest decline were in sectors with the biggest gains for the year (semiconductors, biotech, solar), and the few gains were from those that had the biggest declines (energy, euro).

We have also seen a change in an important long-term trend: the strong dollar. The dollar strength has reversed as some have come to believe that the Fed's rate hikes may be put off longer—a trend which began last week and continues Thursday—and that has put a bid under commodities. Copper, for example, is up roughly 11 percent in the last week. Gold is up roughly 5 percent from its bottom a week ago.

Now we have some geopolitical risk coming into the equation, as Saudi Arabia and its allies bomb Yemen.

»Read more
  Wednesday, 25 Mar 2015 | 10:46 AM ET

How to trade stocks around tax deadline

Posted By: Bob Pisani
A trader works on the floor of the New York Stock Exchange.
Adam Jeffery | CNBC
A trader works on the floor of the New York Stock Exchange.

Tax deadline coming: stocks tend to rise. Every year I get the same question in response to the same phenomenon. The market seems to stall and droop in the two weeks leading up to tax day (April 15th), and then seems to recover.

The usual explanation is that some people withdraw money to pay taxes, which seems to make sense.

We asked our partners at Kensho about this, and the data seems to bear out this well-worn piece of folk mythology.

Since 2005, in the 10 trading days before April 15, the S&P 500 is only up 30 percent of the time, with a flat average return.

But in the 10 trading days AFTER April 15th, the S&P is up 90 percent of the time, with an average return of 2.0 percent.

From up 30 percent of the time before April 15th to up 90 percent of the time after April 15th. That's significant.

This worked across the board: the Dow was up 100 percent of the time (10 out of 10 years!), the Nasdaq 90 percent.

Certain sectors are big winners: Industrials, energy and utilities were up 100 percent of the time as well in the 10 trading days after April 15, all with gains in excess of 2 percent.

»Read more

About Trader Talk with Bob Pisani

  • Direct from the floor of the NYSE, Trader Talk with Bob Pisani provides a dynamic look at the reasons for the day’s actions on Wall Street. If you want to go beyond the latest numbers— Bob will tell you why the market does what it does and what it means for the next day’s trading.

 

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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