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Let's face it. It's been a pretty crummy first half of the year for earnings, and worse for revenues.
Right now, analysts are expecting declines in both earnings and revenues for the second quarter, though earnings will likely move into positive territory as the companies begin to report.
And there are similar problems for the second half. Earnings are facing two significant headwinds:
1) No revenue growth
Unfortunately, the trend in the second half is depressingly similar to the trend in the first half: a modest, low-single digit increase in earnings, but revenues continue to veer between flat to declining.
The fourth quarter, for example, is expected to see earnings gains of 3.4 percent, but revenues are expected to be roughly flat, up only 0.7 percent, according to S&P Capital IQ.
Blame it on the slow growth in the economy, if you want.
Regardless, better than expected earnings, weaker than expected sales. That is a problem.
It's a problem because if you really want to kick start a second half rally and move stocks to new highs, you will need to see sales pick up. You will need to see capital spending pick up. You will need to see less emphasis on cost cutting and share buybacks.
We are past the point of farce on Greece, but the story line just keeps getting weirder.
Stocks rose midday as Greece has thrown a last minute request to negotiate a new bailout, or at least an extension of the current terms, and then dropped back when it appeared there was no deal.
But there will be another meeting on Wednesday!
Creditors—who have said they will not change the terms of the prior offer—are forced to take this seriously because they are afraid of a NO vote on Sunday's referendum. They are afraid Tsipras will use the NO to reopen negotiations, which they have said they will not do.
But the creditors also do not want to be blamed for pushing Greece toward an exit by refusing to negotiate.
So the speculation is the creditors WILL negotiate, and are poised to offer new, more liberal, terms.
The hope is that these concessions will enable Tsipras to switch sides and support a YES vote on the referendum, or, even better, cancel the referendum altogether.
Why would Tsipras switch sides? Because Tsipras knows the creditors despise him. He knows that continuing to campaign for a NO vote is what some (not all) of the creditors want, because that is how they will get him out of office, assuming the vote is YES.
So the entire game hinges on whether Tsipras believes the vote will be YES or NO. If he believes it will be a YES even if he is a NO, and that will cost him his job, then he needs to switch.
But he needs a pretense. The concessions...if there is some meat on the bones...may be the pretense.
Bottom line? Tsipras is very much in charge of the pace of this game. We are very, very deep into the infinite Hall of Mirrors that is Game Theory.
The market action has been very uneven in the first half of the year. The S&P 500 is only 3 percent from its May historic high, but that is a deceptive picture.
There have been some notable sector winners, but there are also many—perhaps most—that still have modest gains for the year, but have stalled out in the second quarter. And then there is a distinct group that is in a clear downtrend.
If there was ever an argument for owning a broad portfolio of stocks, the first half of 2015 should be Exhibit 1.
First, let's look at the winners on an uptrend so far this year:
Banks have benefited from a rising interest rate environment and hopes for an improving economy, while health care, particularly biotech but also pharmaceuticals, have also been strong. The boost to HMOs and hospitals from the Supreme Court ruling on Obamacare has also bolstered the overall sector.
But there are many sectors that started the year strong, and have begun to stall in the second quarter. Two examples:
The housing numbers have shown notable improvement, as have earnings of companies like Lennar, but there is still an affordability issue hanging over the home building industry. Prices are high and getting higher, wages are still stagnant when inflation-adjusted, and the specter of higher mortgage rates have investors cautious.
The early reaction to the markets reflects a mild concern about contagion, but no panic. Portugal, Spain and Italy's stock markets are all down roughly 4 percent. Big European banks are down 4 to 6 percent. European peripheral debt is seeing a mild rise in yields, but not dramatic. The euro is down only 0.4 percent against the dollar. Gold is up all of $3 (0.3 percent).
This relatively mild reaction may or may not be what Tsipras had in mind when he called for a referendum. Many believe chaos is an important part of his negotiating strategy.
Tsipras' decision to call a referendum Friday night in the midst of negotiations has added a new layer of complexity to the negotiations, but the decision was not entirely absurd.
If he went ahead and agreed to austerity, the Greeks would throw him out. If he didn't agree, they would throw him out.
The only chance was to get the country behind him, and hope the chaos encourages the Europeans to go for a better deal.
Or—as many believe—he wants a final OK to leave the euro.
Another drop in China. The Shanghai Composite is down 7.4 percent, and the Shenzhen fell 7.8 percent.
Shanghai is now about 20 percent off the multi-year highs of a few weeks ago, but all of this has to be viewed through the prism of the crazy bubble China A shares have been in. The Shanghai Composite rose more than 60 percent from March to the middle of June and is still up 30 percent for the year; the Shenzhen is up 77 percent.
Morgan Stanley was out with a note this morning in which it concluded: "This is probably not a dip to buy ... the balance of probabilities is that the top for the cycle on Shanghai, Shenzhen and Chinext has now taken place."
The firm cites four issues:
a) increased equity supply,
b) weak earnings growth with a slowing economy,
c) high valuations; and
d) very high margin debt to free float market capitalization.
What would make Morgan more positive? An improvement in the economy, for one. Slowing down the IPO calendar, for another. The government could also step in to help the market. One idea is for the government to launch a tax-advantaged savings scheme similar to a U.S. 401(k).
THAT would certainly make a difference, but that is a long way off.
The IPO business: the buyers push back. A very mixed report card for the busiest week of the year for IPOs. Did I say mixed? How about crummy.
Eight were scheduled to price overnight, and so far only six have made it.
Thursday's IPO scorecard
1 Above range (Glaukos)
1 Middle of range (TransUnion)
1 Bottom of range (Millacron)
1 Postponed (Wayne Farms)
1 MIA (CNX Coal)
Wow. That is a pretty poor scorecard. An IPO bubble? Not on your life. In a bubble, everything prices above the range. That sure is not happening.
What is happening? The tape is telling you that IPO sellers are force-feeding the market. Buyers are pushing back, they are telling the sellers that there is too much product and they don't want a lot of it, or at least not at the prices being floated.
That is a good sign. That's the best protection against a bubble forming.
For those who want the details:
1) The big winner: Glaukos (glaucoma treatment products), is the clear winner. They raised terms yesterday, to $16-$17 from $13-$15, priced at $18, and they added more stock, opened at $29.11.
2) Doing OK: TransUnion, the credit reporting company, priced 29.6 million shares at $22.50, at the high end of the $21-$23 price talk, opened at $24.62.
3) Bottom of range: Milacron Holdings, which makes plastics processing equipment. The company has emerged from a 2009 bankruptcy filing. Priced at $20, low end of $20-$22 price talk, opened at $19.50.
4) Below range: Catabasis Pharmacuticals (technology for improving drug efficacy); priced at $12, below the price talk of $13-$15;
Lantheus Holdings (diagnostic medical imaging agents) priced at $6, well below the price talk of $8.50-$10.50, and added more stock, opened at $6.12;
Gener8 Maritime (seaborne crude oil transportation) priced at $14, well below the price talk of $17-$19, opened at $12.75 (ouch!)
5) Postponed: Wayne Farms, a broiler chicken processing company that supplies chickens to Chic-fil-A, Costco, and others. Why the postponement? Not clear, but may be concerns about chicken prices and exports due to avian flu.
6) Day to day: CNX Coal Resources (Coal MLP, with 10 percent dividend!)
The bank rally continues. It may have been a lackluster trading day, but once again banks rallied to new highs, including money center banks like Morgan Stanley (MS), Citigroup (C), JPMorgan (JPM) and Goldman Sachs (GS), as well as large regional banks like SunTrust (STI), Huntington Bancshares (HBAN), KeyCorp (KEY), Comerica (CMA), Wells Fargo (WFC) and Fifth Third (FITB).
Large-cap banks have significantly outperformed the S&P 500 this quarter.
I noted last week that this week is the biggest of the year for IPOs. Fourteen are expected to price, and more than $2 billion is expected to be raised.
But one space that has escaped market watchers' attention is the secondary market, which dwarfs the IPO market.
For example, there were 10 secondaries announced last night. Think about that: 10.
And here's what's important: Much of the proceeds are being used to buy things.
That's right—to buy things. Companies. Hotels. Pipelines. Retirement centers.
Not surprisingly, many are in the energy and real estate fields.
"These are people with very deep interests in their field, and they know when assets in the their fields are cheap," David Menlo of IPOfinancial.com told me. He added that it is generally cheaper to buy than to grow organically.
"To buy a pipeline, for example, is a tremendous capital expenditure. Building new hotels, or senior citizen centers, is more of a risk than buying what's already there because you have a track record with the existing properties. There's verifiable cash flows."
European markets went into the close at the highs for the day as yet another comical round of "What? Me, worry?" plays out in Europe.
The Greeks sent the wrong proposals to the negotiations?
No problem! They eventually got the right one out! What's a day or two when you're on the verge of default?
No agreement because the finance ministers didn't get the correct proposals in time to examine the details?
No problem! The summit of eurozone heads of state will still take place this evening.
The eurozone ministers also can't make a deal because there is no technical agreement?
No problem! The meeting will be used to prepare the ground for another Eurogroup meeting later this week.
We have a problem with the details of the agreement and can't come to an agreement at the Eurogroup meeting?
No problem! There's another meeting, somewhere. And another extension...
Is it safe to go back into Europe again? Euro leaders are dangling the ultimate carrot: a third Greek bailout deal.
European stocks are in sold rally mode, with most bourses up 1 to 2 percent, as EU leaders are scheduled to meet at 1 p.m. ET to attempt to hash out a deal with Greece. Bond yields are down in Greece, Italy, and Spain, and up slightly in Germany and France.
The Greek leadership has presented a slightly different proposal in an effort to end the stalemate. Whether it is good enough is unclear. There is less emphasis on cuts in pension spending and increases in value-added taxes and more on closing tax loopholes and raising taxes on corporate profits. Greece is also reportedly offering to raise the retirement age to 67, well above the average retirement age of 63 for men and 59 for women.
If a deal is reached, there have been reports the leaders are willing to discuss debt relief as part of a third bailout.
If there is a deal on Greece, even a "kick the can" deal that would extend the bailout for a few months ahead of a new bailout deal, will that cause a resumption of the European stock rally that started in January and fizzled in April on Greek exit fears?
The initial response would seem to support the idea. Germany is more than 10 percent off its April highs, but it has rallied about four percent since the bottom on Thursday on just such hopes. The Vanguard FTSE Europe ETF, a basket of European stocks, has rallied roughly 2 percent in that time period.
Perhaps more importantly, this will reinforce the idea that central banks will always bail out market participants.
Pimco's new chief investment officer may be starting to show signs of modest success, but it is a long road back.
Disney shares are trading at an all-time high, up nearly 45 percent over the past 12 months.
Oil has now broken below many Wall Street targets and look set to test the year's lows and beyond, before finding a bottom.