First Quarter Earnings Season Commences Today

By: Kent Engelke | Capitol Securities

First quarter earnings season commences today. As noted the other day, warnings are at the lowest point since inception of this data point…1999. At this juncture, analysts are expecting a 12% increase.

All markets were quiet yesterday until late in the afternoon when geopolitical issues became front and center. North Korea is again saber rattling. It was declared US/Soviet relations are at Cold War levels. The NASDAQ fell about 0.55% and the Dow was off about 0.39%. Oil was essentially flat, capping the longest rally since 2012.

As noted the other day, the volatility beneath the surface is intense. Four weeks ago, oil was getting crushed with the narrative very bearish, the result of a huge hedge fund selling. I think it is noteworthy that hedge fund buying was robust up to six weeks ago. Today, according to the CFTC, open interest is now at the greatest level for the year. In any regard, it feels as though an 18-month cycle is occurring in six weeks.

The Russell 2000 was down about 1.1% yesterday. Reiterating prior comments, the short interest in the Russell 2000 contracts have grown the most since 2008 according to Bloomberg.

Bloomberg writes the S & P 500 technology sector is now down for nine consecutive days, only the third such occurrence since its 1989 inception. May 2012 was the longest streak… 12 days.

Treasuries were also unchanged until late in the day, ending about 1/2 point higher.

What is the above suggesting? Many times I have opined about the impact of electronic based trading models, models that have again entirely co-opted the markets. Is this their last major “hurrah” as the global economy and geopolitical environment transitions into something different?

I would place the odds of such at 50%, but unfortunately only history will/can answer this question.

What will happen today? Equity markets are closed tomorrow for Good Friday. The Treasury market is open, albeit liquidity will be challenged given the potential dearth of participants.

Last night the foreign markets were down. London was down 0.56%, Paris was down 0.57% and Frankfurt was down 0.38%. China was up 0.07%, Japan was down 0.68% and Hang Sang was down 0.21%.

The Dow should open nominally lower. Three mega financials report profits today. One just announced and earnings exceeded expectations. The markets are confused by the contradictory remarks by the Trump administration, comments that appear to be backtracking on campaign declarations. The 10-year is up 2/32 to yield 2.32%.

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