CWS Market Review – April 23, 2024

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On Monday, the S&P 500 snapped a six-day losing streak. That was the market’s longest losing streak since Covid wrecked the markets four years ago. The S&P 500 closed today at its highest level in 11 days.

Ryan Detrick points out that the S&P 500 had a maximum drawdown of 5.5% this year, and historically, that’s small. Since 1980, the average maximum drawdown in a year is 14.2%. In other words, in a perfectly average year, you can expect the stock market, at some point, to be more than 14% off its high.

Tech stocks were particularly strong today, as were many industrials. The Russell 2000 Index of small caps also had a good day. That index tends to skew to domestic manufacturers. The Russell 2000 has led the broader market for the last four days in a row.

The stock market had a decent rebound yesterday and today. In fact, this was the largest two-day gain in two months, but I don’t think we’re in the clear just yet. The Federal Reserve continues to be stubborn about lowering interest rates. We may have to wait until September to get our first rate cut. After that, there may not be another rate cut until 2025. It’s hard to say for now because the outlook is very unclear.

Q1 Earnings Are Looking Weak

What is clear is that this earnings season is, so far, on the weak side. Q1 earnings growth is currently tracking at 0.43%. That’s down from 3.32% one month ago. Of those that have reported so far, 77.1% of companies have beaten their earnings estimates while 60% have beaten on revenues. Slightly more than half (52.9%) have beaten on both.

For the quarter, Wall Street expects the S&P 500 to earn $52.94 per share. That’s the index-adjusted number. For the entire year, analysts expect the S&P 500 to earn $239.66 per share. That would be an increase of 9.19% over last year. That translates to a forward price/earnings ratio of 21. That’s a bit rich, but it could probably be justified if Q2 and Q3 earnings prove to be good.

Earnings season is when the good stocks are rewarded and when the bad ones get punished. Globe Life (GL), a former Buy List stock, soared 11% after it reported reassuring earnings. The stock was clobbered after it was hit by short sellers. Shorting is a tough game. A successful short can make a lot in a short amount of time, but if you’re wrong, you can get squeezed out of your position.

Shares of General Motors (GM) rallied after the company beat earnings ($2.62 vs. $2.15) and guided higher. Tesla (TSLA) reported after today’s closing bell and the numbers weren’t so good. For Q1, Tesla earned 45 cents per share which was six cents less than estimates. Tesla had quarterly revenues of $21.3 billion which was $850 million below estimates. Shares of Tesla climbed 7% in the after-hours market but I suspect that was only a reaction to its poor performance in recent days.

Tesla isn’t alone. JetBlue (JBLU) dropped more than 19% after it lowered its revenue forecast. The airline has been slashing costs recently. Earlier this year, a judge blocked JetBlue’s $3.8 billion attempt to merge with Spirit Airlines.

Pepsi (PEP) which is a conservative stock, did not please traders. The company beat earnings ($1.61 vs. $1.52) and beat on revenues, but its Quaker Foods division performed poorly. The soda company lost 3% today.

Fiserv Rallies on Earnings Beat

On our Buy List, I was pleased to see Fiserv (FI) report very good results. Fiserv has been a member of our Buy List since the very beginning, 19 years ago.

I’ll have more details in our premium issue, but I wanted share some of the highlights of Fiserv’s quarter. For Q1, organic revenue rose 20% and earnings increased 19% to $1.88 per share. That was nine cents higher than Wall Street’s forecast. During the quarter, Fiserv bought back 10.2 million shares for $1.5 billion.

The company also raised its earnings guidance for this year from a range of $8.55 to $8.70 per share, to $8.60 to $8.75 per share. Fiserv continues to expect organic revenue growth of 15% to 17% this year.

“Fiserv remains committed to our virtuous cycle of investment, revenue growth, operating leverage, capital return and re-investment for further growth, reinforced with a focus on clients, operational excellence, and a strong balance sheet,” said Bisignano. “This proven model, along with our strong first quarter results, led us to raise our 2024 adjusted earnings per share outlook for the full year.”

Shares of Fiserv rallied 4.4% during today’s trading. At one point, FI was up over 7% today. Over the last six months, Fiserv is a 42% winner for us.

Here’s Fiserv’s CEO on CNBC earlier today:

Mueller Industries Has Become a Big Winner

Three years ago, I profiled Mueller Industries (MLI). The company is a leading manufacturer of copper, brass, aluminum and plastic products. This is a classic small-cap cyclical stock. Once you realize the scope of their business, you understand that the use of Mueller’s products is seemingly endless. Mueller makes everything from copper tubing and fittings to brass and copper alloy bars and refrigeration valves.

You can find Mueller most anywhere. Some of the companies that rely on Mueller are in sectors like plumbing, heating, air conditioning, refrigeration, appliance, medical, automotive, military and defense, marine and recreational. Mueller’s operations are located throughout the United States and in Canada, Mexico, Great Britain, South Korea, and China.

Best of all, Mueller is completely ignored by Wall Street. I used to say that no Wall Street analyst follows Mueller, but that’s no longer correct. It’s picked up one analyst. Tesla, in contrast, is followed by 36 analysts.

I wrote “Keep an eye on Mueller. This could be a big winner in the months ahead.” I should have listened to myself! Since then, shares of MLI are up 140%.

This morning, Mueller reported Q1 earnings of $1.38 per share, and the stock gained over 7% in today’s trading. Not bad for a brass company that no one follows.

While this week will be dominated by earnings news, I’ll be looking out for Thursday’s report on Q1 GDP. This could be the third strong report in a row. Right now, Wall Street expects Q1 GDP growth of 2.2% (that’s annualized and adjusted for inflation. The Atlanta Fed’s GDPNow model expects growth of 2.9% which would be quite good.

The day after the GDP, the government will release the PCE price data which is what the Federal Reserve prefers to follow for inflation. For March, Wall Street expects that both headline and core PCE increased by 0.2%. If the number comes in soft, that could revive hopes of the Fed cutting rates sooner rather than after Labor Day.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. I was recently on Jim O’Shaughnessy’s “Infinite Loops” podcast. Jim is one of my favorite people, and I had a lot of fun. You can listen to the full episode here.

Posted by on April 23rd, 2024 at 8:21 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.