The S&P index closed down 73 handles to 3919 -- that is within 19 points (or virtually on top) of my "fair market value" of 3900. Values are again emerging. I closed the day small net long and plan to be a buyer on weakness.

Thanks for reading my Diary today. Enjoy the evening.

Be safe.

See you bright and early tomorrow morning!

There is a lot to write about tomorrow morning.
I might have to cancel my meetings!

Covering some (NFLX) -$15.

Added to (GOOGL) , (AMZN) and (DIS) near the lows of the day.

I shorted more (GS) $342.20 (-$7) and (MS) $92.20 (- $4) yesterday.

I am now covering what I shorted at.

Added to (SPY) $391 and (QQQ) $292.

* Buying at day's lows

Though I aggressively sold out of 95% of my bank stocks in the last month, I certainly didn't expect the magnitude of the selloff in the sector.

Picking at some longs: (WFC) , (BAC) , (FITB) , (PNC) , (JPM) , (BK) , (USB) .

Correction: This post earlier had the incorrect ticker for USB.

With the S&P -80 handles I have moved from small net short to small net long.

I violently reacted against Friday's abrupt climb in the markets earlier this week as breadth was deteriorating, financials were wobbly and the Russell Index ("the soldiers") were diverging from the strength in the senior average. 

That said, we are swiftly moving towards S&P 3900 which is my assessment of intrinsic value. 

Again, cull your resources, as this decline is exposing those that were swimming naked and the knaves in the business media - whose glances are dominated by the rear view mirror.

Back in the office. 

Getting my sealegs back.

I continued to expand my short exposure throughout the morning's strength.

Back in a few hours.

Maybe I should have stayed short Tesla (TSLA)  - ARK (ARKK) is buying a falling knife!

Treasury returns since 1990:

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The Wall Street bears could empathize although rather slightly with Pancho Villa's efforts. They too looked like they might make headway at the beginning of their incursion, but things soon began to dissemble and, while they did not suffer the kind of casualties Villa did, they did get repelled.

As I said, with Powell headed to the microphone, the 9:30 a.m. opening brought a lot of indecision and traders looked like they were feeling about in the dark with their hands, trying to guesstimate what they should do. We touched on some of that early indecision in this late morning update:

Late Morning Update 03.08.23 - Stocks waffle a bit nervously as Powell's day two testimony begins. The ADP based on recent readings of its modified model might suggest a slightly higher than expected payroll number on Friday. The JOLTS data seems to indicate the fact that the slowdown in real estate is starting to show up in weakening construction opening (hat tip Peter Boockvar). If the market decides to get back to business and do some testing, we want to watch the 3970 area in the S&P. If they touch below that, we will see if there is any follow-through. It is not a big technical level on the cocktail napkins, but on the lower low kind of premise, it might bring in some reaction. So, we watch that carefully.

Aside from Powell, we will now go to watching the ten-year and in front of the auction. The ten-year is showing a decent bid this morning and it may be based on people adjusting positions in front of that auction. Also, the Fed Tan Book at 2:00 pm, presumably after Powell is finished, will be looked at to see what kind of regional Fed input we are going to be looking at when they start to decide on rates. So, the coin is in the air. They will probably be concentrating on Powell for the next hour or so and then if it doesn't look like the questioning is going to bring anything meaningful, they go back to check their own technicals. The bulls also want to get back above 4000 in the S&P. The bears want to see if they can break that 3970 level. Stay tuned to Powell and try to stay safe.
__________

Interestingly, we singled out that 3970 area and for a chunk of the morning it did not look like it was going to come into play. The bulls looked like they were going to hold the ground above it rather handily, but as the day wore into midday, we find that the intraday low is 3969, which I believe is close enough for government work.

At any rate, what could have been a more decisive turn down after yesterday's selloff was pushed away and we wound up with a kind of mixed close and the bulls holding onto some credibility. Focus will now turn to Friday's payroll numbers and that could be somewhat interesting. The January number was huge so the normal expectation would be for a sizeable revision.

We saw something like that last year and then along came those ADP numbers on Wednesday and given that they have a new model for the last six reports or so, the new model seems to have minor prejudice built into it, since, I believe, the payroll numbers were higher than the ADP projection four out of six times. We will wait and see, and the jury is out. Again, the 3970 area is still of some import on the support side although we will widen the band and make it 3965 to 3970 and see where they go from there. We will try to reach for an upside target, probably 4010 and then much more resistance at 4025.

Before we get to today's calendar, we have to review what our foreign friends did in reaction to what we did on Wednesday here in New York and what they have seen and heard in their respective regions. Overnight, global equity markets are almost universally showing moderate losses. Much of it is thought to be a carryover from the concerns about the U.S. and the possible further tightening of the credit system. Ironically, the exception to the moderate losses is Japan where their GDP came out lower than expected and indicated no economic growth at all. It is a perfect case of bad news is good news because it makes them feel the Bank of Japan and the Japanese government may have to do something to stimulate the economy.

The U.S. calendar is modest at best. It being Thursday, we get Initial Jobless Claims and then the natural gas inventories and that is pretty much it. I do not see any scheduled Fed speakers. In ordinary times, the Initial Claims could have a major impact, but the form chart says that traders may be a little tight fisted with the hugely important non-farm payrolls coming out tomorrow so, they may not want to get over exposed and over positioned. Nonetheless, if claims are really low, it could put downward pressure. I think the market today will be trading on its internal technicals. The fact that they basically held at 3970 could put a bit of a bid under them. It was somewhat disappointing that they did not seem to pounce off that level, but rather slowly moved up. We will be watching that.

On the other side, the bulls will want to try to get above 4000 and again there is mild resistance at 4010 and more heavy resistance at 4025 and again, with a big number coming out tomorrow, it may keep people as I say a little tight fisted and not want to develop a really heavy exposure. At any rate, you know the standard drill. Stay close to the newsticker. Keep your seatbelt fastened. Stay nimble and alert. Keep a close eye on those yields.

At 4% and above, it could put pressure on stocks and certainly, if it were to shoot up to 4.10% that would be a factor. Conversely, the closer it gets to 3.90%, the more chance you get of a mild bid, but again with the payrolls tomorrow, the assumption is tight fisted, but they can disprove that in a nanosecond.

From my pal Peter: A few things and Kuroda's swan song, good riddance. In case you didn't see, here were a few more notable general comments from yesterday's Beige Book: "Six Districts reported little or no change in economic activity since the last report, while six indicated economic activity expanded at a modest pace." Remember that this comes after 1% real growth in 2022 that came after the 2021 reopening. "On balance, supply chain disruptions continued to ease. Consumer spending generally held steady, though a few Districts reported moderate to strong growth in retail sales during what is typically a slow period." It's usually slow because it's post holiday and it's the winter. "Auto sales were little changed, on balance, though inventory levels continued to improve. Several Districts indicated that high inflation and higher interest rates continued to reduce consumers' discretionary income and purchasing power, and some concern was expressed about rising credit card debt. Travel and tourism activity remained fairly strong in most Districts. Manufacturing activity stabilized following a period of contraction." Though as we've seen with the ISM and S&P Global, it remains in contraction. More, "While housing markets remained subdued, restrained by exceptionally low inventory, an unexpected uptick in activity beyond the seasonal norm was seen in some Districts along the eastern seaboard." They forgot to mention that it is also subdued because of a doubling in mortgage rates on top of a 40% rise in prices over two years. "Commercial real estate activity was steady, with some growth in the industrial market but ongoing weakness in the office market...On balance, loan demand declined, credit standards tightened, and delinquency rates edged up...Amid heightened uncertainty, contacts did not expect economic conditions to improve much in the months ahead." Bottom line, I'll use an analogy I've said before. The US economy is not an on/off switch. There is a dimmer in between and all the rate hikes in the world don't effect it all at once. Thus, we're not close to landing yet. Yes, for a first time home buyer, the impact is more immediate or for a business that has floating rate debt or loans immediately coming due. But broadly speaking, it takes time to work its way through the economy. If ones car lease doesn't come due until November, they are not yet affected. If their 10 yr adjustable rate mortgage needs to be refinanced in January 2024, that homeowner is not yet impacted. If a developer's 2020 construction loan doesn't need to convert it to a conventional loan until September, they are not yet hurt by it. If ones bonds outstanding don't mature until Q2 2024, they aren't worrying just yet. But, all of the interest rate pain from the repricing is still to come. Yes, lags that are variable. On the wage front debate, Delta's 34% wage increase, along with other compensation, over the next 4 years is being matched by American Airlines who said on Tuesday as they are in the middle of union negotiations. With American, pilots are getting a 21% rise in pay in the first year and total pay gains by the fourth year with total 40% With regards to stock market sentiment, last Friday's 1.6% rally drove a reversal upward in Bulls and a disappearance in the Bears according to II (which reflects up to that day). Bulls jumped to 45.2 from 38.4 and vs 44.4 in the week before. Bears now sit at just 24.7, the lowest since January 2022 from 28.8 last week and vs 26.4 in the week prior. AAII, which extends I believe to this past Tuesday, rose 1.4 pts to 24.8, a 3 week high. They are though still well below the Bears, which fell 3.1 pts to 41.7 after jumping by almost 20 pts over the prior 3 weeks. The CNN Fear/Greed index closed yesterday at 45, still in the Neutral camp vs 50 one week ago and 70 one month ago. Bottom line, I'm sure the II next week will see a rise in Bears and drop in Bulls after the action this week as we know mood follows price. That said, to see the Bears disappear within the II figure to the lowest in a year plus should worry those who focus on sentiment in gauging short term market moves. It's a big day tomorrow for Japan, and maybe for the world's bond market, as BoJ Governor Kuroda is presiding over his last meeting, good riddance. He, along with Mario Draghi, Ben Bernanke and Janet Yellen (Powell too) are on the cover of whatever books will be written on the most extreme monetary experiment in the history of central bank central planning over the past 15 years in response to the hangover from the housing bubble that Greenspan stoked. If Kuroda was physically printing money as opposed to doing so electronically, he would have cut down a whole lot of trees and also killed off the banking sector profits and all for what exactly? The book to read by the way is Edward Chancellor's "The Price of Time: The Real Story of Interest" as he smartly, professionally and respectively eviscerates the names above and where they took monetary policy. Maybe Kuroda goes out with a bang by maybe moving its overnight rate back to zero from -.10% and/or further tweaks YCC? Well, just maybe as the yen is rallying and the 9 yr yield jumped by 5 bps to .63% (while the 10 yr yield is still stuck at .50%). Notwithstanding their reopening, inflation in China in February remained pretty subdued but with the timing influence of the Lunar New Year, the March figure will be more relevant. CPI was up 1% y/o/y, about half the estimate. PPI fell by 1.4% y/o/y, about as expected. It seems so far that the Chinese consumer has responded to the reopening just as the rest of us did, traveling and eating out as opposed to buying stuff.

Mar 08, 2023 ' 11:15 AM EST DOUG KASS

Programming Notes

I will be out of the office Thursday at an offsite Board meeting between 10 am-3 pm. I will be monitoring the market during that period but my posts will be very short and infrequent.

On Friday I will be out at a conference and two spinout research meetings between 9 am-1:30 pm.

A heads up.

More on the imminent commercial real estate crisis from my pal Danielle DiMartino Booth:

Leave it to the Romans to beat the rest of the world into the warehouse business. About 2,200 years ago, amidst the Empire's conquering spree, the Horrea Galbae was completed. It closely resembled the large structures we know today as places for the storage and retrieval of goods. This massive complex of warehouses near the Tiber River contained more than 140 rooms and covered some 225,000 square feet. A store of the public's grain supply to say nothing of imported olive oil, wine, food, and clothing, the decision to build such an enormous facility close to the river was deliberate. Packed with the spoils of conquest, victorious and enriched Romans sailed into port to unload their treasures. From there, it was a short "last-mile" chariot haul to secure storage.
Back in the here and now, the Amazonification of the commercial real estate sector in recent years has feted the "IT GIRL" of Industrial (read: warehouses). According to the U.S. GDP accounts, there's been a massive Industrial buildout over the past decade. In 2012, the warehouse share of nonresidential structures investment was south of 2% and roughly half the size of its "brick-and-mortar" Retail contemporary. Four years on, Industrial's footprint surpassed that of Retail and hasn't looked back since. By last year's fourth quarter, Industrial's share had risen to a record 9.2%, almost 4.5 times that of Retail's 2.1%.
The e-commerce revolution has tethered the economy as never before to the distribution channel. No doubt, the pandemic accelerated this transition. This temporary footrace also created serious impediments and bottlenecks in the supply chain. Higher cost inflation for logistics was a natural byproduct.
After what felt like an eternity, relief appeared in the February Logistics Managers' Index (LMI). Its Warehousing Capacity subindex rose to 56.6 (purple line), the highest since February 2020. The LMI was noncommittal as to the 'why' of the situation: "Whether or not new capacity is coming online (i.e., via facility expansion, or shifting from retail to industrial distribution) or if demand is shifting remains to be seen...."
Shall we in the LMI's stead? When gauged on a fourth-quarter over fourth-quarter basis, new warehouse investment has contracted for two years running. Granted, the move in 2021 and 2022 of -0.7% and -1.8%, respectively, does not qualify as gigantic by any means. Still, this trajectory pushes back on the idea of facility expansion.
A righting in Warehousing Capacity has been reflected in inventory sentiment gauges from both Institute for Supply Management reports. However, the LMI continues to flag Warehousing Prices (73.3 in February, orange line) and Inventory Costs (70.9 in February, olive line) rising at a rapid clip. Normalizing costs will require a significant expansion of warehousing capacity and a drop-off in demand. Our tally of Future Inventories via regional February Federal Reserve validates waning upstream manufacturing demand which meshes with the LMI reporting that Transportation Capacity remained elevated at 70.4 in February, a slight decline vis-à-vis October 2022's cycle high of 73.1.
High levels of transportation capacity run inverse to FreightWaves' Outbound Tender Reject Index (OTRI). This metric measures medium to large truckload carriers' willingness to accept loads that are offered (or tendered) by shippers. Motor carriers reject load requests when demand for freight hauling services exceeds supply or if the price of a tendered load is deemed to be too low. The latter is hard at work as Transportation Prices fell to 36.1 last month, the lowest in the LMI 6 ½-year history.
Taking the macro to the micro, untenable pricing prompted FreightWorks Transport to abruptly cease operations. The 11-year-old North Carolina company notified more than 200 drivers, employees, and mechanics on Tuesday explaining it was losing core contract customers amounting to millions of dollars: "This had an immediate and very devastating impact on our ability to make payroll, let alone cover our rent, truck payments and other expenses...In an incredibly weak freight market, we are simply unable to replace this lost freight with enough profitable work for us to be sustainable."
Rather than an isolated incident, in the last 60 days, Indeed Hiring Lab's job postings for logistics workers have taken a nosedive concurrent with open positions in loading & stocking, logistic support, and driving (light blue, brown and pink lines). Moreover, February's ADP employment report revealed a stalling out in payrolls in the trade, transportation, and utilities industries (blue line). (This aggregated series proxies current employment in logistics given a 'transportation and warehousing' line item is not available.) A parallel weakening in layoffs and discharges in the sector was manifest in Powell's oft-cited Job Openings and Layoff Turnover Survey (red line). At the opposite end of the line, continuing jobless claims in Transportation and Warehousing industries were up 1.9% year-over-year (YoY) in January on the heels of December's increase of 1.7% YoY.
On January 4, 2023, CoStar News' Randyl Drummer reported that a "wave" of nearly 1 billion square feet of warehouse space would come online in "coming months." No surprise, "Brokerage CBRE projects a 10% to 15% decline in leasing as some businesses delay or cancel expansion plans or trim their storage needs by clearing excess inventory in a softening economy." As we've never penned, "It was a coincidence" that Uber announced yesterday it's considering a spinoff of its freight logistics unit via an IPO or an outright sale of its freight assets. This kind of executive maneuvering does not happen during good economic times.

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On possible cannabis rescheduling.

More info on the budget considerations and contemplated proposals:

On the jobs related move to +2 S&P handles, I have sold some (SPY) $399.16 and (QQQ) $297.78.

As mentioned previously: 

For the near term, we continue to employ these five legs to the stool to our portfolio strategy at Seabreeze Capital Partners LP -- many of which my Grandma Koufax, an outstanding investor, used to call "blocking and tackling":

* Developing good investment longs and shorts that "season" even in a relatively narrow trading range -- We expect this "buy/hold" approach to influence our portfolio strategy more and more this year if stock prices further decline and the reward vs. risk proposition improves.

* Creating sector "pairs" for both trading and investing

* Tactical and opportunistic buys/shorts as we move towards the lower and upper end of the anticipated trading range

* Selling premium -- via individual calls and puts

* Selling strangles and straddles, and also taking in premium

This will change, but for now a buy/hold strategy (read: own 30 stocks "forever") seems likely to be ineffective. 

Instead, with the accelerant of ODTE options and momentum based products and strategies - market moves are often exaggerated. 

And the lack of predictability of economic, interest rate, profits, inflation uncertainties is a contributor to a new regime of volatility. 

The opportunistic, fleet afoot and dispassionate trader/investor can capitalize under this backdrop with this sort of blocking and tackling. 

While the spastic moves are somewhat unpredictable and necessitate watching a portfolio's VAR (value at risk), tactical buys/shorts gain a heavier weighting in my investment process these days.

Th U.S. dollar is slightly stronger this morning:

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From my friends at Miller Tabak:

Macro View

Record Low Delinquencies Should Ease Recession Concerns
The most underrated U.S. economic data from the past month is the New York Federal Reserve's quarterly update on U.S. credit quality. The big surprise is that overall delinquencies (all loans, all banks) fell to a record low of 1.19% (the series began in 1985) in 4Q2022. Figure 1 shows that this is mostly driven by real estate loans (blue), which are also at a record low of 1.21%. Consumer loans (blue) include less fixed-rate debt, and have risen to 2.08%, still a very low level.

We remain optimistic that the U.S. avoid recession in 2023, currently putting the odds at 30%. Our biggest reason for optimism is that the strong quality of balance sheets, especially for households, will allow the real U.S. economy to maintain positive growth despite higher interest rates. These data bolster our view and push back against the argument that higher inflation is having major effects on balance sheets.

The absence of higher delinquencies in response to rate hikes is somewhat of a puzzle. High levels of fixed-rate mortgage debt certainly play a role, but delinquencies are too low across the board for this to be the only factor. The excellent state of balance sheets before the pandemic is still having an impact. These data are also evidence that pandemic-era fiscal stimulus is still having much longer-lasting effects than anyone anticipated. Finally, they also reflect the unusually high quality of debt accumulated during the last expansion. Mortgage debt, for example, contains far fewer subprime loans than a decade ago.

This table, delivered daily, is a good source of price momentum factors for the active short term trader:

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The S&P Oscillator was virtually unchanged from the prior day (at -1.23% from -1.19%).

From Dubravko and company at JPMorgan:

US Equity Strategy
Earnings Overview, Cost of Capital a Growing Concern
By Dubravko Lakos-Bujas, Kamal Tamboli, Bhupinder Singh, Narendra Singh, Arun Jain

The earnings season, while not as bad as feared, did confirm emerging cracks within corporate fundamentals. EPS revisions continued to move to the downside with 2023 EPS revised down by ~$8 YTD to ~$222. Rising cost of capital remains a key concern for corporates (see Cost of Higher for Longer). In fact, a growing number of Small caps who are particularly sensitive to higher rates (i.e. 40% of S&P 600 debt is floating) have flagged rising interest expense as a key margin headwind. Even though Large cap balance sheets remain healthy to date, Small caps and the private sector could see material deterioration from higher rates with the risk of those issues ultimately permeating into Large caps in the form of lost demand, lower margins and/or asset write-downs/credit losses. We continue to expect $205 EPS for 2023 (~$210 on an fx/usd normalized basis). Earnings expectations still remain elevated going into 2H23 where consensus sees net income margins expanding versus 1H23. In our view, 2H23 earnings expectations remain a high bar for corporates to clear given sticky labor costs, rising cost of capital pressures (see Figure 2) and risk of demand slowing in the latter part of this year.

Beats/Misses. With 98% of S&P 500 companies having reported, 64% beat 4Q earnings (vs. 70% avg. last 4Qs, see Figure 1) and 66% beat revenue estimates (vs. 69%). Beats have been slightly better ex-Financials with 66% of companies beating 4Q earnings (vs. 70% avg last 4Qs) and 68% beating revenue estimates (vs. 72%). Sectors with highest percent of earnings beats include Technology (82%), Healthcare (76%) and Industrials (70%). However, only two sectors exceeded their past 4Qs average in terms of earnings beats: Healthcare (76% vs. 72% avg prev 4Qs) and Discretionary (67% vs. 63%). While earnings beats did improve on the margin compared to the previous quarter (64% current vs. 62% 3Q22), S&P 500 beats remain well off their 2Q21 peak of 88%.

Surprise. Net income has surprised to the downside for the second quarter in a row at -2.2% though slightly better ex-Financials at -1.2%. Both revenue and earnings surprise were largely supported by more defensive sectors such as Healthcare (1.8% and 3.7%, respectively) and Staples (2.4%, 3.2%).

-- Revenue Surprise. Revenue has surprised to the upside by 1.5% though far less than over the past year (i.e. 2.5% on avg through past 4Qs). Almost 70% of the revenue surprise was driven by Bond Proxies alone. Among sectors, the major contributors to revenue surprise were Utilities (51%), Healthcare (23%), Staples (17%) and Discretionary (17%, see Figure 10). Note, these values will exceed 100% if the percentages are summed given the netting versus sectors with downside surprise.

-- Earnings Surprise. Earnings results disappointed expectations for another quarter coming in at -2.2% (vs. -0.3% in 3Q22). The downside surprise was largely driven by Cyclicals (~87% contribution, -4.2% surprise, see Figure 11). Among sectors, Financials (55%, -7.2%), Communication (37%, -8.8%) and Energy (27%, -5.3%) were the largest contributors to the downside surprise. Healthcare was one of the few bright spots with an earnings surprise of 3.7%. Turning to EPS surprise, this was the first quarter since the pandemic (i.e. 1Q20) and GFC before it where EPS surprise was negative (-1.0% for 4Q22, see Figure 8). This EPS print falls significantly short of the median surprise over the past ~20 years of ~4%.

Growth. 4Q revenue growth came in at 5.7% y/y and net income growth at -6.7% (vs. -5.4% ex-Financials). Interestingly, median net income growth remains positive at 4.1% (vs. 4.2% in 3Q22). One explanation for the gap between the earnings growth values could be the lapping of strong 4Q21 prints, which weighed on the overall index this quarter especially among some of the largest earnings contributors (e.g. AMZN, GOOGL, META, AAPL, INTC). As it relates to concerns around an earnings recession, ex-Energy this is the 3rd quarter of negative earnings growth (i.e. 4Q22: -10.8%, 3Q22: -5.5%, 2Q22: -5.5%).

Margins. Net income margins surprised to the downside by roughly -40bps. Overall, margins contracted ~70bps q/q and ~170bps y/y to 11.5% on the quarter. Energy and Industrials are the only sectors to have experienced margin expansion over the past year (+350bps and +160bps, respectively) though both saw margin compression on the quarter (-130bps and -10bps). Interestingly, Long Duration/Secular Growth (-250bps y/y) and Bond Proxies (-190bps) have been larger sources of margin compression than Cyclicals (-80bps) on the quarter. However, Cyclicals remain highly bifurcated with margin gains among Energy/Industrials mentioned above more than offset by margin compression within Financials (-360bps y/y), Materials (-270bps) and Discretionary (-240bps).

S&P 500 EPS Revisions. Since the beginning of the earnings season (i.e., 1/13), 4Q22E EPS have been revised down -0.7% to $53.30 (-1% y/y) with 2022E EPS revised down -0.3% to $218.75 (+5% y/y). Looking to 2023, EPS has already been revised down -2.9% since the beginning of the earnings season to $221.65 (+1% y/y). The revision lower can be largely attributed to sharper revisions for 1H23 (i.e. 1Q23: -5.0%, 2Q23: -2.8%) compared to 2H23 (i.e. 3Q23: -1.7%, 4Q23: -1.0%). US Earnings Recession. Based on current consensus estimates, analysts are forecasting S&P 500 earnings to enter an earnings recession by the end of 1Q23m, which is expected to last for another quarter (2Q23) before a mild earnings recovery in 3Q23 (see Figure 9). 2024 EPS Revisions. The current 2024 EPS of $248.52 implies ~12% y/y growth (see Figure 8). However, this is likely a product of more aggressive cuts to the 2023 EPS consensus estimate (vs. 2024) and limited/shrinking corporate guidance beyond 2023 given elevated economic uncertainty.

Performance Post-Earnings. Aggregate average price performance relative to the market 1D post-earnings was positive at +0.3% (median performance +0.4%, see Figure 12) and +0.1% for 5D-post earnings (median performance -0.3%). For the most part, average 1D performance post earnings saw a positive spread between the average performance of companies beatings versus missing. However, there were two exceptions to this trend, specifically Financials (-2.3% spread) which experienced positive performance after misses (+1.8%) while seeing beats sold (-0.5%) and Communications (-0.3% spread) which saw beats faded (-0.4%) more than outright misses (-0.1%).

--1D Excess Performance. For the most part, Cyclicals were rewarded strongly for beats, specifically Discretionary (+1.9%), Materials (+1.7%) and Industrials (+1.3%). On the other hand, more Defensive sectors such as Staples (-3.2%) and Healthcare (-3.1%) experienced the most underperformance for misses.

-- 5D Excess Performance. Among beats, Industrials largely held onto and further grew their post-earnings performance gains (1D: +1.3%, 5D: +1.8%). While Financials were not initially rewarded for beats 1D after (-0.5%), they did end up outperforming the market 5Ds post earnings (+0.3%). Lastly, Communication names that beat were on average faded 1D post-earnings (-0.4%), which then further accelerated after 5Ds post-earnings (-3.9%).

Buyback Announcements. Buyback announcements currently stand at $261B YTD, the fastest pace on record for the same point in time in previous years (see Figure 17). Interestingly, over 70% of the buyback announcements are concentrated in just 5 names: CVX ($75B), META ($40B), GS ($30B), BKNG ($20B) and CRM ($20B). Looking at the LTM pace of buyback announcements, S&P 500 companies have announced $853B worth of buyback plans (vs. peak of ~$1T in May 2019).

Investment Activity. Corporate investment activity was led by Capex (+15% y/y) and Dividends (+7%) though these activities were largely offset by the slowdown in gross buyback execution activity (-20%). The largest industry groups contributing to y/y capex growth include Energy (+$8.3B), Transportation (+$7.1B) and Media/Entertainment (+$6.6B) with the largest pullbacks coming from Semis (-$2.0B) and Retailing (-$1.6B). Gross buyback execution activity was relatively flat on the quarter at $216B vs. $214B in 3Q22. Note, buyback execution activity overall has been decelerating after peaking in 1Q22 (~$290B). With the passage of the Inflation Reduction Act last year, we would expect some incremental discussion around the 1% buyback tax but discussion on the topic has been limited this quarter suggesting a largely immaterial impact. We could expect to see this issue re-emerge given President Biden's remarks during the SOTU on raising the current 1% buyback tax to 4%. Finally, Cash balances (ex-Financials) continue to move lower (-1% q/q, -10% y/y, see Figure 13) with current cash balances around $1.8T. Note, roughly 25% of that cash sits with just Technology companies.

Style. Looking at the top 50 S&P 500 companies across Growth, Value, Quality, Low Vol and Momentum, we generally observed stronger fundamentals from companies within the Low-Vol and Momentum buckets. For Low-Vol, 74% of companies beat earnings (vs. 64% for S&P 500 companies) with earnings surprise of 0.4% (vs. -2.2%) and earnings growth of 5.5% (vs. -6.7%). For Momentum, 77% of companies beat earnings (vs. 64%) with earnings surprise of 2.8% (vs. -2.2%) and earnings growth of 10.8% (vs. -6.7%). Both Value and Quality were the worst performing style groups in terms of fundamentals. For Value, 55% of companies beat earnings (vs. 64% for S&P 500 companies) with earnings surprise of -2.4% (vs. -2.2%) and earnings growth of -10.6% (vs. -6.7%). For Quality, despite 65% of companies beating earnings (vs. 64%), earnings surprise was underwhelming at -4.1% (vs. -2.2%) along with earnings growth of -16.7% (vs. -6.7%).

Figure 1: Sales and Earnings Scorecard (based on current constituents, bottom-up aggregation):



Source: J.P. Morgan Equity Macro Research, Factset

Figure 2: Corporate Sentiment Turning Increasingly Negative on 'Cost of Capital'

Value added:

Owing to my schedule there will be no "Futures" column today or tomorrow.

Speaking of the demise of Silvergate (SI) , this column from last week "bears" repeating:Mar 02, 2023 ' 02:15 PM EST DOUG KASS

The Media Throws Soft Balls and Too Often Fails to Provide Critical Interviews

* To embark on anything else is value destructive for their viewers

* I and many others are sick and tired of this

For years I have been outspokenly critical about how weak the business media often is in interviewing company executives.

Invariably, it is only after the fact (as was the case with Silvergate's (SI) woes or FTX bankruptcy) that the business media delivers clarity.

Here are two vivid examples -- in which two CNBC moderators interview Silvergate's CEO back in November and interview Sam Bankman-Fried of FTX two months before declaring bankruptcy.

In the first interview with Silvergate there are nearly no questions to the company's CEO (who essentially gives a soliloquy) -- likely reflective that the interviewers had done little homework or preparation.

But there are so many, many more examples of a lax and lazy media (that ends up harming its own viewership). Of course this nonsensical interview with FTX's SBF is the most classic one -- a total "puff piece" done two months before FTX's bankruptcy, which I am sure CNBC would like to forget.

Wolf Street on the Silvergate (SI)  situation.

dougie kass7 hours ago

I ended the day net short.
The technicals I look at - short, intermediate and long term - are crumbling in unison.
It's the first time since last Fall.