As I said in Sunday evening's market overview post, Wednesday would be my biggest day of the week due to the Consumer Price Index (CPI) and the Industrial Production statistics coming in on that day. Before I begin with my economic rant, let's take a look at how the Q2 Earnings Watch List is doing since we created it Tuesday morning:
As seen in the spreadsheet, Tuesday's Q2 Earnings Swing Trades were 3/5 technology, 1/5 financial, and 1/5 industrial production. All outperformed the market (whether or not GS's explosive estimate beat was for real or government sponsored), and all out performed the analyst expectations big time. As most of you know, INTC's revenue statistics beat estimates by $800M ($7.2B expected, $8.0B actual), but for AIR, ADTN, and ALTR, the statistics were solid as well:
- AIR raked in an egregious amount of cash flow from the last fiscal year ($113M) and watched defense sales increase 7% from last year's Q2.
- ADTN's cash position declined a little in order to make room for more long and short term investments (both of which increased in value). Because of this statistic and the performance of the investments, ADTN brought in a 67% net income off of their investments (approximately $1.01M more than last year) for a 3 Months Ended period.
- ALTR's sales increased by 6% from last quarter ($279.2M), while net income increased 7% from $44M to $47.4M from last quarter as well.
Technology seems to be the hot "commodity" very early in this earnings season, so in my eyes, I would be running screens of tech stocks that have enough cash to last them a lifetime and who are still slowly building their company back from their personal recession woes.
Moving to the Economic Data, I've added Econoday charts below in order for you to visualize what's currently happening with the CPI and the Industrial Production statistics:
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Consumer Price Index (Month-Over-Month)
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Consumer Price Index (Year-Over-Year)
Index of Industrial Production
Capacity Utilization Rate
Each chart tells its own tale. Starting with the month-to-month CPI, one of the major things that has been discussed by analysts that has the potential to raise the CPI is food prices (due to the weakness of the dollar and its inflationary deficiency) and gasoline prices, which can be seen in the weekly price breakdown spreadsheet below:
Although there was a month-to-month bounce for the CPI in June, this price index has a long way to go in order to get back to sustainable economic levels, as outlined in the year-to-year CPI chart.
Industrial Production wise, it's obvious that the price has been contracting less and less each month. Since my Manufacturing/Construction bottom call mid-April, the Capacity Utilization Rate (the statistic that shows what it takes to keep our nation's factories open) has continued to parabolically bottom, which proves to me that my bottom call is developing into a decent call.
With all of that being said, my estimations for the CPI is a little lower than the analyst expectation (my guess would be 0.5%), a little higher than analyst expectations for the Industrial Production statistic (-0.5%), and right on the money with the analysts for the Capacity Utilization Rate (67.8%). The question as to why the Industrial Production statistic has such a big impact on me is labeled with the simple answer of, "Because of what's in my watch lists." In order to make this more clear, let's take a look at what will be impacted by a good or bad Industrial Production report in my two watch lists:
Swing Trading Solo WL
- SPWRA
- PLD
- TITN
- BGG
Investment Opportunities WL
- CAT
- ARE
Even though six tickers doesn't look like a lot, 13% of my two watch lists combined makes up companies from the Industrial Production sector. I added my REIT picks for the week (PLD and ARE) into the mix because they are based around industrial real estate. Because of the demand for building and renovating on industrial real estate land plots takes other companies from the Industrial Production sector to do work on the piece of real estate, the REIT picks should move with the Industrial Production statistic when it is released at 9:15am today.
Good luck with today's trading adventures, and enjoy the tech boom from INTC's good after-hours earnings report last evening! I will return with an afternoon update post around noon.
ZM
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