Update - April 12, 2022
The Most Pivotal Earnings Season in Years
The numbers are in… and they’re no surprise.
The latest Consumer Price Index figures show prices are up by 8.5% from this time last year.
Golly… who could have seen it coming? We printed $5 trillion, handed it to anybody with a pulse and, despite soaring prices, continue to hand it out to folks who don’t need it (much of the money still hasn’t been dished out).
This morning’s report tells the tale.
Energy prices are up…
Food prices are up…
Service prices are up…
But the prices of goods actually fell on a month-over-month basis.
Falling prices, of course, mean demand is falling… which means our prediction of a recession continues to look more and more prescient.
The next big set of “tells” to keep an eye on is earnings reports. We’re on the verge of one of the most-pivotal earnings seasons in a generation. If companies can maintain profits through this mess, it would tell us there’s hope that we’ll see merely a moderate slowdown.
If profits slip… oh boy. The Fed will have a real mess on its hands.
We’ll get word from JPMorgan Chase (JPM) tomorrow morning. And then we’ll get another report from the banking sector on Thursday, when Goldman Sachs (GS) opens its books before the opening bell.
With a highly confused yield curve, I don’t expect great news. But I expect profits to be higher than the Street’s estimates. That could lead to a nice pop in shares.
In our portfolio, we’ll have to wait a bit longer for any earnings releases. Our first company to open its books will be Silvergate Capital (SI). It’s expected to reveal its top and bottom lines next Tuesday.
As the nation’s largest crypto-centric bank, it has a lot of variables to wade through.
Having strong exposure to Bitcoin has been a bullish factor for the stock so far this year. Its shares outperformed JPMorgan and Goldman during the first quarter by a wide margin. In fact, Silvergate was up to start the year, while the other two were down by double digits.
Having exposure to this play in our portfolio has been smart.
We’ll find out how smart in one week. But we may get a preview of the action starting tomorrow morning.
Two other positions worth tracking closely next week are our stakes in ABB (ABB) and CSX Corp. (CSX).
ABB is a play on the global economy. It will release earnings next Thursday, April 21.
The international industrial giant’s figures will give us a good glimpse into what commercial spending looks like, plus a fair (i.e., nonpoliticized) look at inflationary pressure.
One key thing to look for in the report is any mentions of the company’s large buyback program. Just two weeks ago, it said it was making good on its plan to buy up to $3 billion worth of its own stock. The plan runs for the next year.
I don’t expect any wavering, but anything that adds to or subtracts from this plan will move the share price accordingly.
We bought shares of CSX, a holding company focused on rail transportation, as a way to play much of what ails the economy today – inflation, supply chain issues and rising energy prices.
When things get tight, we figured… more goods move onto trains.
That logic is paying off. We’re already up by double digits on the play.
When the company opens its books next Wednesday, we need to watch for a few key things… including increased input prices and the amount of products being sent over CSX rails.
As a whole, the rail industry has been under pressure this year to improve efficiency. Like most industries, it has had a hard time finding qualified help. That’s led to slower average train speeds and increased time at rail terminals.
And that means train operators are not making as much money as they could.
CSX is working to be a standout, though. It’s working on big efficiency pushes and is hiring aggressively.
We’ll see whether it all pays off next week.
It’s going to be a very important earnings season.
I’ll dig through the reports and tune in to the earnings calls. With real rates starting to climb, we’ll know what our next big move should be quite soon.
Stay tuned. Some wild figures are on the way.