What to know today

  • Major indicators are healthy.
  • LYFT is up, UBER is not up. 
  • Let’s get quadrennial.
markets

EPS and GDP Are Going Higher

And “recession” talk is going lower.

Here’s a cool stat to start the day.

Over the last month, the consensus forecast for second-quarter earnings growth has risen from 9 percent to 9.8 percent.

“That may not sound like a lot,” as Eddy Elfenbein points out, “but analysts are usually lowering their projections at this point in the quarter.” It’s the first time since the fourth quarter of 2021 they’ve upped their forecasts.

As of Wednesday, 437 companies in the S&P 500 had reported. That’s 87 percent of the index, and 81 percent beat earnings estimates.

Those that beat did so by a median of 7.9 percent. Those that missed are off by an average of 5 percent.

Sixty percent of the S&P 500 has beaten revenue forecasts, with a median beat of 19 percent.

According to FactSet, EPS will grow 5.2 percent year over year, up from forecast of 3.4 percent as of March 31. And that would be the fastest pace of earnings growth since 2022.

“Corporate profits are important because they show the U.S. economic engine continues to purr,” writes Justin Lahart of The Wall Street Journal.

Lahart notes that other economic indicators such as consumer-sentiment readings have been downbeat and inflation has ticked up.

Still, “a strong US profit performance typically points toward continued expansion.” 

The Atlanta Fed GDPNow tool agrees with that general assessment, printing at 4.2 percent on Wednesday.

The Atlanta Fed GDPNow estimate for real GDP growth in the second quarter was 4.2 percent as of May 8, up from 3.3 percent on May 2.

Here’s another cool stat.

The word “recession” appeared in 100 transcripts of earnings calls and investor events this season. It appeared in 302 transcripts from the first quarter of 2023. 

Now it’s down to its lowest count in two years. As Lahart explains it, “Companies, instead of feeling a need to temper analysts’ optimism and nudge estimates lower, are upbeat themselves.”

So how long can this go on?

Jim Bianco of Bianco Research offered an extended and dramatic if indirect answer to this question on X on Wednesday. Here’s part of it:

Too many think the economy will either roll over or "pop." It does not work that way. It does not die of old age.
In a capitalist economy, investors, like most of those reading this, give money to good ideas and take it away from bad ideas. This means the economy continuously self-adjusts, so the natural state is to expand and grow 90% of the time.

The other 10% of the time is a recession because something murders it.

The bottom line is recessions are not predictable – never have been, never will be. 

“How do we know when the murder has happened?” Bianco concludes: “Investors lose a lot of money. A recession means that even investors' good ideas act like bad ones.”

That doesn’t mean we should live in fear.

It does mean we should be prepared for the unpredictable by having a plan and making sure our portfolios are diversified.

deep dive

UBER vs. LYFT

Who’s in the driver’s seat now?

If earnings season is as much about narratives as it is numbers, so much the better a head-to-head competition like Uber Technologies $UBER versus Lyft $LYFT.

Lots of story here, and lots of stats. UBER is still almost 10 times as big as LYFT in terms of revenue and books. And UBER’s market capitalization is still almost 20 times LYFT’s.

That also means there’s a lot of room for LYFT to catch up to UBER.

This picture reduces recent price action well, a strong reaction to booking trends:

Uber Technologies $UBER was down 5.72 percent and Lyft $LYFT was up 7.11 percent on May 8, 2024, when both ride-hailing companies reported first-quarter earnings.

UBER was down 5.72 percent during regular trading hours on Wednesday after management reported a net loss for the first quarter and warned that gross bookings for the second quarter are tracking below expectations.

It’s the worst one-day loss for UBER since October 2022.

Meanwhile, LYFT was up 7.11 percent, management posting expectations-beating first-quarter results, noting an industry-wide pick-up in demand, and highlighted the continuation of strong booking trends into the second quarter.

Investors, traders, and speculators appear to appreciate LYFT’s efforts to take market share from UBER. Analysts were generally bullish about both sets of results.

deep dive |
May 9, 2024

UBER vs. LYFT

TECHNICAL ANALYSIS

It’s Still an Election Year

And that’s still a good thing for stocks.

Politics and portfolios are generally not a good mix at the personal level.

At the same time, the big picture shows that the relationship of the former to the latter is generally positive.

That’s according to the major trend. “Trend analysis” is a big part of the technical approach to markets.

A whole lot of data indicates that asset prices trend over time. As my friends at All Star Charts like to say, “The trend is your friend.”

One of the more prominent trends, a pattern identified by Yale Hirsch, is the presidential election cycle. Hirsch published the first “Stock Trader’s Almanac” in 1968.

His son Jeffrey Hirsch is now the editor of the STA. As Jeffrey Hirsch noted in early February that as the S&P 500 goes in January so goes the rest of the year 74.4 percent of the time since 1938.

And the next 11 months follow January 67.4 percent of the time.

The nine presidential election years since 1950 with an “up” January Barometer are up 100 percent of the time with an average gain for the S&P 500 of 15.6 percent.

The January Barometer, which was created by Yale Hirsch in 1972, was positive for 2024.

According to Jeffrey Hirsch, full years followed January’s direction in 12 of the last 18 presidential election years.

And the nine presidential election years since 1950 with an “up” January Barometer are up 100 percent of the time. The average gain for the S&P 500 during those years is 15.6 percent.

From the Research Desk, we learn that Bank of America technical research strategist Stephen Suttmeier has run his own election-year analysis, and his data suggest we could be in for a pretty nice summer rally.

Since 1928, the S&P 500 has been up from June through August 65 percent of the time, generating an average gain of 3.2 percent.

During presidential election years since 1928, the index is up 75 percent of the summer-month periods, generating an average gain of 7.3 percent.

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