While the bulk of JPM’s intraday commentary is largely an attempt to explain today’s latest low volume ramp…
… whose lack of participation JPM believes is “a function of disbelief/skepticism”, Adam Crisafulli does bring up an interesting point: with earnings around the corner, and Wall Street once again overly optimistic about the Q2 to Q3 earnings improvement, will Brexit be the catalyst used by corporations to blame the earnings recession extending from 5 quarters (through the second quarter), into Q3 or further.
First, here is Crisafulli on today’s sector trends:
Trading trends are pretty slow and that is a function of disbelief/skepticism in the recent rebound (there is a lot of doubt that the SPX will wind up getting off this easy from the referendum and thus people are reluctant to chase). The underlying price action is a pretty-standard risk-on move but a few items are standing out. Banks are outperforming but would prob. be doing a lot better if yields were higher. Tech, health care, industrials, and materials are all up ~1.5-1.7%+ (outpacing by a mild amount). Nothing is dramatically outperforming w/the exception of larger money center banks, internets, energy and transports (up ~2% each). Note that safe-haven assets aren’t weak – gold is up, TSYs are flat-to-up, and the safe haven groups are doing OK (staples, REITs, utilities, and telecoms are all lagging but not by that much).
And here is part about the how Brexit is about to be scapegoated to justify another round of “small misses”
Market update – more of the same. The SPX sank ~5.7% peak-to-trough since the referendum and has since bounced ~3.5% (the SPX is now off only ~2.3% from its Thurs 6/23 close). Positioning-related fears continue to calm while the press remains full of articles discussing potential relationship structures between the EU and UK that don’t look very dissimilar from the current arrangement (although there is still enormous uncertainty on this front and it doesn’t help that British politics are in chaos at the moment w/the Tories electing a new leader while the Labor head comes under siege). Otherwise nothing major happened on the news front (the eco data in the US was OK in aggregate, the PR legislation doesn’t impact the US macro backdrop http://goo.gl/h1IX5r, and none of the earnings reports have macro implications). The calendar is still pretty sparse – other than month/quarter-end, the Jul PMIs/ISMs and auto sales (Fri 7/1), and June jobs (Fri 7/8), the main focus (by far) will be on the CQ2 earnings season (the first few reports will hit during the week of 7/11 but the heaviest volume will be during the week of 7/18 and 7/25). The CQ2 earnings season will be particularly important as investors are eager to hear updates from CEOs/CFOs on the extent to which Brexit-related disruptions materially impacted the outlook for their businesses. If the tone on the Jul/Aug conf. calls sounds relatively similar to the Apr/May updates (i.e. Brexit is acknowledged but doesn’t dramatically change H2 guidance) that would go a long way towards alleviating investor concern. Prior to the 6/23 referendum investors were penciling in a ~$130 SPX figure for ’17 – if that number only has a couple of dollars of downside stocks will continue stabilizing.
In other words, the more organic corporate weakness is blamed on a “one-off” event, P/E multiples, which already are in their 99% percentile…
… may well hit all time highs.
via http://ift.tt/295O5LL Tyler Durden