Tech and Industrials Earnings Could Upend Markets

Summary

Podcast Summary: WSJ Your Money Briefing

Episode: Tech and Industrials Earnings Could Upend Markets

Date: January 23, 2019
Host: JR Whalen
Guest: Amrith Ramkumar, WSJ Markets Reporter

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Episode Overview

In this episode, host JR Whalen and markets reporter Amrith Ramkumar discuss the upcoming earnings reports from industrial and technology companies and their potential to trigger renewed market volatility. The conversation explores how recent calm in the stock market could give way to turbulence, given looming factors such as global trade tensions, slowing growth projections, and shifting investor expectations. The episode also offers insights on how to interpret earnings reactions in the current investment climate.

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Key Discussion Points & Insights

1. Recent Market Calm and Its Fragility

• The start of 2019 has seen relative market stability and modest upward movement.
• Amrith Ramkumar: “[Stocks] have been kind of steady … the moves on a day to day basis have been much smaller, about 0.6% on average for the Dow and S&P 500 through mid January in that latest two week period.” (02:49)
• This marks a significant change from Q4 2018, which was marked by extreme day-to-day volatility:
  “Last quarter every day was almost a 1% average move in both directions and mostly down. So that really gave people whiplash and stoked some fear, kept us all at the office for long hours as well.” (02:49-03:24)

2. Upcoming Earnings Reports – Potential Volatility Ahead

• Tech giants (Intel, Apple, Amazon, Facebook, Alphabet) and major industrials are reporting in the next two weeks; their earnings are seen as key indicators for the broader economy.
• Chipmakers are particularly on watch due to their exposure to China and global trade.
• Manufacturing and industrial firms remain sensitive to tariffs and concerns over global growth:
  “Those manufacturing companies have gotten it both ways because they've had higher input costs from some of the tariffs and have also been hit by fears that slowing global growth. … They were among the worst performers last quarter and so far this year they've led the rebound.” (03:52-04:55)

3. Trade Tensions, Global Growth, and Their Market Impact

• Easing of U.S.-China trade tensions has been a positive signal, but uncertainty persists with a key negotiation deadline looming on March 1.
• Global economic forecasts from the IMF and World Bank have been revised downward; China’s growth has slowed to its lowest pace in decades.
• Sectors like auto and housing remain weak spots in the U.S. economy:
  “China just reported its slowest annual growth from last year in a long time, like three decades or so. So there are a lot of warning signs for some of these companies.” (05:06-05:49)

4. Reading Earnings: Context and Investor Sentiment

• The market’s reaction to earnings will be crucial, given that expectations are subdued and valuations are lower than last quarter.
• “A result that Wall Street deems positive might otherwise be categorized as just mediocre. So you really do have to … see where is it on the spectrum of numbers and what is actually spelling success now and in the future.” (05:49)
• Stock price movements post-earnings can be more telling than the raw numbers:
  “For the big banks, they had gotten so cheap that even though revenue missed, some of the profit beats and more upbeat comments were enough to lift those stocks … [but] a slight beat or a miss might be different in [defensive sectors like healthcare] versus what we saw with the banks.” (06:26-07:38)

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Notable Quotes & Memorable Moments

• On the whiplash of volatility:
  “Last quarter every day was almost a 1% average move in both directions and mostly down. So that really gave people whiplash and stoked some fear, kept us all at the office for long hours as well.”
  — Amrith Ramkumar (02:49-03:24)

• On context-dependent success:
  “Expectations are low and results that Wall street deems positive might otherwise be categorized as just mediocre … what is actually spelling success now and in the future if you're going to put your investment money up against what's going on inside of a company.”
  — JR Whalen (05:49-06:26)

• On interpreting earnings numbers:
  “People are saying to definitely keep an eye on the stock reactions because that might tell more of the story with valuations changing so much on a day to day, week to week and what we saw last quarter basis.”
  — Amrith Ramkumar (07:00-07:38)

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Timestamps for Key Segments

• Market Calm & Recent Gains:
  02:49 — Discussion of how January has contrasted with Q4 2018 volatility
• Earnings Preview and Market Barometers:
  03:52 — Focus on tech and industrial earnings as economic indicators
• Trade, Tariffs, and Global Economy:
  04:55 — Impact of tariffs, global growth downgrades, and looming US-China talks
• How to Interpret Q1 Earnings Results:
  05:49 — Shifting investor benchmarks and the significance of stock reaction
• Sector-Specific Outlooks:
  06:26 — Differences in market reactions across banks, healthcare, and tech

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Summary Takeaway

This episode underscores the highly sensitive, expectation-driven environment investors face as major tech and industrial companies report earnings. While the market has started 2019 on steadier ground, substantial uncertainty remains due to trade issues, slowing global growth, and recalibrated valuations. Listeners are advised to look beyond the headline numbers and focus on stock reactions and management commentary for real insights into market direction.

Transcript

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[JR Whalen]

With your Money briefing, I'm JR Whalen at the Wall Street Journal in New York. Buckle your Wall street seatbelts. Industrial and tech Corporate earnings reports are likely to send investors on a wild ride for the rest of January. We'll have details in a moment. First, these money and market stories. You should know existing home sales fell 6.4% in December from the previous month to their weakest level in more than three years. Economists said that broader anxiety about the stock market and volatile political news helps explain why buyers reacted so strongly to the rise in mortgage rates, which remain low by historical standards. That suggests that even if mortgage rates ease, there's unlikely to be a return to the frenzied market of early last year. And Wall Street Journal reporter Gabriel Rubin outlined significant ways the month old government shutdown has affected the business and financial sectors. For one, the Bitcoin futures trading platform known as Bakkt, cannot launch its contracts until the Commodity Futures Trading Commission issues comments on its business plan. Much of the commission's staff has been furloughed. Also, companies that issue product recalls can't connect with the Consumer Product Safety Commission, which usually spreads the word about the recalls and monitors how the recall is implemented. And the airlines are feeling the pinch, too. And it's not because of TSA agents staying home from work. Delta Air Lines says the shutdown would cost the company $25 million in lost revenue because most government employees aren't traveling. And Delta can't start service in its new Airbus A220 airplanes, either. The shutdown has grounded the process of Delta getting approval from the faa. It's the comm before and after the storm. The stock market volatility of the fourth quarter has been replaced by gains and relative tranquility since the start of the year. But on the horizon comes earnings reports from industrial and technology companies, and that could bring choppy waters back to Wall Street Markets reporter Amrith Ramkumar is with us to explain. So, Amrith, up until the third week of January, for many investors, it's been a very happy new year Absolutely.

[Amrith Ramkumar]

Like you mentioned, not only have stocks gone up steadily last week, logging their best four week stretch since 2011, really since up through mid January, it's been kind of steady like you're saying. So the moves on a day to day basis have been much smaller, about 0.6% on average for the Dow and S&P 500 through mid January in that latest two week period. And that's a change because like you were saying last quarter every day was almost a 1% average move in both directions and mostly down. So that really gave people whiplash and stoked some fear, kept us all at

[JR Whalen]

the office for long hours as well.

[Amrith Ramkumar]

Absolutely. Yeah. Like day to day action. Like the Dow for example was dropping hundreds of points in minutes on occasion and it really got a lot of people jittery. So so far this month it has been calmer. But yeah, a lot of headwinds on the horizon for that with some of these bigger companies. And next week with the Fed meeting and jobs report as well.

[JR Whalen]

Yeah, you know, some closely watched earnings reports coming from tech companies that are seen as a barometer of the broader economy.

[Amrith Ramkumar]

Right. And those would be some of the chip companies that have been hardest hit by trade tensions because that business is so tied to China and global trade flow. So intel and some of the companies like that reporting this week and then looking ahead to next week, there's Apple after their really big revenue cut earlier this month and then Amazon and then Facebook and then Alphabet the week after that. Definitely the tech side and also the industrial side. Obviously those manufacturing companies have gotten it both ways because they've had higher input costs from some of the tariffs and have also been hit by fears that slowing global growth. And there have been new stories and data points about that almost every day. Companies were among the worst performers last quarter and so far this year they've led the rebound. But today, Tuesday after, with traders coming back from the Martin Luther King holiday, those are the worst performers. Again, those are like you're saying, kind of a barometer of market sentiment on a day to day basis. And so them coming down was seen as pretty positive and good, but now we'll have to see how they react after earnings.

[JR Whalen]

And there's also a group of industrial and manufacturing companies reporting that have been hit by tariffs and success for them down the road could be leading levered to easing trade tensions between the US and China.

[Amrith Ramkumar]

Yeah, I think that's right. One of the factors that has broadly helped the market. Again, we've had kind of the cautious comments from the Fed and the signs that the US And China, both sides are willing to compromise on trade ahead of this March 1st deadline. So I think people are mostly looking at the commentary for forward projections from a lot of these companies to see how they're kind of approaching things as this year looks really uncertain because we've had the imf, the World bank, lower their forecast for global growth for the year. China just reported its slowest annual growth from last year in a long time, like three decades or so. So there are a lot of warning signs for some of these companies. And the auto housing sectors again, have been kind of the weak spots in the US Economy.

[JR Whalen]

Yeah, a lot of plot twists in terms of the story of this economy going forward. And you know, it's interesting, the stretch of time we're in really takes some homework on the part of the investor, as you point out in your as you point out in your story in the Journal. And expectations are low and results that Wall street deems positive might otherwise be categorized as just mediocre. So you really do have to sort of put it into context and see where is it on the spectrum of numbers and what is actually spelling success now and in the future if you're going to put your investment money up against what's going on inside of a company.

[Amrith Ramkumar]

That's a really good way to describe it. Like you're saying, it's fascinating because if you go back a quarter to last reporting season when valuations were still pretty high before the fourth quarter sell off, companies that beat expectations weren't really rewarded as much in many cases. And then companies that missed expectations were often punished severely. But now because valuations are so low, particularly in some of the sectors like financials and some of these others, people are saying that you have to look at the stock reaction, not necessarily the numbers. So for the big banks, they had gotten so cheap that even though revenue missed some of the profit beats and some of the more upbeat comments were enough to lift those stocks, even though again, trading revenue got a huge dent from last quarter's volatility. And some of the safer sectors, for example, that are also reporting in addition to tech and industrial like healthcare, that like investors have been favoring because of their safety, again, they have higher dividends, more stable earnings, but a slight beat or a miss might be different in that sector versus what we saw with the banks. So yeah, people are saying to definitely keep an eye on the stock reactions because that might tell more of the story with valuations changing so much on a day to day, week to week and what we saw last quarter basis.

[JR Whalen]

All right. Well, great reason to follow the storyline of the economy in various sectors from the markets team here at the Wall Street Journal and also track the day to day stock movements on WSJ.com and the WSJ app as well. And that's our markets reporter Amrith Ramkumar joining us here in our studio. Amrith, thanks for being with us.

[Amrith Ramkumar]

Thank you so much for having me.

[JR Whalen]

And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Representative]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Small Business Owner]

Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.