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Gary Townsend
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Gary Townsend - Founding member and Chairman, GBT Capital Management, LLC, a macro long/short fund based in Chevy Chase, Maryland. Also, 2007-2013, a founding partner, CEO and Portfolio Manager of Hill-Townsend Capital LLC, a long/short equity financial sector fund. Mr. Townsend has 35 years... More
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Listening to Markets
  • U.S. Equity Futures Strengthen After Strong JPM 2Q11 Report 0 comments
    Jul 14, 2011 8:44 AM | about stocks: JPM, CMA, PBCT, FITB, HCBK, FHN, CVBF, TCB, RF, COF, EWBC, CYN
    This morning.  The U.S. equity market uptrend is under pressure.  In Asia, equity markets closed mixed, on generally higher volume.  European equity indexes are lower, but better than the worse levels of the day.  U.S. equity futures are higher, strengthening after this morning’s JPM earnings report. U.S. Treasury prices are lower.  The dollar is slightly weaker.  Commodities markets are mixed.  After a fair value adjustment of +1.27 points, September SPX equity futures are at 1315.30, up +2.03 points.  The SPX opens at 1317.72, -3.37% below its recent April 29 multi-year closing high, but +1.03% and +0.24% above its respective 20- and 50-day moving averages.  The SPX is +4.78% above its 1257.64 year-end close.  Next resistance is at 1327.98.  Next support is at 1310.95.
    Wednesday, U.S. equity markets rallied strongly at the open to intraday highs just before noon, but faded through the afternoon to end with modest gains. Volumes were lower on all the major exchanges. The macro-focus was on the progress of U.S. debt ceiling negotiations, but the day’s major news was that Moody’s had placed the U.S. on watch for potential downgrade, in the event that those negotiations prove fruitless. NYSE volume fell -4.42% to 0.91x the 50-day moving average.  Market segments were mixed, with basic materials, oil and gas, and consumer services posting the best gains, while consumer goods, telecommunications, and utilities lagged.  Financials were leaders through most of the day, but sold off to end with a +0.19% gain. The NYSE composite posted the best gain, ending up +0.66%, followed by the Nasdaq, DJI, and SPX, which closed up +0.54%, +0.36%, and +0.31%, respectively.  Market breadth was positive and up volume led down.  Volatility rose +0.02% to end at 19.91, compared to 19.87 at the prior day’s close, but the VIX moved within a wide range, to an intraday low of 18.09 at 11:00, before rising through the afternoon and especially after the Moody’s warning. Trading desks reported a quiet morning, but busier afternoon, when the morning rally came under pressure. 
    Recent market weakness is pressuring the market uptrend that began on June 21st.   The distribution day count is unchanged at 5 on the NYSE composite, 4 on the SPX and DJI, and 3 on Nasdaq.  The BKX count is unchanged at 5 distribution days.  Distribution days signal institutional selling in the prior 25 trading days, or since the commencement of the most recent uptrend.
    In Asia, market uptrends in Japan and China are also under pressure.  Asian equity markets closed mixed, on mostly higher volume. Action was attributed to U.S. debt ceiling talks. In Japan, the Nikkei fell -0.27%, and closed below 10,000 for the 3rd consecutive day though still well above its 50-, 100-, and 200-day moving averages.  Volume rose +6.72%.  The NKY gapped lower to an intraday low of 9884.00 in the first hour. A subsequent rally failed and the index retested its low, but rallied briefly higher before settling with a modest loss. The NKY closed +5.58% above its June 16th correction low.  Consumer services, health care, and telecommunications were the segment leaders and closed higher. Oil and gas, financials, and technology were the laggards. Financials fell -0.79%.
    In China, the Hang Seng and Shanghai composite rose +0.06% and +0.54%, respectively.  Volume was unchanged and up +13.4%, respectively.  The SHCOMP is +7.22% above its June 20th correction low.  The SHCOMP opened higher, but trended lower through early afternoon. The index rallied in the final 2 hours, and closed near its intraday high. Most market segments rose, with stronger performance from health care, basic materials, and consumer goods. Financials, utilities, and telecommunications lagged, with the latter losing -0.25%. Financials rose +0.17%.  The SHCOMP ended at 2810.44, -8.08% below its recent April 18th 3057.33 high, +0.08% above its 2010 close, and +1.49% above the 2769.25 50-day moving average. 
    In Europe, equity markets are moderately lower. The EuroStoxx50, FTSE, and DAX are down -1.10%, -0.93%, and -0.75%, respectively.  Equity markets gapped lower on U.S. debt concerns, rallied significantly through the morning session, but are currently at intraday lows. The EuroStoxx50 is at 2688.18, compared to its 2681.53 intraday low.  Market segments are mostly lower. Only consumer goods is higher. Basic materials and health care are the other leaders. Financials, consumer services, and technology are the laggards. Financials are down -1.49%.
    Despite sovereign debt and other macro-concerns, LIBOR levels are near their lowest since early 2009, well below those seen prior to the onset last year of the Eurozone sovereign debt crisis.  Overnight USD LIBOR fell to 0.12300% from 0.12400% the prior day, and down from 0.25188% at year-end.  USD 3-month LIBOR rose to 0.24975% from 0.24925% the prior day, but down from 0.30950% at year-end.  The U.S. dollar is slightly weaker against the euro, pound, and yen.  The dollar trades at US$75.097, above its US$74.99 50-day, but below its 75.20 100-day and 76.94 200-day moving averages.  The euro has rebounded to US$1.4192, compared to US$1.4167 Wednesday and US$1.3976 the prior day.  The Euro trades below its US$1.4315 50-day and US$1.4287 100-day moving averages.  The dollar trades at ¥79.02, compared to ¥78.98 Wednesday and ¥79.24 the prior day.  The yen trades better than its 50-day moving average ¥80.71.  U.S. Treasury yields are higher, with 2- and 10-year maturities yielding 0.363% and 2.901%, respectively, compared to 0.351% and 2.882% Wednesday.  The yield curve widened to +2.583%, from +2.531% the prior day.  In the past year, the 2- and 10-year spread has varied from a low of +1.959% on August 26, 2010, and a high of +2.889% on February 3, 2011.  Commodities prices are mixed, with mixed energy, and higher precious metals, aluminum and copper, and lower agriculture.
    U.S. news and economic reporting.  Financial services earning season kicks off with release of JPMorgan at 7:00. Results exceeded expectations. Today’s economic reports include initial and continuing jobless claims, the monthly budget statement for June, June producer prices, retail sales, and May business inventories.
    Overseas news:  Today, Italy sold only €3 billion of debt in this morning’s 5- and 15-year debt auction, the low end of the targeted amount and at yields up over 100 basis points from June’s auctions.  In June, the Eurozone consumer price index rose +2.7% over the prior year, in-line with estimates.  Press reports indicate major U.K. banks will easily pass the Eurozone stress tests when results are announced tomorrow. 
     
    Company news/research:
    ·         JPM – reports  GAAP and operating EPS of $1.27 and $1.35, respectively, and revenues of $26.78 billion, beating earnings and revenue estimates of $1.21 and $24.91 billion
     
    2Q2011 Earnings.  The second quarter’s earnings results have so far exceed revenue and earnings expectations.  Of the 6 S&P500 companies that reported earnings to date, 83% (5 out of 6) beat operating EPS estimates, versus the historical average of 62%.  In aggregate, companies beat EPS expectations by an average of +8.6% (versus a historical average of +2%).  EPS is up +27.7% over the prior year.  Though challenged in the current operating environment, 100% of companies reported increased revenues over the prior year and 50% beat revenue estimates.  In the second quarter of 2011, analysts estimate the SPX will earn $24.36 per share, compared to $23.06 and $21.17 per share in 1Q11 and 2Q10, a +5.6% and +15.1% increase, respectively.  
     
    This morning, JPMorgan Chase (NYSE:JPM) reported GAAP and operating EPS of $1.27 and $1.35, respectively, and revenues of $26.78 billion, beating earnings and revenue estimates of $1.21 and $24.91 billion.  For the second quarter of 2011, analysts estimate the BKX will earn $0.97 per share, compared to $0.96 and $0.61 per share in 1Q11 and 2Q10, a +1.0% and +59% increase, respectively. 
     
    Valuation.  The SPX trades at 13.3x estimated 2011 earnings ($99.29) and 11.7x estimated 2012 earnings ($112.91), compared to 13.2x and 11.6x respective 2011-12 earnings yesterday.  The 10-year average median Price/Earnings multiple is 20.0x.  Since the beginning of 2011, analysts increased 2011 and 2012 earnings estimates by +4.9%, and +5.2%, respectively.  Analysts expect 2011 and 2012 earnings to exceed 2010 earnings ($84.78) by +17.1% and +33.2%, respectively.
     
    Large-cap banks trade at a median 1.43x tangible book value and 12.5x 2011 consensus earnings, compared to 1.44x tangible book value and 12.5x 2011 earnings Friday.  These compare to the 10-year average median multiples of 3.08x tangible book value and 15.9x earnings.  Analysts expect 2011 and 2012 BKX earnings to exceed 2010 operating earnings by +31.9% and +68.2%, respectively.
     
    Wednesday’s equity markets. On lower volume, equity markets gained modestly.  The NYSE, Nasdaq, DJI, and SPX were all higher, up +0.66, +0.54%, +0.36%, and +0.31%, respectively.  Markets began the day indicated higher on strong Chinese economic growth. Markets opened higher, but traded sideways as traders waited for Federal Reserve Chairman Ben Bernanke’s annual testimony before the House Banking Committee.  Markets moved higher with the beginning of the Chairman’s remarks and gained additionally after his statement that the Fed was prepared to provide additional stimulus, if needed, and discussed the possible formats in which that stimulus could come. Traders carried the markets higher through midday, with the market pausing after the end of the Chairman’s commentary.  Through the afternoon, markets began to give back the morning’s gains.  A comment in the late afternoon by House Speaker John Boehner which indicated it was a “crapshoot” whether the federal debt limit would be boosted by August 2nd added inclination to the downward trend. Moody’s warning added to the weakness. Just after 3:30, it appeared as if markets were poised to give back their entire day’s gains. In the last half hour, the markets bounced slightly and preserved gains in all major averages.  Only the NYSE composite closed below its 50-day moving average.
     
    Traders noted a very quiet day overall, with spots of activity primarily driven by faster accounts in response to headlines.  Most traders noted that long only accounts have been on the sidelines for the past few days in anticipation of earnings season.  Investors seemed keyed on a number of factors such as whether the debt ceiling will be raised, will Greece get a second bailout and whether this quarter’s earnings will meet expectations.  The Investment Company Institute noted that inflows for domestic equity funds had their 8th straight week of net cash outflows, with the week of July 6th showing outflows of -4.471mm versus the previous weeks outflows of -3.050mm (June 29th).  The Bloomberg NYSE new net highs were +27 versus Tuesday’s reading of -3.  The relative strength indicator rose to 50.32 from Tuesday’s reading of 47.45 and is now in the neutral range. The VIX ended the day at 19.91, up +0.20%.
     
    Market segments were mixed. Leaders were basic materials, oil and gas, and consumer services. The laggards included consumer goods, telecommunications, and utilities.
     
    Financial stocks performed reasonably well, but gave back much greater intraday gains by the close.  The KRX, BKX and XLF all gained, up +0.89%, +0.30%, and +0.07%, respectively.  Among broader financials, banks were the leaders, with HCBK, FHN and IVZ, up at least +2.10%. The BKX was tied to commentary from the Federal Reserve Chairman through the morning, with names gaining strength as his commentary continued. The index began to slide in the afternoon, and like the rest of the market, truly turned toward its starting point for the day after House Speaker Boehner’s comments about the possibility of concluding the debt talks before August 2nd.  Bank stock traders have noticed that volume seems to be driven by the various financial ETF’s and not by accounts either buying or selling individual names. Faster accounts continue to play the ups and downs that the various headlines provide, but the general consensus is that long only accounts have their pre-earnings season positions. The BKX finished with 18 names higher, 5 lower and 1 unchanged. The leaders were CMA, PBCT and FITB, each up at least +1.25%. The laggards were MTB, RF, and COF. The KRX finished the day with 44 names higher, 5 lower and 1 unchanged. The leaders were HCBK, FHN, and CVBF. The laggards were TCB, EWBC, and CYN. The BKX and XLF finished below their respective 50-, 100-, and 200-day moving averages. The KRX, because it’s averages are inverted, finished above its 50- and 200-day moving average, but below the 100-day moving average. While the broader indexes have recovered their post-September 2008 losses, bank stocks have not, with the BKX closing -18.90% below its April 2010 high and -43.07% below its best level of 82.55 in September 2008.
     
    NYSE Indicators.  Volume declined -4.42% to 883.56 million shares, from 924.46 million shares Tuesday, 0.91x the 973.45 million share 50-day moving average.  Market breadth was positive, and up volume led down volume.  Advancing stocks led decliners by +964, compared to -482 the prior day), or 1.94:1.  Up volume led down volume by 2.33:1.
    SPX.  On lower volume, the SPX rose +4.08 points, or +0.31%, to 1317.72.  Volume fell -8.59% to 665.26 million shares, down from 727.76 million shares Tuesday and below the 739.07 million share 50-day moving average.  For the 182nd consecutive day, the SPX’s 50-day moving average closed above its 200-day moving average (1314.57 vs. 1275.02, respectively).  The SPX closed above its 200-week moving average (1161.68).
    The SPX gapped higher at the open to the 1322-level, a resistance point.  Through 10:00, the index was unable to break through resistance and fell to 1318 at 10:00.  A sharp rally began in conjunction with Federal Chairman Ben Bernanke’s testimony and lasted through 11:30 when the index set its intra-day high of 1331.48.  The market lost momentum heading into the afternoon and fell at a fairly consistent rate.  By 2:00, the index fell below 1325.  At 3:00, speculative news reports on debt ceiling negotiations punished equities further, and the index fell to its intra-day low of 1315.03 at 3:45, still in positive territory.  A small rally at the close lifted the index above 1317. 
     
    Technical indicators are neutral.  The index’s reversal in June’s second half returned markets to an uptrend on June 21st that was confirmed on June 30th.  However, the market’s weakness since Friday, July 8th has placed the nascent uptrend under pressure.  The SPX closed above 1300 for the 10th straight session.  The index closed above its April 2010 highs for the 153rd straight session.  The SPX closed (by +1.03%) above its 20-day moving average (1304.35) for the 11th straight session.  The index closed (by +0.24%) above its 50-day moving average, retaking the average after closing below it on Monday for the first time in eight sessions.  The index closed (by +0.10%) above its 100-day moving average (1316.42), retaking it after closing below that level on Monday.  The SPX closed +3.35% above its 200-day moving average.  The 50-day and 100-day moving averages declined.  The directional momentum indicator is positive for the 10th straight session, and the trend is weak and declining.  Relative strength rose to 51.98 from 50.56, a neutral range.  Next resistance is at 1327.98; next support is at 1310.95.
     
    BKX.  On higher volume, the KBW bank index rose +0.14 points, or +0.30%, to 47.00.  Volume rose +5.55% to 71.45 million shares, up from 67.97 million shares Tuesday but below the 78.68 million share 50-day average.  The BKX closed +9.35% above its August 30 closing low of 42.98, the trough of the recent prior correction, but -18.90% and -15.51% below its April 23, 2010, and February 14, 2011 closing highs, respectively. 
     
    Financials performed in-line with the market, and large-cap banks underperformed regionals.  The BKX gapped higher at the open to 47.10 but fell through 10:00 to the intra-day low of 46.89.  Fed Chairman Bernanke’s testimony at 10:00 sparked a sharp rally in financials, and the index climbed +0.80 points in 45 minutes, setting the intra-day high of 47.68 at 10:45.  Through noon, gains retraced back to the 47.50 level.  Momentum turned decidedly negative at 1:50, and the index fell to 47.20 by 2:25.  A brief rally to 47.30 was sold at 3:00, and the index fell into the close to finish with only modest gains but held the 47.00 threshold. 
     
    Technical indicators are mostly negative.  Bank stocks significantly underperformed the broader market during the May-June correction.  Recent outperformance during the market’s July rebound has been short-lived as European sovereign debt concerns and renewed risk aversion punish the sector.  The 20-day moving average (47.57) is below the 50- and 100-day moving averages (48.52 and 50.23, respectively).  The 50-day average is below the 100-day moving average and has been below the 200-day moving average since June 16th.  The index closed below its 20-day moving average for third straight session.  The index closed below its 50-day moving average for the fourth straight session.  The index closed below the 100- and 200-day moving averages for the 64th and 30th consecutive sessions, respectively.  The index closed below the 50.00 level for the 29th straight session.  The 20-, 50-, and 100-day moving averages fell.  The 20-day closed (by -0.95 points) below the 50-day for the 84th straight day, but the gap narrowed.  The 50-day moving average closed (by -1.54 points) below the 200-day moving average for the 19th straight session, and the gap expanded.  The 100-day moving average closed (by +0.17 points) above the 200-day moving average for the 107th straight session, but the gap narrowed and indicates a cross to the downside in the next few days.  The directional movement indicator is negative for the third straight session, and the trend is moderate and declining.   Relative strength rose to 43.46 from 42.36, a neutral rangeNext resistance is 47.49; next support at 46.70.
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