Notes From The Street: 'The Biggest Miss Of Earnings Season'

The following is a note from TJM Investments' Timothy Anderson.

On IBM: International Business Machines Corp. IBM started the week with a +4 point gain yesterday morning following reports that they would announce layoffs of 100,000 later in the week. This report was widely publicized on every newswire financial news website to start the day. By early afternoon IBM had vigorously denied this report, restoring calm to their workforce, if not their investor base.

I’m speculating that the same source of erroneous IBM layoffs is responsible for projecting 2 to 3 feet of snow that was a sure thing to hit Metro NYC area, Martial law was declared in NYC, and surrounding areas as mass transit of all kind was ground to a halt and a driving ban declared by emperor DeBlasio.

There were even reports that in an unprecedented move, the Buffalo area was sending heavy duty snow removal equipment to the NYC area.

Hopefully they got a “nevermind” txt b4 they got to Albany. While we’re on earnings, both Microsoft Corporation MSFT and United Technologies Corporation UTX reported 4Q earnings after the close. Microsoft traded ­4 percent after cautious comments on the state of the PC market, reinforcing guidance from Intel Corporation INTC two weeks ago.

United Technologies was lower by ­2 percent in after hours after reducing guidance for 2015 revenues and earnings.

On Monday: ​Equity markets shrugged off an initial 30 minutes of weakness, as oil shares followed through on their oversold rally from last week, and investors marginalized the Syriza party victory in the Greek elections. It was after all the expected outcome in Greece and by the time equity markets across the Eurozone had closed with gains of 1 percent or better, US equities had rallied off their lows into positive territory.

While the D​JIA, S&P 500 and NASDAQ​ finished with f​ractional gains of +0.05 percent to +0.35,​thebroadmarketdidmuchbetter. The S​&P 400 MidCap, 600 Small Cap and Russell 2000 i​ndices all had g​ains of +0.9 percent to +1.1 percent.​ Additionally, Market Internals were constructive as the adv/decl stats were positive by 2 to 1.

On Corporate High Yield debt: The corporate high yield ETFs, HYG and JNK both closed above their 50 day moving averages for the first time in 3 and 6 months respectively. High yield debt was a terrible underperformer against both stocks and treasuries during the second half of 2014. It now appears to have bottomed out during a high volume capitulation coincident with the mid December lows. That now looks like a textbook “final flush” of tax loss selling, as high yield debt made much lower lows in mid December than in mid october, where the equity market averages did not.

The widening spreads between high yield debt and investment grade corporates and treasuries had been cited many astute market strategists as an warning sign for the equity markets. No doubt this has been a valuable indicator in the past, but if the gap continues to shrink between “junk” and investment grade debt, it takes away one potential hurdle for equity markets in 2015.

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