Fed Gets Dovish, Oracle Gets Haircut, What Could Possibly Go Wrong?
Let's look at the Fed's $40 billion move, Oracle's after-earnings sink ... and guess who's on the Diary today....
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Wednesday was Fed Day, and the Fed did what was expected. Despite some dissent, it cut its target range for the Fed Funds rate by a quarter percentage point to a range spanning from 3.5% to 3.75%. One voting member of the Federal Open Market Committee wanted to cut by a half point and two preferred not to cut at all. Current Fed Chair Jerome Powell, who is now a short-timer, inferred that this cut might help stabilize labor markets and could help ignite some economic activity.
That wasn't all. The Fed took an extremely dovish step to stave off a potential liquidity crisis after probably running its "quantitative tightening" program for a few more months than it should have and will begin the purchase of roughly $40 billion in mostly T-Bills per month -- today. That new program will enlarge the Fed's balance sheet, the monetary base and money supply in order to inject liquidity, pressure short-term rates and maintain an "ample" level of reserves in the system. And it all begins today. For those with an appetite for more, I covered the Fed's decision in depth last night here at TheStreet Pro.
Financial markets roared with delight. While the S&P 500 gained "just" 0.67% and the Nasdaq Composite tacked on "only" 0.33%, there were serious gains made on the market's periphery. Not only did the U.S. Ten-Year Note pay just 4.15% (-4 bps) by day's end, but the Russell 2000 gained 1.32%, the Philadelphia Semiconductors gained 1.29%, the S&P Midcap 400 tacked on 1.91%, the KBW Banks soared 2.62% and the Dow Transports ramped 2.66% higher. Yippee! What could possibly go wrong?
All Started at 2 p.m....
After days of sideways movement and apparent indifference, the S&P 500 moved higher on sharply increased day-over-day trading volume, despite that almost nothing happened before 2 p.m. ET, which is when the Fed show began.
That was good enough for a reconfirmation of the existing bullish trend. For the first time since Nov. 24, aggregate trade across the membership of the S&P 500 exceeded the 50-day trading volume simple moving average for that index. Yippee! I ask again, what could possibly go wrong?
Breadth
On Wednesday, 10 of the 11 S&P sector SPDR ETFs closed in the green, with six of those funds gaining a full 1% or more on the session. The cyclicals led the way higher as investors poured into the Materials (XLB) , Industrials (XLI) and Discretionaries (XLC) . Only the Utilities (XLU) closed in the red as defensive sectors took the bottom three slots on the daily performance tables.
Winners beat losers by an eight-to-thre margin at the NYSE and by a rough 15 to eight at the Nasdaq. Advancing volume took a 67.1% share of composite NYSE-listed trade on Wednesday and a 56.8% share of composite Nasdaq-listed activity. The best part? As mentioned above, the trading volume was there. Aggregate trade grew by a whopping 22.6% day over day across NYSE-listings and by 11.1% across Nasdaq-listed securities. So, I ask one last time, what could possibly go wrong?
Then, The Music Stopped
Enter Oracle (ORCL) . Tech and AI-driven software giant Oracle went to the tape with fiscal second-quarter financial results after the closing bell on Wednesday. Oracle shares are down big overnight and have dragged domestic equity index futures into the red with them. The company crushed expectations by reporting an adjusted earnings per share of $2.26. Yippee! Somehow, though, it posted "just" $16.06 billion in revenue. While that was up 13.9% year over year, the number fell short of Wall Street's consensus view.
Readers might remember, this past September, when I wrote to you, I pointed out that as Oracle was reporting tremendous growth in "remaining performance obligation," but that the deferred revenue entry on the balance sheet simply did not match that growth. If Oracle was indeed making these deals, nobody was making huge down payments, and the deals were not likely guaranteed.
We saw much the same last night. Oracle reported a remaining performance obligation of $523 billion, up 438% year over year. Yet, it has just $9.94 billion on the books labeled as "deferred revenue" and no entry at all for non-current deferred revenues. Make that make sense. The cash position almost doubled over the past six months to $19.766 billion. That's a positive. But over those same six months, current debt grew 11.3% to $8.091 billion, as longer-term debt grew 17.2% to $99.984 billion. That's a lot of debt.
ORCL shares are trading 11% lower overnight. On the morning of Sept. 10, I wrote to you, "We are not there yet, but this is turning into an epic opportunity for a short sale. ORCL is fast approaching "Strong Sell" territory." The shares apexed at $345.72 that day and are trading with a $197 handle as I work on this note. That's a 42.8% haircut. I rarely use shorts as long-term investments, I really mostly use them as trading vehicles and target gains of just 8% to 10%, but that would have been a doozy. Would I buy this morning's dip in the share price? I might, for a trade. As an investment? No way, gang. Not with that balance sheet.
Come Join Us...
I'll be filling in for your friend and mine, legendary hedge fund manager Doug Kass, at his Daily Diary today here at TheStreet Pro. While Dougie might be the Dan Marino of our publication, I like to think of myself as Don Strock, a capable back-up QB that the team can always count on. So, stop in and say hello!
Economics
(All Times Eastern)
08:30 - Balance of Trade (Sep): Last $-59.6B.
08:30 - Initial Jobless Claims (Weekly): Expecting 221K, Last 191K.
08:30 - Continuing Claims (Weekly): Last 1.939M.
10:00 - Wholesale Inventories (Sep): Expecting 0.1% m/m, Last 0.0% m/m.
10:30 - Natural Gas Inventories (Weekly): Last -12B cf.
13:00 - Thirty-Year Bond Auction: $22B.
The Fed
(All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: (CIEN) (.77)
After the Close: (AVGO) (1.87), (COST) (4.27), (LULU) (2.21), (RH) (2.16)
At the time of publication, Guilfoyle had no position in any security mentioned.
