If you want to know why the S & P 500 didn't move even higher than it did today, look no further than Alphabet Inc. (GOOGL) – the parent company of Google – which accounts for more than 3% of the index.
The company reported quarterly earnings Monday after closing clock, and the figures were ugly. The alphabet lost revenue expectations with a full $ 1.02 billion and earnings expectations of $ 0.41 per share – coming in at $ 36.34 billion and $ 9.50, respectively.
The company managed to beat its non-GAAP revenue estimates of $ 11.90 per share at $ 1.74 per share, but traders did not seem to care. They were too focused on the income flow.
Most of the Alphabet's revenue – 84.5% to be accurate – comes from advertising. Because it is a vital part of the company's business, traders see advertising sales growth as a hawk and tend to panic as rates slow down, as they did last quarter.
The growth in advertising sales has slowed in the past year, but Q1 2019 saw the fastest decline. Here are the figures for the last five quarters:
- Q1 2018: 24.4% growth
- Q2 2018: 23.9% growth
- Q3 2018: 20.3% growth
- Q4 2018: 19.9 % growth
- Q1 2019: 15.3% growth
As you can see, the fourth quarter of 2018 was the first time at a time that growth fell below 20%, and the growth of 15.3% in the first quarter of 2019 is totally disappointing compared to what it has been before.
As you can see in the five-minute chart below, traders pulled the Alphabet stock in the after-trade (the yellow shady part) on Monday when they heard the news. It only took the bear 10 minutes from 4:00 pm to 4:10 p.m. EDT pushing the stock from a retrospective high of $ 1,297 to $ 1,236, and things just got worse from there. This downturn in one day is worst for Alphabet stock since 2008.
S & P 500
S & P 500 closed a new full-time high for the second day in a row today. Thanks to the disaster that was Alphabet's stock today, the index was unable to add much to yesterday's gains, but managed to climb 0.1% to close at 2,945.83.
Amazingly, Alphabet was not the S & P 500's worst performer today. Diamond Offshore Drilling, Inc. (DO) took home that honor by releasing an additional 9.42% today in the wake of yesterday's earnings-related losses. It appears that traders are still concerned that crude oil prices will not rise high enough to increase earnings in the oil exploration industry.
On the positive side, Seagate Technology PLC (STX), General Electric Company (GE) and Mohawk Industries, Inc. (MHK) led all S & P 500 components with gains of 7.52%, 4.52, respectively. % and 4.36%.
Risk Indicators – Margin Debt
Since the S & P 500 has climbed to a new all-high high, I have monitored marginal debt levels to see if the bullish races in 2019 would have as much purchases as the bullish race in 2018 Unfortunately, it doesn't look like it does at the moment.
This does not mean that S & P 500 can, or will not, climb higher. There is obviously bullish momentum in the market. Otherwise, the index would not have reached a new intraday high 2,949.52 on Monday. It simply means that traders – based on what I see in the margin installments – don't seem to be so willing to increase the influence of their portfolios today as they were in 2018.
Traders can increase the influence of their portfolios by borrow up to 50% of the purchase price of a share – in accordance with Regulation No. T of the Federal Reserve Board. This means that if a stock costs $ 100, a trader needs to invest only $ 50 of their own money to buy the shares. She can borrow the other $ 50 from the broker. Borrowing money to buy shares is called to buy on margin, and how much money a player has borrowed to buy shares is called "margin debt."
I like to track the total amount of margin debt used to buy stock in the market to get a feel not only of how much demand it is on Wall Street, but also of how confident businessmen are. Secured traders tend to borrow more because they know that increased leverage can increase the return on investment. Nervous traders tend to borrow less because they know increased influence can also boost their losses.
Marigold increased dramatically during the bullring in 2018 – achieving a full-time $ 668,940 million in May 2018 – before it began to lie in mid-2018. After settling on $ 554,285,000,000 in December 2018, the marginal debt began to rise in a few months at the beginning of 2019. However, the increase in borrowing did not hold in March, as the margins fell from $ 581,205,000,000 in February to a level of $ 574,013,000,000.  Unfortunately, the Financial Regulatory Authority (FINRA) publishes its marginal debt data one month after the fact. That's why we now see the data for March. We have to wait until last week in May to see the April data.
This was not a big downturn, and it may end up being a short-term withdrawal in the middle of a long-term outlook, but it is worth noting. Traders are more cautious in 2019 than they were in 2018.
Bottom Line – Revenues Giveth and Taketh Away
This earnings season has been a wild one to date. We saw the alphabet disappointed and got clobbered today, but we also saw that companies like Mastercard Incorporated (MA) and Pfizer Inc. (PFE) beat expectations and gaps higher.
On balance, the positive earnings surprises have been able to lift the broad market indices, but the major failures have served as a reminder that we must be constantly alert to the stocks of our portfolios.
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