Bad news is good news for stocks, Mixed Earnings from Delta and Fastenal

• Stocks poised for best day in almost 2 months
• Euro hits highest levels in a year against dollar
• Early earnings paint mixed outlook

US stocks are rallying as the economic data continues to soften and as corporate updates support the idea that the economy is gradually weakening. ​ Bad news is once again good news for stocks. ​ The US dollar softened after soft PPI data and rising jobless claims bolstered Fed rate cut bets.

US Data

Today’s inflation readings showed a little bit more softness as supplier prices fell 0.5% in March, well below the consensus of a flat reading and the biggest drop in since the start of the pandemic. All the PPI readings came in softer-than-expected, which is good news for disinflation trend momentum to remain in place.

The latest jobless claims report does support the narrative that the labor market is gradually weakening, but it is still relatively near historically low levels. Jobless claims are now at the highest levels in over a year, but overall the labor market is still relatively strong. ​ For disinflation trends to continue throughout the summer, labor market weakness will need to pick up. ​ ​ ​ ​

Delta ​

Delta delivered soft first quarter results but their outlook for the second quarter was rather surprising, forecasting robust EPS growth between $2.00-2.25, vs $1.61 analysts expectations. ​ CEO Bastian shrugged off fears of a weakening consumer. ​ He noted that the air travel “is something the consumer’s prioritizing, they may be pulling back in other areas … but I don’t see it in our credit card data, I don’t see it in our bookings”.

Fastenal

Fastenal shares opened lower after reporting in-line earnings that included a rather downbeat assessment for March. ​ Fastenal noted, “March daily sales growth was relatively softer, likely due to manufacturers tightening spending and adjusting production to reflect more streamlined supply chains.” Fastenal posted a two-cent earnings beat and saw revenue exactly hit expectations.

This early industrial report might provide some optimism that earnings might not be as terrible, but it is hard to be confident with any outlook given all the uncertainty with all the inflation/banking/political(debt ceiling)/monetary policy mistake risks that remain on the table.

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