The market opened higher this morning taking its cue from Japan, where Prime Minister Abe won more than two-thirds of the vote earning him a ‘super majority,’ which means aggressive economic policies including lower corporate taxes.

It’s becoming ancient history, but there was a time when it looked like Japan would become the number one economic power in the world.  Instead, its economy has been stagnant for a couple of decades, its population is the oldest in the world and real wages have drifted lower.

In 2010, Japan enjoyed 4.2% GDP growth, but it was overshadowed by the fact it was overtaken by China as the world’s number two economy. Toyota had to recall 10 million vehicles and its 4^th prime minister in three years resigned.

A major problem has been its sky-high corporate tax rate, which peaked at 52% in 1994.  The current 31% corporate rate is the lowest in country’s history.

Then, there’s Japan’s central bank: The Bank of Japan (BOJ), which has aggressively pumped money into the economy and been a big buyer of Japan’s stocks via exchange-traded funds.

According to a report, the BOJ is set to become the top owner of 55 firms in the Nikkei 225 by the end of the year and the top 5 shareholder in 81 companies. 

The central bank’s buying spree picked up in 2015 when the BOJ bought $30 billion in stock helping the index to its first up year since 1989. 

Now, it holds $127 billion in equities, which would take 31 years to unload at normal market sessions.  While these are jaw-dropping numbers, the fact the Nikkei is so far from its all-time high reached in December 1989, and it would need to rally another 78% from here to catch up, underscores there is more to markets than central bank moves.

That said, perhaps the biggest news of the week will be an announcement of the next Federal Reserve Chairman.   Conventional wisdom is Jerome Powell is the leading candidate -President Trump called the Fed board of governors member “talented.”

I think the market rallies big with Yellen, maintains with Powell, but sells off a little with anyone else. 

Speaking of sell-offs, the market finished lower after early buying took major indices into record territory but failed to attract buyers.  Many investors opted to cool their heels ahead of earnings from major companies including McDonalds, Boeing, Caterpillar, Amazon and Google.  

After the closing bell, Whirlpool posted financial results that landed with a dud.  The company missed on the revenue, and earnings of $3.83 missed by $0.11.  The toughest part of the news is the guidance of $13.90 is well off consensus.  Management blamed higher raw materials costs, but this is the fourth consecutive earnings miss.  The stock was already down 7% this year, but unless there is a magnificent conference call, it will open even lower.

WHR

It’s early, but earnings season has been pretty good.  I suspect big tech names are going to need huge beats and strong guidance. 

Today’s Session

It’s all about earnings, and it’s all about earnings from those industries that represent the dirty fingernail economy.  Not only are these names firing on all cylinders, management had the confidence to raise guidance.

Caterpillar

• Revenue $11.41 billion +24%
• EPS $1.95 estimate $1.27
• EPS Guidance $6.25 prior $5.00
• Added 2,800 US workers = 49,700
• Added 3,300 non-US workers = 65,200
• Machinery business up all over the world

• North America +27%
• Latin America +24%
• EAME +22%
• Asia/Pacific +31%

Stanley Black and Decker

• Revenue $3.3 billion +14%
• GM 38.2 +60 bps
• OM 15.3 +10 bps
• EPS Guidance $7.43 prior $7.38

There are much more earnings winners including:

• GM
• PCAR
• MCD (same-store sales)

I’ll have more details on the afternoon note.

Comments

they have improved in Washington state Ralph Plowman on 10/24/2017 10:18:34 AM

A great example of how believing continuous liquidity infusion into the system will prompt lower cost capital, to fund capital expenditures and boost growth, followed by increased profits, higher wages and more employment, doesn't necessarily make it so. The Japan model is worth careful study. We'll see if Abenomics can go the distance and bring Japan back to its glory days. Alan Oviatt on 10/24/2017 10:36:29 AM

When the VA is good, it is very very good. When it is bad, then it is terrible. What you need is some kind of ongoing "individual" congressional inquiry. They FEAR ... they are terrified of congressional inquiries. Decades ago, when the VA totally bollixed up my educational program ... I mean it was terrible ... one of the bureaucrats saw on my notes that my next stop was my U.S. Senator's office, he whispered to me ... he begged me not to do that ... and he whispered to me the name of some GS-99 ... and begged me not to mention or leak where I got the info from. So I called the GS-99 and I honored the request from the clerk and the GS-99 called me back and said he had never seen such a screwed up file and he PERSONALLY redid my file and he PERSONALLY corrected the errors and called me back a couple of times to update me on how he was repairing the damage. He was obviously very busy. But in a few days, he had the mess fixed up. Now ... that was merely my graduate school GI Bill ... but what would have happened if that had been a medical situation? Best regards, Al M. Al M. on 10/24/2017 10:54:58 AM

President Trump is my greatest president in my lifetime. Even though it is hard to beat Reagan. Cliff Blackstock on 10/24/2017 12:30:24 PM

In just about four years being treated at the La Jolla VA Medical Center, I've never received less than excellent care, by any standard of health, courtesy, judgment or response time. Every aspect of my health has improved. Until four years ago, I didn't even realize I could be treated at the VA, so I can only compare it with private facilities. I'll be 69 on Veterans Day, thanks especially to the VA. Patricia Flynn on 10/24/2017 11:03:45 PM

The VA appears to be improved in some aspects and locations while status quo in other aspects and locations. It seems that there is very little integrity and morality among employees in government just as in both houses of congress. Donald Bowers on 11/6/2017 6:56:18 PM

Q: Is the VA better now? A: Not a chance. I am not bullish on President Trump improving the VA system. This elephant is enormous and the bathtub is small. Unless he scraps the whole thing and sells the system to a for-profit company like HCA that knows how to run 'em, it just isn't going to happen. Scott Corbin on 11/7/2017 1:04:06 PM

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