– The mixed results continue to roll in MSFT and GOOG miss – they had no where to go but UP, META reports tonight.
– Consumer Staple names remind us of their pricing power.
– It’s the July FOMC meeting – T- 8 hrs.
Stocks too it on the chin on Tuesday…..the negative guidance out of WMT, job losses at Shopify, MSFT and a host of others – revenue & profit declines at MSFT, GOOG, GM and more, cautious forward guidance by GE (and everyone else) …..all while KO, PEP, MCD, Unilever & KMB made it clear that prices are going up (because inflation at the input level is out of control) and that we should not expect to see ‘lower prices’ anytime soon – (here is where consumer staple names have pricing power). Then we got a consumer confidence number that was even weaker than the already weak estimate – coming in at 95.7 – down from 98.4 and below the 97 estimate (this suggesting that the consumer is tiring).
And if that is not enough – then came the housing data…. New Home sales – what would they be? What would that say about the housing market in a rising rate environment? Well – the expectation was for a decline of 5.9% – but the actual read was a decline of 8.1% and that does make sense, no? With mortgage rates now trending at 5.3% – up from 2.8% in January – the cost to carry a home – new or existing continues to rise (and watch what happens after the FED announcement today – expect mortgage rates to ‘adjust up’ on the back of the today’s rate increase)….and so – home sales, new or existing start to show some stress and boom…..New Home Sales for June reflected that very concern. Today we get Pending Home Sales – see below.
At the closing bell the Dow lost 230 pts or 0.7%, the S&P’s down 45 pts or 1.1%, the Nasdaq down 220 pts or 1.9%, the Russell gave back 12 pts or 0.7%, and the Transports choked – give up 250 pts or 1.8%.
None of this should be a surprise to anyone…we have been talking about this for months now and we are only halfway thru the season – expect more of the same as companies report over the next 3 weeks. Companies reporting today include HUM, AEP, GD, ROK, TMUS, BMY KHC, NSC, ADP, BA, SHW and HLT all before the opening bell and after the bell we will get hit with another 30 reports that include F, QCOM, LARX, RJ, NOW – but the one that will keep the millennials on their seats will be Facebook….I know it’s META now – as Marky tries to distance himself from a social network to the metaverse…
Now this one will be key for so many, and it will reveal so much about the state of the economy because the ‘herd’ has been convinced that it will…. – the stock is down 58% from the September 2021 high of $380….remember it gapped down during the 1st qtr. reporting season on February 3rd….falling 25% on the opening trade – leaving a huge hole in the chart….and it has been unable to recover – only going lower in the first 6 months of this year although it does seem to be building a base right here at $159… so today is important…and if it acts like MSFT & GOOG did last night after the bell – we could see it RISE post the earnings – as long as the report is not a complete disaster and ALL the bad news is priced in…..MSFT added 10% after their disappointing report while GOOG added 5%. Both these names have also been beaten up this year down 25% and 31% ytd – so the pop was refreshing…META is quoted up $5 or 3% in the pre-mkt and that is helping to set the tone this morning.
Consumer Discretionary (XLY) was the worst performer yesterday down 3.2% leaving it down 28% ytd, Communications XLC was next – down 2% leaving it down 29% ytd. Healthcare – XLV and Utilities – XLU were up in a down market – rising 0.5% and 0.6% respectively.
Retail – XRT got slammed – down 4.2%, (down 33% ytd), Disruptive Tech – ARKK down 4.8% (down 55% ytd), Airlines – JETS lost 2% and Cyber Security names – CIBR gave back nearly 4% – not sure why at all…. that makes no sense to me – other than they are lumped into ‘tech’. The value trade – SPYV lost 0.5% (down 10% ytd) while the growth trade – SPYG gave back 2% (down 25% ytd).
US futures are UP…. the Dow +170, the S&P’s up 45, the Nasdaq ahead by 205 and the Russell gaining 12- all this as we await the FED decision coming at 2 pm followed by the presser at 2:30 pm. While the whispers of late have once again been about a 100 bps hike – my gut says not happening…..they would have ‘leaked’ that to Goldman Sachs if it was – so not to catch investors by surprise….but I suspect that JJ will leave the September door wide open to another 75 bps hike before slowing down (if he slows down).
Eco data today includes – Mortgage apps for the week of July 22nd – last week they were down by 6.3% – what’s the bet this week? We will also get Wholesale and Retail inventories, Durable Goods Orders – exp to be -0.4%, ex transports of +0.2%. Pending Home Sales of -1% m/m and -13.5% y/y.
Tomorrow brings us the 1st look at 2nd qtr. GDP and the estimates are all over the place…. they range from -1.6% to +0.5%…. consensus is simmering around +0.3%. Now that’s funny because the Atlanta FED GDP forecast is the one calling for -1.6% and they are usually spot on…. but there is a lot of noise around this data point this week…. If we get a negative number – then it suggests that we ARE in a recession (if you use the former definition). I say that because the administration is working hard to ‘cancel’ the definition ahead of the report and change it to something that fits their narrative. So, if we get a negative number – I expect that we will get Janet, Brian and Jared to say – ‘Move on, nothing to see here…’
And if you’re still wondering what treasuries are doing – YES, they remain inverted…….the 2’s yielding 3.03%, the 5’s yielding 2.85% and the 10’s yielding 2.77% but again – we don’t hear Janet (Yellen), Brian (Deese) or Jared (Bernstein) discussing this – I wonder if JJ (Powell) will bring it up or if one of the journalists in the room will be able to ask? (Recognizing that all questions are ‘pre-approved’).
And oil? Well it teased the $100 level yesterday – trading as high as $99 before retreating…..ending the day down 1.2% and this morning it is up 1.3% as the thrashing continues……The API (American Petroleum Institute) reporting that US crude stockpiles FELL by 4 million bpd – 4 X’s what was expected, Gasoline inventories also fell by 1.1 million barrels vs. the expected increase of 3.5 million barrels. The EIA (Energy Information Admin) is due to report their findings later on today. Oil is also being affected by Russia’s decision to CUT the flow through the Nord Stream 1 pipeline to Europe. And while we are discussing energy – Remember – Russia is also cutting the supply of natural gas via the Nord Stream 2 pipeline to Europe beginning today. ……and that is sending Nat gas is up another 1.2% bringing its move in July up 72% and for the year up 172%!
In Europe – markets are all higher…. Italian stocks are up by 0.5% while Italian bonds are lower – this after S&P cut their outlook from Positive to Stable. Credit Suisse reported a massive loss of $1.6 billion vs. the expected loss of $400 million. CEO Tommy Gottstein got the axe. The IMF (Int’l Monetary Fund) cut global growth projections for this year to 3.2% (down from 3.6%) and for next year they went to 2.9% down from 3.6% as well. The word is that they think the outlook is ‘gloomy and more uncertain’. In Germany – consumer sentiment dropped to -30.6 that is down from -27.7 last month. Diminishing gas supplies at top of mind for the Germans…. but that’s because Angi Merkel made them and most of the Eurozone dependent upon Russian energy supplies. How’s that working?
The S&P closed at 3921- after trading in the 3910/3953 range. We are now sitting right on the trendline at 3920. The pre-mkt action appears to suggest that it will hold (for today) and will rally. If we rally- then look for resistance starting at 3975 – 4000. If we push up and thru (not happening) that, then the intermediate trendline becomes resistance at 4130. We still need to close the gap created on June 10th – which means the S&P has to trade up to 4018 in order to do this – when it does it will be a reason for further gains…
Look the list of risks exposes the vulnerability of the latest bear market rally – expect to see more volatility, more chop and more weakness as we move through earnings season and then we come to September/October – a seasonally difficult time for the markets.