(Kenny Polcari – KennyPolcari.com)
– It is hot out there and stocks sizzle.
– Demand for energy surges around the globe.
– What will Vlad do with the Nordstream Pipeline? – Europe awaits.
– Treasuries remain inverted – but no one even talks about it anymore.
– Earnings continue to dominate the news.
It was a glorious day…..the sun was out and it was HOT all around the world….the heat buckling roadways and airport runways across Europe, the UK registering temps never seen in that country before – while parts of the US saw temperatures sizzle….and stocks sizzled…the Dow up 755 pts or 2.4%, the S&P up 105 pts or 2.8%, the Nasdaq gaining 355 pts or 3.1%, the Russel up 60 pts or 3.5% and the Transports adding 515 pts or 3.9%. The demand for electricity at all-time highs causing the demand for energy to surge…. sending oil up 1.2%…. all while the treasury curve remains inverted…. sending conflicting signals about the economic picture. The 2’s yielding 3.14%, the 5’s yielding 3.1% and the 10’s yielding 2.98%.
And in the geo-political news cycle.
All eyes on Vladimir Putin (not a NATO member) and his trip to Tehran (also not a NATO member) as he meets Ayatollah Khamenei joined by the President of Turkey (A NATO member) – Recep Erdogan…. – the picture on the front page of the WSJ says all you need to know – this just days after Joey’s visit to the Saudi’s…. which speaks volumes to the ‘state of the union’…. You can only imagine what that conversation was all about.
Next – will Moscow turn on the Nordstream pipeline tomorrow or not? Germany and Europe sit and wait…. Now to be fair – they did do a pressure test on the pipeline yesterday and that is a positive – but until they actually start to send natural gas thru the pipe to Germany – it remains a question for Europe and the West. Germany and Europe call an emergency meeting today to discuss the options IF the pipeline remains dormant….
So think about it like this – Germany will choose which industries remain active and which do not – choosing between keeping the lights on and keeping the economy going….If the flow stops – we could see Germany and European markets collapse….So, don’t go anywhere.
Now this morning as I write this – this headline hits the tape.
“Russia will fulfill its commitment to supply gas to Europe BUT warned flow could be curbed if sanctions prevent further Nordstream maintenance”.
That headline says it all – maybe they will and maybe they won’t – Vlad is trying to divide and conquer Europe – using natural gas as a weapon…. Remember – Germany is the ‘keystone’ here…. if he shuts the flow to them, it will cause untold chaos and disruption across Europe and the globe…. So, sit tight…. More to come.
(A keystone is that stone at the top of an arch that locks the whole arch together – a failure at the keystone causes the whole arch to collapse).
On the earnings front – we got this.
JNJ beats on both the top and bottom lines and offers upbeat guidance yet remains cautious on the year due to dollar strength, they took 1.5% out of it….…HAL beat and got lots of love from the street….C, Cowen, JPM all making positive comments – the stock closes up 2.5% after falling 34% since June 1st as the price of oil retreated by 22% over the same time period – leaving it still up 32% ytd….with lots of opportunity for gains. ALLY bank misses and allocates money for higher loss provisions – (think credit defaults in a slowing economy) in line with what we have heard from the other banks – and they take 3.6% out of it and finally LMT – Lockheed Martin – the big defense contractor missed on the estimates and cut guidance over the failure to finalize a new contract for the F-35 while also trimming the number of planes to be delivered due to ‘covid and other factors’ after some early morning disappointment – the psyche changed and they took it up $17 off the low to close up $3 or 0.8%.
And then there was NFLX – speculation rampant all day – what would they say? Would they lose the 2 million subscribers that some street analysts were suggesting? Would they deliver on a new subscription plan? How do they plan to stop the bleed – the stock down 70% since November…after gapping lower during the January reporting season and the April reporting season…..traders nibbling all day taking the stock up by 5.6% ahead of the announcement after the bell….and then it hit the tape….subscriber losses just under 1 million (huge plus vs. the expected loss of 2 million) and they expect to launch a ‘cheaper ad tier’ in 2023….AND they expect to gain 1 million new subscribers in the 3rd quarter…..and that drove the after market ‘algo’s and after market traders’ into a frenzy….taking the stock up another 7% during the session and this morning – they are quoting it at $215.20/$215.80 which reflect that 7% move in the after hours session.
On the economic front we saw a decline in Housing starts (-2%) and a decline in Building permits (-0.6% – but better than the expected loss of -2.7%).
Today we will get Mortgage Apps – which have been in decline for weeks now along with Existing Home Sales – which have also been in decline…. Today’s report is expected to show a loss of 1.1%. The pressure on housing a direct result of out-of-control prices caused by artificially low interest rates held too low for way to long which are now correcting…. current 30 yr. money will cost you 5.35% today and will most likely cost you 6% next week – after the Fed raises rates by 75 bps bringing FED Funds to 2.5%. Recent housing data around the country reveals declining prices and cancelled contracts amid the chaos in interest rates.
This morning we see US futures up again…. Dow futures up 35 pts, S&P’s up 5, the Nasdaq up 30 and the Russell up 2.
The big ‘chips’ bill (US manufacturing of semi-conductors) making its way thru congress is now in the Senate….Mitch McConnel says that HE won’t vote in favor of the bill (right now) – it is a ‘headline only’ article – zero clarification – but on the surface it makes Mitchy look not only tone deaf, but completely out of touch with what is going on in the world….(Think Taiwan – where the majority of semi-conductors come from and China’s move to take Taiwan back – leaving the US and the world beholden to Xi Xi…..is that where we want to be?).
I mean the fact that we are even having this conversation tells you all you need to know about current leadership in DC. How could they leave the US in such a vulnerable position? That is like Angi Merkel who left Germany and Europe dependent on Moscow and Russian oil and nat gas – how is that working out? (That is another rhetorical question – do not expect an answer). But do not worry – Nancy (Pelosi) is going to Taiwan next week to show support for that Island Nation.
The semi-conductor ETF – SOXX and SMH both up yesterday gaining 4.5% each. Some individual names up even more – NVDA + 5.5%, AMD +6%, QCOM +4%, AVGO + 3.6% and INTC +4%.
Of the 11 major S&P groups – Industrials -XLI and Communications – XLC led the way higher gaining +3.6%, Tech – XLK and Financials – XLF, Consumer Discretionary – XLY, Energy – XLE, and Basic Materials – XLB – all up better than 3%, Real Estate – XLRE up 2.8% leaving Consumer Staples -XLP, Healthcare – XLV up 1.7% and Utilities up 0.7%. The Value trade – SPYV up 2.3% while the Growth trade – SPYG gained 3%.
Housing – XHB gained 3.3%, Retailers -XRT up 3.3%, Airlines – JETS up 4.4%, Cybersecurity names – CIBR up 2%, Artificial Intelligence – BOTZ up 3.5% while Metals and Miners – XME gained 2.7%.
In Europe, this morning – we see markets across the zone all up about 0.4%…with the exception of Spain – which is down 0.4%. Italy is up 0.3% as the political drama once again unfolds across the motherland….PM (Uncle) Mario Draghi warning us that he wants out while Italian President Sergio Matterella says – “Non C’e modo” (No way!). In the UK – the gov’t reports that inflation has hit another new 40 yr. high in June as food and energy prices ‘continue to soar – escalating the country’s historic cost of living crisis’ Remember that BoE (Bank of England) Governor Andy Baily told us that he will do whatever it takes to break the back of inflation – No If’s And’s or But’s! Expect to see higher rates in the UK which will put more pressure on Christy Lagarde – Pres of the ECB (European Central Bank) to do more than the promised 25 bps move tomorrow.
Earnings today include NDAQ, PSB, BIIB, ABT, BKR after the bell today is more exciting…. UAL, AA, DFS, KNX, STLD and TSLA.
The S&P busted up and through 3900 to close at 3936, up 105 pts…. leaving us 64 pts away from the next century mark – 4000 Expect the action today to be driven by earnings and forward guidance and more speculation about what the Fed will do next week. We are now in the ‘quiet period’ – do not expect to hear from any FOMC members until next week…. Which does not mean you will not hear from the FOMC non-members – think Minneapolis – Neely Kashkari for one…. If the FED needs to ‘leak an idea.’ By now – I think they have made it clear – after the hysteria caused by last week’s CPI and PPI reports which led many to suggest a 100-bps move – something I think still needs to happen, but apparently won’t be happening next week.