– Vlad turns on the pipeline allowing Europe to catch their breath – but for how long?
– Oil is under pressure – down $5 as inventories rise – suggesting demand destruction.
– Housing under attack, mortgage apps continue to fall.
– Earnings, earnings earnings.
Stocks ended the day up….Nasdaq and the Russell (small and mid-caps or the smids) were the outperformers…and that does make sense – especially if you are trying to pick the ‘bottom’….Not saying that we are at a bottom, I am just saying if you think the bottom is in – then you are going to go after the most beaten up names.
As the closing bell rang – we found the Dow up 48 pts or +0.15%, the S&P’s up 23 pts or 0.6%, the Nasdaq up 185 pts or 1.6%, the Russell added 30 pts or 1.6% and the Transports gained 125 pts or 0.9%.
It was all about earnings…and macro data concerning housing and the ongoing geo-political issues that have kept Europe and the West on the edge of their seats….
The earnings parade continues – and so far we are running at 70%….meaning 70% of reported companies are beating on both the top and bottom lines…that is a bit below what the most recent history has been – remember – last quarter we were running at closer to 80% of reports beating across both measures….so 70% is off a bit, but not the disaster (so far) that some were worried about…but the season is still young, we’ve only gotten about 45 S&P companies reporting so far….that just a fraction – 9% of the S&P 500….so there is more to go….but also keep in mind – the estimates that are expected have been ‘slashed’ ahead of the season….so it’s hard to understand why more of the companies are not ‘meeting or beating’ the estimates…but like I said – the day is young…we’ve got 3 more weeks of this….We’re still on the appetizers – wait until we get the ‘meat and potatoes’.
Yesterday’s reports included 23 companies – 5 of the 23 missed on both lines – leaving 18 that met or beat – that is equal 78% of yesterday’s reports…do you see how this can change…and that will bring the percentage up….because in the end – the longer term average runs between 75% – 78%….and it’s amazing how the street analysts always seem to fall in line with what they prepare the street for.
BIIB, ABT, CSX, NDAQ, MTB, ELV and TSLA all beat….the most interesting ones there are Biogen, CSX, ELV and TSLA – why because it starts to tease us on the coming industry reports….now that the banks are out of the way….It’s bio-tech, pharma, railroads, healthcare and EV’s….and all of these companies reported better results.
TESLA though – was the one that many people waited for…. come on, who is kidding who? They reported $2.3 billion in 2nd qtr. profit – better than the estimate for $1.9 billion but well below the 1st quarter profit of $3.3 billion – He described the environment as being ‘supply chain hell’ due to labor shortages, plant closures, etc. that kept him from running his factories at full capacity. He did manage to get buyers to pay MORE for the same car helping to generate $16.9 billion in 2nd quarter total revenues down from the $18.8 billion rate in the first quarter – sales up 42% but margins came under pressure 27.9% down from 32.5%…. (Recall that was one of the lines items the street has been concerned about across all reports).
He also sold $936 billion worth of bitcoin in order to ‘maximize his cash position – (and boost the bottom line) helping to put pressure on that crypto currency during the quarter….as he dealt with the closure of the Shanghai plant due to covid restrictions….In the end – traders took the stock up 0.8% during the day and then another 2.7% in the after hours market. This morning – the stock is quoted up $20 at the $762 level they took it to last evening. Recall the stock was down close to 50% ytd – at $600/sh where it seems to have found plenty of support – It has since rallied by 17% going into this report…. taking it above its trendline at $712 – leaving it now in the $712/$830 range.
Housing…. not good… Mortgage apps – down 6.3%, Existing Home Sales – down by 5.4% – but why was this a surprise? (Remember Housing starts were down 2% as well on Tuesday). Seems obvious to so many – One because housing prices (like so many other assets) were out of control, and two because the cost to carry – mortgage rates are up substantially this year….a 92% increase in rates….2.75% in January to 5.35% today….and going higher after next weeks rate increase promised by the FED…..so don’t kid yourself….housing will come under more pressure…..again, it’s just a math problem….rates go up, prices come down.
And on the geo-political front – it was all about what Vlad would do with the Nordstream pipeline – after it is weeks’ worth of maintenance…would he turn it on or not? Would he supply Germany and Europe with natural gas or would he weaponize it and make them beg? Europe remained and remains on edge….and yes – the pipeline was turned on last night, Nat gas is flowing to Germany – but no one is throwing a party just yet….Vlad did indicate that it may need ‘more maintenance’ in the months ahead – and those months begin to include the winter – when it’s very cold outside….So, sit tight – this story isn’t over….at all….Germany has demanded that Europe cut Nat gas usage by 15% in order to conserve supply as they scramble to replace Russia as the main supplier.
And – Italian PM (Uncle) Mario Draghi has tendered his resignation to President Sergio Mattarella…. after the ‘no confidence’ vote of his gov’t – so that throws Italy into political turmoil yet again….and in the UK – PM Bojo (Boris Johnson) bid farewell to parliament – ending his reign by saying ‘Hasta la Vista baby’ to 10 Downing Street. The fight for new leadership is now underway in the UK.
This morning – US futures are under a bit of pressure – which makes sense – as we are in this 3600/4000 trading range. Dow futures down 80 pts, S&P’s down 7, Nasdaq UP 6 and the Russell down 7.
Oil is trading at $94.79 – down $5/barrel – higher gasoline inventories now stoking the ‘demand destruction’ story. If inflation is cooling demand for gasoline, then the idea is that prices should fall…. but if inflation itself is cooling – then demand for gasoline should rise….so I guess what the action is telling us is that the energy markets do NOT expect inflation to cool anytime soon.
Eco data today only includes Initial Jobless Claims, Cont Claims, and the Philly Fed Survey….so do not look for the eco data to drive the action.
Earnings include about 20 more S&P companies – DOW (beat), DHR (beat), T (beat), BX (beat) (so far that is 4 out of 4 – capisce?). PM, BX, NUE, DPZ, FCX, UNP all before the open and then after the bell we will hear from STX, PPG, THC and SNAP.
European markets are mixed…. Up or down by about 0.5% with Italy the outlier – down 1.4% after the resignation. Later today we will get the ECB decision on rates…. will it be 25 bps or 50 bps…. Let us hope she (Christine Lagarde) makes the right decision…. inflation is kissing 10% across the zone…. The markets are now pricing in a 50-bps hike…. anything less might be considered weak…. The (Nordstream) pipeline is delivering Nat gas to Europe – but it is being noted that it is running at only 40% – well, that 40% more than last week- so let us not make it a crisis…. (yet).
Now GS’s Jeffrey Currie tells us that he (they) expect Nat gas price to go ‘ballistic’ as we move into the winter…..demand is going up and supply is not and do not dismiss the fact that Vlad is in the driver’s seat here…he controls the flow of gas thru the pipeline – do not forget that…..if Vlad throws a hissy fit – then expect the flow to slow….sending prices even higher in Europe than they are now….and that may be good for Nat gas stocks…FCG is one place to start to look – it is the First Trust Nat Gas ETF…..up 37% ytd and up 17% in the last week….It closed at $23.41 and the breakout will happen if it pierces the trendline at $24.50 – leaving the June highs of $31/sh in the line of sight. (a 28% move higher from here).
The S&P closed at 3959 -after testing as high as 3974 before pulling back. Remember we are in the ‘quiet period’ – do not expect to hear from any FOMC members until next week…. The chatter will be all about earnings.