Inflation Receding, Rate Cuts Imminent, Earnings Warning? – July 12 Market Recap
Indices
- Dow 40,000, +625 or +1.59%.
- Nasdaq 18,398 +215 or +1.18%.
- S&P 5,615, +48 or +0.86%.
- MSCI EAFE 2418.31, +55.37 or +2.29%.
- USD10Y 4.189%, -8.3bp or -1.94%.
- WTI Crude $82.20 bbl, +$1.56 or +1.93%.
Inflation Receding, Rate Cuts Imminent, Earnings Warning?
A disinflationary Consumer Price Index report on Thursday helped reassure the markets that Fed rate cuts are imminent. And while Friday’s Producer Price Index was higher than expected, the report did nothing to tame the rally that the markets experienced this week. While the CME Fed Watch tool assigns less than a 5% chance of a cut when the Fed meets again at the end of the month, it now anticipates an 88% chance of a 25 basis point cut at their September 18 meeting.
As earnings season kicks into high gear this week it is interesting to note that while both JP Morgan Chase and Citibank beat their revenue and earnings estimates on Friday, they were not rewarded by the market; both traded down -1.21% and -1.81% respectively. This may signal that stocks are “priced to perfection,” meaning that unless quarterly reports are spectacular, investors, rather than continuing to bid shares higher, may take their profits and look for other opportunities. While none of the current Magnificent 7 are reporting this week, a former member, Netflix (NFLX) is on the calendar and is trading at nearly 45 times trailing earnings. Whether that is relatively expensive to its group is difficult to discern as direct comparisons are difficult to find (Disney trades 105x, Sony trades at 19x, and Warner Brothers/Discovery is not profitable and thus does not have a P/E) but on an absolute basis, 45x earnings is considered expensive. How investors react should Netflix beat expectations but not astound the Street could give us some insight to the rest of the earnings season and perhaps serve as a warning to the Magnificent 7.
The Upcoming Week: July 15 – July 19
Second quarter earnings season has arrived. For clues regarding the status of the American consumer JB Hunt (JBHT), United Airlines (UAL), and American Express will all be of interest. On the economic calendar, manufacturing data from the East Coast is expected and Fed’s Beige Book, a summary of economic conditions across the 12 Federal Reserve districts are the highlights.
Economic Calendar
- Monday – July Empire State Manufacturing Survey. Earnings: Blackrock (BLK).
- Tuesday – June U.S. Retail Sales. Earnings: Bank of America (BAC), JB Hunt (JBHT).
- Wednesday – Fed Beige Book. Earnings: Johnson and Johnson (JNJ), United Airlines (UAL).
- Thursday – Initial Jobless Claims, July Philadelphia Federal Manufacturing Survey. Earnings: Netflix (NFLX).
- Friday – N/A. Earnings: American Express (AXP).
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Last Week‘s Daily Trading Recap…
Monday – Dow -31 to 39,344, Nasdaq +220 to 18,403 (new record high), S&P +5 to 5,572 (new record high), USD10Y -0.3bp to 4.269%.
- Six of eleven S&P sectors traded down today, led lower by Communication Services, Energy, and Consumer Staples.
Tuesday – Dow -52 to 39,291, Nasdaq +25 to 18,429 (new record high), S&P +4 to 5,576 (new record high), USD10Y +3.1bp to 4.30%.
- Seven of eleven S&P sectors traded higher today, led by Financials, Health Care, and Utilities.
- Fed Chair Jerome Powell struck a dovish tone in testimony before Congress today stating that elevated rates could harm the economy and employment.
Wednesday – Dow +429 to 39,721, Nasdaq +218 to 18,647 (new record high), S&P +56 to 5,633 (new record high), USD10Y -2.0bp to 4.28%.
- All eleven S&P sectors traded higher today, led by Technology, Materials, and Health Care.
Thursday – Dow +32 to 39,753, Nasdaq -364 to 18,283, S&P -48 to 5,585, USD10Y -8.7bp to 4.193%.
- Seven of eleven S&P sectors traded higher today, led by Real Estate, Utilities, and Materials.
- Jobless claims dipped slightly to 222,000 vs 236,000 forecast and vs. last week’s slightly revised higher print of 239,000 (originally 238,000).
- The June Consumer Price Index (CPI) was down -0.1% vs expectations of +0.1% month over month. That reading resulted in the year-over-year number declining to a three-year low of +3.0% vs +3.1% expected and vs last month’s +3.3% print.
- The June Core CPI was also lower than expected at +0.1% vs +0.2% expected. Year-over-year Core CPI now stands at +3.3% in line with expectations and lower than last month’s +3.4% print.
- Earnings: Delta Air Lines (DAL) reported inline earnings but missed on revenues and guided Q2 revenues lower. PepsiCo (PEP) beat earnings on lower-than-expected revenues which they attributed to weakness in their U.S. markets.
Friday – Dow +247 to 40,000, Nasdaq +115 to 18,398, S&P +30 to 5,615, USD10Y -0.4bp to 4.189%.
- Ten of the eleven S&P sectors traded higher today, led by Consumer Discretionary, Materials, and Technology.
- The June Producer Price Index (PPI) was higher at +0.2% month-over-month vs +0.1% expected and vs +0.0% in May. Year-over-year PPI rose to +2.6% vs +2.4% last month.
- June Core PPI was +0.4% month over month vs +0.3% last month. Year-over-year Core PPI rose to +3.0% vs +2.6% last month.
- Earnings: JPMorgan Chase (JPM) beat earnings and revenue estimates on better-than-expected investment banking activity. However, the bank did report larger than expected credit loss reserves. Citibank (C) also beat their numbers and reported a huge increase in investment banking fees.
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Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ACHR, AVGO, BITB, ETHE and GBTC.