Dovish Fed, Apple/Amazon Surprise, Lead Markets Higher (July 29 Market Recap)

July 30, 2022

Dovish Fed, Apple/Amazon Surprise, Lead Markets Higher (July 29 Market Recap)

Indices

Dow 32,845 +946 or +3.0%.

Nasdaq 12,390 +556 or +4.7%.

S&P 4,130 +169 or +4.3%.

USD10Y 2.642% (14.1bp) or (5.0%).

Dovish Fed Comments

Despite raising rates 75bp as expected, it was Fed Chair Jerome Powell’s comments in his press conference that caught the attention of the markets. In essence, Powell stated that while future aggressive hikes were a possibility, that the Fed would be data dependent going forward and noted that at some point the pace of rate hikes would have to slow. Investors took this as a sign that the Fed is closer to the end of this rate hike cycle than the beginning and began a furious rally that carried through the end of the week.

Apple/Amazon Surprise

This week was a repeat of last week’s “not as bad as expected” motif regarding earnings. The notable exceptions were Apple (APPL) and Amazon (AMZN), the former posting beats on revenues, profits, and just about every product that it sells and the latter, which while missing earnings, beat revenues and guided its sales higher for the current quarter. Both stocks popped on the reports and helped the Nasdaq outperform the other indices for the week.

Unsurprisingly on Friday, both Chevron (CVX) and Exxon Mobil (XOM) reported record-breaking earnings and profits for the second quarter. XOM’s earnings were almost quadruple that of the same period last year.

The one exception to the-better-than-hoped-for-results-story was Walmart (WMT). On Monday the retailing giant announced that it was cutting its full year guidance as food inflation was cutting into sales in other categories. Further it would be marking down inventory that it had bought in response to demand during the pandemic, which has now diminished considerably. Considering Target (TGT) had a similar message when they cut guidance on June 6, this does not bode well for the retail sector.

Economic Data Continues to Weaken

July Consumer Confidence missed expectations as did June New Home Sales. Jobless claims printed at 256,000 claims, down 6,000 week over week but that was only because last week’s number was revised substantially higher, by 10,000 claims. Q2 GDP (first release) was –0.9%, marking the second consecutive quarter in which the U.S. economy has contracted. July Chicago PMI also fell.

June PCE was perhaps the most disappointing as it had shown a moderating trend regarding inflation. And while the June report had been expected to be hot, the results show a stubborn and persistent inflation trend. With the Fed stating they will be data dependent, the July Nonfarm payrolls (August 5), July’s CPI report (August 10), July PCE (late August) August Nonfarm payrolls (September 2) and August CPI (September 13) are all hugely important data points.

On the plus side, June Durable Goods orders were better than hoped for and July’s final University of Michigan Consumer Sentiment was slightly better than expected.

Next Week

Earnings season continues but all eyes will be on Friday’s jobs report. With the Fed’s September decision on rate hikes data dependent, this will be the first of two jobs reports the Fed will examine prior to their next meeting in mid-September. Expectations are for 250,000 jobs to be added, a significant reduction from last month’s 372,000 print.

Economic Calendar

Monday – July S&P U.S. & ISM Manufacturing PMI (final). Earnings: Activision Blizzard (ATVI).
Tuesday – June JOLTS. Earnings: Caterpillar (CAT), Uber (UBER), Starbucks (SBUX), Airbnb (ABNB), PayPal (PYPL).
Wednesday – July S&P and ISM Services (final). Earnings: Bookings Holdings (BKNG), eBay (EBAY).
Thursday – Initial Jobless Claims. Earnings: Expedia (EXPE), Lyft (LYFT), DoorDash (DASH).
Friday – June Nonfarm Payrolls, Unemployment Rate, Labor Participation Rate.

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July 29 Daily Trading Recap…

Monday – Dow +90 to 31,990, Nasdaq (51) to 11,782, S&P +5 to 3,830, USD10Y +3.7bp to 2.82%.

Eight of eleven S&P sectors traded higher today, led by Energy, Utilities, and Financials.
Walmart (WMT) cut its full-year guidance post-close citing rising food inflation, which is causing sales in other areas to fall, specifically apparel. WMT traded down 9.79%. The news dragged down Target (TGT), Amazon (AMZN), Macy’s (M), Dollar General (DGEN), and Costco (COST).

Tuesday – Dow (228) to 31,761, Nasdaq (220) to 11,562, S&P (45) to 3,921, USD10Y (3.3bp) to 2.787%.

Eight of eleven S&P sectors traded down today, led lower by Consumer Discretionary, Communication Services, and Technology.
July Consumer Confidence missed at 95.7 vs 97 expected and June’s 98.4 print.
June New Home Sales missed expectations at an annual rate of 590,000 units vs 660,000 expected and vs May’s 642,000 print.
Earnings: Microsoft (MSFT) missed both revenue and earnings expectations, citing a stronger dollar, slowing PC sales and lower advertising spending; MSFT traded up slightly post-close. Alphabet (GOOG) missed both earnings and revenue estimates for the second consecutive quarter, but the stock rallied 3.46% post-close. Coca-Cola (KO) beat their metrics and traded up 1.64%. McDonald’s (MCD) beat earnings but missed on revenues; MCD traded up 2.68%. General Motors (GM) missed earnings but beat on revenues; GM traded down 3.42%. United Parcel Service (UPS) beat their metrics for earnings and revenues, but the stock dropped 3.4% as rising prices masked a decrease in volume. Chipotle Mexican Grill (CMG) missed on revenues but beat on earnings; CMG traded up 8.39% post-close.

Wednesday – Dow +436 to 32,197 Nasdaq +470 to 12,032, S&P +103 to 4,024, USD10Y (5.3bp) to 2.734%.

The Federal Reserve raised interest rates by 75bp as expected. However, Fed Chair Jerome Powell’s comments spurred the market to a robust and widespread rally. Powell noted that while future rate hikes could continue to be aggressive, the Fed will be data dependent and acknowledged that at some point rate hikes will have to slow.
June Durable Goods were better than expected at +1.9% vs –0.4%.
Earnings: Boeing (BA) missed their metrics but reiterated its return to free cash flow this year. Meta Platforms (META) missed their metrics, announced further job cuts and slashed forward guidance. Ford (F) beat their numbers, maintained their guidance and increased their dividend. Qualcomm (QCOM) beat expectations, but their forward guidance was lower than the Street expected. Lam Research (LRCX) handily beat expectations and gave guidance higher than the Street consensus.

Thursday – Dow +332 to 32,529, Nasdaq +130 to 12,162, S&P +48 to 4,072, USD10Y (5.3bp) to 2.681%.

Ten of eleven S&P sectors traded higher today, led by Real Estate, Utilities, and Industrials.
Jobless claims printed at 256,000 claims vs 249,000 expected and last week’s revised higher 261,000 print (originally was 251,000). Continuing claims fell to 1.36 million.
Q2 GDP First Release was –0.9%, marking the second consecutive quarter in which the U.S. economy has contracted.
Earnings: Apple (APPL) beat earnings and revenue expectations and traded up 3.91% post-close. Amazon (AMZN) beat on revenues and guided them higher for Q3; the stock jumped 12.68% after the bell. Intel Corp (INTC) missed on all metrics and cut its forward guidance; INTC traded down 7.71% in the extended session. Mastercard (MA) beat their metrics but warned that inflation was reducing spending from their lower-income customers; MA traded up 2.67% during the normal session.

Friday – Dow +332 to 32,845, Nasdaq +228 to 12,390, S&P +57 to 4,130, USD10Y (3.9bp) to 2.642%.

Nine of eleven S&P sectors traded higher, led by Energy, Consumer Discretionary, and Industrials.
June PCE was higher than expected at +0.6% MoM and +6.8% YoY. While the June numbers were expected to be high, these results are still disappointing and now all eyes focus on July’s CPI report due August 10.
July Chicago PMI fell to 52.1 vs June’s 56 and expectations of 55.
July University of Michigan Consumer Sentiment (final) was 51.5, slightly better than expected.
July University of Michigan 5-year inflation expectations (final) was 2.9% up slightly from June’s 2.8%.
Earnings: Exxon Mobil (XOM) reported blowout profits, nearly quadrupling their earnings vs the second quarter of 2021; XOM traded up 4.63% in the regular session. Chevron (CVX) reported similar results and traded up 8.9% also during the regular session.

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, ETHE, GBTC, and TSLA.