Mega Cap Disappointments Overshadow Good Earnings, Peaking Inflation? (Market Recap April 29)

Mega Cap Disappointments Overshadow Good Earnings, Peaking Inflation? 

Indices 

Dow 32,977 (834) or (2.5%) 

Nasdaq 12,334 (505) or (3.9%) 

S&P 4,131 (140) or (3.3%) 

USD10Y 2.887% (1.9bp) or (0.65%)  

Mega Cap Disappointments Overshadow Good Earnings 

It felt like the market was looking for a reason to sell off, and it found three big ones. Mega-giants Alphabet (GOOG), Amazon (AMZN), and Apple (APPL) all gave the markets reason for worry. GOOG missed both earnings and revenues expectations, AMZN missed their earnings numbers by $1/share and guided expectation lower, and APPL, while announcing another great quarter, warned that the next quarter could be negatively affected by the effects the Chinese Covid situation may have on their supply chain.  

While those companies’ influence on the markets and the U.S. economy is undeniable, it was an otherwise very good week for earnings. Amongst the winners; Microsoft (MSFT), Coca-Cola (KO), Visa (V), Pepsi (PEP), Chipotle (CMG), Ford (F), General Motors (GM), United Parcel Service (UPS), Meta (FB), Qualcomm (QCOM), Mastercard (MA), McDonald’s (MCD), and Caterpillar (CAT).  

Inflation and the Federal Reserve 

March Core PCE year over year was +5.2% vs +5.3% expected, the first year over year decline in over 12 months. Core PCE month over month (MoM) was +0.3%, in line with expectations and the data from February and March are the smallest increases in the MoM Core PCE since last summer. While the Fed will meet this week and most likely boost rates by 0.50%, this author believes that the Fed will be hard-pressed to hike rates much more than another 0.50% after the June meeting. The reason for this skepticism is as follows; the April Core PCE numbers above demonstrated a deceleration in the increase in inflation, March Pending Home Sales were down 1.8%, New Home Sales were down slightly, Q1 GDP was negative 1.4%, March Core CPI was down MoM, and A LOT of steam has been taken out of the markets: Dow 10% off its high, Nasdaq 23% off its high, and the S&P 13% off its high. All told, it appears that the economy is already slowing and that prices may have peaked. JOLTS (Tuesday), Initial Jobless Claims (Thursday), and the April Non-Farm Payrolls (Friday) will be instructive as to how the labor market is navigating this new era of quantitative tightening. 

Ukrainian Situation 

It is rumored that Slovakia will transfer their MiG-29 fleet to Ukraine after Poland agreed to patrol Slovakian airspace until the U.S. delivers to Slovakia the 14 F-16s purchased in 2019 and due to be delivered by 2024. 

The European Union is expected to announce a complete ban on Russian oil imports by the end of 2022 to allow member countries to secure other sources and allow the energy markets to adjust in an orderly fashion. 

Covid Update 

Infections continue to rise quickly in the Northeast and Midwest and hospitalizations have increased for the second week in a row. Deaths, the lagging indicator, are still decreasing and between vaccinations and natural immunity (it is estimated that more than 60% of the U.S. population has been infected), there is hope that morbidity will continue to decline. 

Covid 14-Day Daily Moving Averages 

Next Week 

All eyes will be on the Federal Reserve’s announcement on interest rates on Wednesday, midday. Almost unanimously, market observers are expecting a 50 basis point rate increase. 

Market Data Points Next Week 

• Monday – April S&P Global US Manufacturing PMI (final), ISM Manufacturing.  
• Tuesday – March JOLTS. Earnings: Advanced Micro Devices (AMD), Airbnb (ABNB), Starbucks (SBUX). 
• Wednesday – FOMC Announcement, April ADP Employment, April S&P Global US Services PMI, ISM Services PMI.  
• Thursday – Initial Jobless Claims. Earnings: DoorDash (DASH). 
• Friday – April Non-Farm Payrolls, Unemployment Rate. 

April 29 Market Recap Trading… 

Monday – Dow +238 to 34,049, Nasdaq +165 to 13,004, S&P +24 to 4,296, USD10Y (8.0bp) to 2.826% 

• Six of the eleven S&P sectors traded up today led by Communication Services, Technology, and Consumer Discretionary.  
• WTI Crude traded up slightly to settle at $98.69. 
• Earnings: Coco-Cola (KO) beat expectations and traded up 1%, and Activision-Blizzard (ATVI) which is being acquired by Microsoft (MSFT), missed their numbers on lower demand for their Call of Duty franchise.  
• Twitter (TWTR) traded up 5% after announcing that it had accepted Elon Musk’s bid to buy the company. 

Tuesday – Dow (809) to 33,240, Nasdaq (514) to 12,490, S&P (121) to 4,175, USD10Y 5.4bp to 2.772% 

• Ten of the eleven S&P sectors traded down today, led lower by Consumer Discretionary, Technology, and Communication Services. 
• March Durable Goods orders were in line with expectations. 
• March New Home Sales were down slightly @ 763,000 units vs expectations of 770,000. 
• April Consumer Confidence was 107.3 vs 108.5 expected. 
• Earnings: Microsoft (MSFT) beat their numbers and traded up 4.47% after the close, Alphabet (GOOG) missed both top and bottom line and traded down 2.55%, Visa (V) beat expectations and traded up 4.48%, Pepsi (PEP) beat top and bottom-line expectations and traded down slightly (0.25%), UPS (UPS) beat all their metrics and traded down 3.48%, Chipotle (CMG) beat revenues and earnings expectations but saw their margins contract on higher input costs. CMG traded down 5.13%, General Motors (GM) beat on earnings, missed on revenues and announced a forthcoming electric Corvette. 
• Tesla (TSLA) traded down more than 12% on fears that Elon Musk will need to sell shares to fund his Twitter acquisition. 

Wednesday – Dow +61 to 33,301, Nasdaq (2) to 12,488, S&P +9 to 4,459, USD10Y +4.6bp to 2.818%. 

• Only five of eleven S&P sectors traded higher today led by Materials, Energy, and Technology. 
• March Pending Home Sales were down 1.8%. 
• Earnings: Meta (FB) surged 18% after reporting better than expected daily active users and earnings while missing on revenues. Qualcomm (QCOM) bounced 6% after beating their numbers. PayPal (PYPL) traded up 3.44% meeting earnings and beating revenue expectations while cutting full-year guidance. Boeing (BA) fell 7.57% after missing on sales, earnings and revenues. Ford (F) traded up 1.89% after beating earnings and revenues.  

Thursday – Dow +614 to 33,916, Nasdaq +382 to 12,871, S&P +103 to 4,287, USD10Y +4.5bp to 2.863%. 

• All eleven S&P sectors traded up today led by Technology, Communication Services, and Energy. 
• Jobless claims were in-line at 180,000 claims vs last week’s slightly revised higher 185,000 reports (originally reported as 184,000 claims). Continuing claims decreased to 1.41 million people. 
• Q1 Real GDP was –1.4% vs expectations of 1.0% and last year’s 6.9%. 
• June WTI Crude traded up to $105.34/bbl.  
• Earnings: Apple (APPL) blew out their numbers and traded down 3.49% but warned that Q2 guidance was in jeopardy due to supply constraints from China, Amazon (AMZN) missed on earnings but beat on revenues and fell 11.39% post-close, Mastercard (MA) beat their numbers and traded up 4.77%, Intel (INTC) beat their metrics but cut quarterly guidance and fell 4% after hours, McDonald’s (MCD) beat their numbers and traded up 2.85%, and Caterpillar (CAT) beat top and bottom lines but traded down 0.71%. 

Friday – Dow (939) to 32,977, Nasdaq (536) to 12,334, S&P (155) to 4,131, USD10Y +2.4bp to 2.887. 

• The Amazon and Apple earnings disappointments from last night absolutely crushed the markets today although a glimmer of hope shone through with the Core PCE numbers demonstrating a potential peak has been reached on the inflation front. 
• All eleven S&P sectors traded down today led lower by Consumer Discretionary, Real Estate and Technology. 
• June WTI Crude fell to $104.11/bbl.  
• March Core PCE year over year was +5.2% vs +5.3% expected, the first year over year decline in over 12 months. Core PCE month over month was +0.3%, in line with expectations and the data from February and March are the smallest increases in the MoM Core PCE since last summer. 
• Earnings: Exxon Mobile (XOM) doubled its quarterly earnings from a year ago despite missing earnings expectations but beat on revenues and fell 1.95%. Chevron (CVX) quadrupled its quarterly earnings from a year ago yet missed on both metrics and traded down 5.12%.

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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, ETHE, GBTC, and TSLA.