Priced to Perfection (Market Recap Week Ending July 30) 

Priced to Perfection (Market Recap Week Ending July 30) 

• Dow 35,061 (126) or (0.36%). 
• Nasdaq 14,672 (164) or (1.1%) 
• S&P 4,411 (16) or (0.36%)  

All things considered it was a pretty mild week in the markets. Earnings were the biggest factor, and they were on average incredible. However, with valuations at elevated levels, nothing but perfection would be acceptable and as such, warnings of slower growth from Apple (APPL), Facebook (FB), and Alphabet (GOOG) were received with sell orders by the Street. 

Fed Chair Powell gave his post Federal Reserve Board of Governers debriefing to the press and stayed on point: there are additional improvements to be made to the labor market before asset purchases will be reduced let alone interest rate increases. The economic data this week appeared to support his thesis. 

Economic numbers continued to be a mixed bag with GDP growth posting an incredible annualized number of 6.5% but missed expectations of an 8.4% annualized rate. Personal income and consumer spending were better than expected, inflation numbers came in a tad under expectations, and jobless claim disappointed for the second week in a row. 

What we are watching for next week: Jobless Claims, Earnings Continue and the July Jobs Report (non-farm payrolls) 

• Monday – Markit and ISM Manufacturing PMI,  
• Tuesday – Factory Orders and Vehicle Sales. Earnings: AliBaba (BABA) will the recent Chinese government crackdown affect BABA’s numbers? Activision (ATVI) the Call of Duty video game creator is down over 12% in a month due partly to a gender discrimination lawsuit filed by the State of California. 
• Wednesday – ADP employment, Markit and ISM Services. Earnings: CVS Health (CVS) General Motors (GM), Roku (ROKU). 
• Thursday – Initial Jobless Claims. Earnings: Moderna (MRNA) 
• Friday – NonFarm Payrolls, Unemployment Rate. 

Last week’s trading… 

Monday – Dow +82 to 35,144 (record close), the Nasdaq +3 to 14,840 (record close), and the S&P +10 to 4,422 (record close).  

• All three indices closed at new record highs for the second consecutive session. Nine of the eleven S&P sectors traded higher led by Energy and Materials. Tech and Healthcare were the only two sectors that traded in the red today.  
• The 10-year Treasury yield traded flat to close again at 1.27%. 
• Overall, it was a slow news day other than the news out of China that the government has yet again cracked down on tech companies. Chinese state media confirmed a crackdown on the after-school tutoring sector and issued a fine against internet giant Tencent Holdings. The Shanghai composite fell 2.3% while Hong Kong’s Hang Seng Index dropped 4.1%. 
• Earnings: Tesla (TSLA) crushed their Q2 numbers with a record net income of $1.1 billion during the quarter vs $428 million last quarter and 10x more than its net income a year ago. However, the notoriously volatile stock traded up only 1% after-hours as CEO Elon Musk noted that TSLA is not immune to the computer chip shortage that is affecting the entire auto industry in addition to experiencing shortages of cells needed to make the batteries for their vehicles. 

Tuesday – Dow (85) to 35,058, the Nasdaq (180) to 14,660, and the S&P (20) to 4,401.  

• Take your pick for the reason the markets fell today; the fallout from the continuing Chinese government crackdown on tech and education companies, the CDC reversing its mask policy signifying the seriousness of the Delta variant, the anticipation of the conclusion of the two-day Federal Reserve meeting, or the bad economic data that came out today. 
• The latter reason may have been the biggest factor as June durable goods orders disappointed at a mere +0.8% vs expectations of +2% and the upwardly revised May number of 3.2% which stoked fears of waning growth. June consumer confidence beat expectations at 129.1 up slightly from last month’s 128.9 number. However, it wasn’t enough as five of the eleven S&P sectors traded down and of the winners, the top four sectors were all defensive: utilities, real estate, healthcare, and consumer staples. 
• The 10-year yield traded down to 1.24% as investors fled to safe havens. 
• Earnings: Post-close Apple (APPL), Alphabet (GOOG), Microsoft (MSFT), and Advanced Micro Devices (AMD) all reported phenomenal numbers, perhaps presaging a tech bounce tomorrow? 

Wednesday – Dow (127) to 34,930, the Nasdaq +102 to 14,762, and the S&P (1) to 4,400.  

• Concern regarding McDonald’s (MCD) margins along with the poor performance of its financial components sent the Dow lower today despite the best numbers from Boeing (BA) since 2019. Tech rebounded as we suspected it might given the earnings that had been reported post-close yesterday. The S&P traded flat with only four of its eleven sectors trading in the green today. Energy and Communication Services led the advancers, and the worst performers were Utilities and Consumer Staples.  
• The 10-year yield ticked up 1 bp to 1.25%. 
• The Federal Reserve held rates steady today and Fed Chair Powell reiterated that the central bank wants to see better jobs numbers before starting to pare asset purchases, let alone raise rates.  
• Earnings: PayPal (PYPL) shed 5.29% after missing revenue estimates…Facebook (FB) traded down 3.45% despite excellent numbers after warning of slowing growth…Ford (F) traded up 3.82% despite missing on revenues but raised 2021 guidance…As mentioned above Boeing (BA) traded up 5.3% in the regular session after posting their first quarterly profit in two years and beat revenue and earnings expectations. 
• Of the S&P 500 companies that have already reported Q2 numbers, 89% have topped earnings estimates, while 86% have exceeded revenue expectations, according to data from Refinitiv. 

Thursday – Dow +153 to 35,084, the Nasdaq +15 to 14,778, and the S&P +18 to 4,419.  

• It was another “only on Wall Street” where bad news is good news type of day. 2nd quarter GDP grew at a 6.5% annualized rate which would be a stupendous number in any other environment except when like today, expectations were for 8.4% annualized growth. Initial jobless claims disappointed for the second week in a row at 400,000 claims vs expectations of 380,000 and last week’s upwardly revised print of 424,000. These two numbers gave further credence to Fed Chair Jerome Powell’s testimony this week that labor markets have room to further improve before the Fed will consider tapering its monthly asset purchases and THAT is why the markets were up today.  

• Breadth was not that great with only six of the eleven S&P sectors trading higher led by Materials, Financials and Energy. Utilities and Communication Services were the two worst performers.  
• The 10-year yield traded flat at 1.25%. 
• RobinHood (HOOD) the online brokerage firm that has been in the news for all the wrong reasons did it again; their IPO was one of the worst in recent history, pricing at the low end of the range at $38 and closing down over 10% at $34/share. AND cofounder Vlad Tenev fell under FINRA investigation for failing to register with regulators. 
• Earnings: Amazon (AMZN) blew out its earnings number but despite increasing revs 27% year over year, missed analysts’ expectations. AMZN traded down 7.47% post-close…Credit card giant Mastercard (MA) blew out its numbers with revenues up 36% year over year. MA traded up 1.4% during the normal session…Twilio (TWLO) traded down 2% after reporting great earnings but guided the Street to a larger than expected Q3 loss…Pinterest (PINS) was getting crushed post-close after reporting disappointing gains in active users. 

Friday – Dow (149) to 34,935, the Nasdaq (105) to 14,672, and the S&P (24) to 4,395.  

• Stocks traded down today on the back of Amazon’s revenue miss last night. 
• Seven of the eleven S&P sectors traded lower today with Consumer Discretionary and Energy the two worst performers. The two strongest sectors were Materials and Real Estate.  
• The 10-year yield fell to 1.228%. 
• Economic data was mixed with personal income and consumer spending beating expectations, while core inflation came in just below expectations perhaps easing the Street’s concern regarding rising prices. 
• Earnings: Chevron (CVX) beat numbers handily and announced a resumption in the third quarter of a $2-$3 billion annual share buyback program. CVX traded down on 0.74% in the regular session…ExxonMobil (XOM) beat their numbers, but the absence of a stock buyback plan sunk the shares 2.31%…Caterpillar (CAT) beat their numbers but noted that their margins are under pressure due to cost increases. CAT traded down 2.73%…Proctor and Gamble (PG) beat analysts’ expectations as well but cautioned that future earnings will likely be impacted by rising input pricing. 

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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.