Before the Open (Jul 25-29)

Good morning. Happy Friday.

The Asian/Pacific markets leaned up. South Korea, India, Taiwan, Australia and New Zealand led while China, Hong Kong and the Philippines were weak. Europe, Africa and the Middle East are currently doing great. Denmark, Poland, France, Turkey, Germany, Greece, the UAE, Norway, Hungary, the Netherlands, Italy, Austria and Sweden are up 1% or more. Futures in the States point towards a moderate gap up open for the cash market.

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The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are down.

Stories/News from Seeking Alpha…

More Big Tech

Shares of Apple (AAPL) climbed 3% to $162 in extended trading on Thursday after posting FQ3 results that were better-than-expected and saying sales should “accelerate” in the current quarter despite U.S. economic uncertainty. Revenue attributed to the iPhone, which accounted for nearly half of all sales, came in at a whopping $40.7B (+3% Y/Y), while the company saw a “record” number of people switch over from Android during the quarter. That helped boost revenue at Apple’s Services division, which rose to $19.6B (+12% Y/Y) and saw the number of people paying recurring subscription fees climb 23% over the past 12 months to 860M.

Quotes: “There is no obvious evidence in our data that there is macroeconomic effect on iPhone sales… and we’re continuing to hire,” CEO Tim Cook said on an earnings call. “The situation on supply is improving,” added CFO Luca Maestri. “The big question mark, as always, are potential COVID restrictions, but in the current environment, if nothing changes, we expect supply constraints to be less than what we saw in June.”

Investors also bid up shares of Amazon (AMZN), betting that strong AWS cloud computing growth will outweigh weakness at its core retail operations. The stock even soared 13.5% to $138 AH despite a $2B net loss, which was skewed heavily due to a massive writedown on its investment in EV maker Rivian (RIVN). A positive revenue forecast helped counter that sentiment, while advertising revenue reached $8.76B (+18% Y/Y), suggesting that Amazon could be taking market share from its mega-cap tech rivals.

Expenses and drivers: “Despite continued inflationary pressures in fuel, energy, and transportation costs, we’re making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network,” noted CEO Andy Jassy. “We’re also seeing revenue accelerate as we continue to make Prime even better for members, both investing in faster shipping speeds, and adding unique benefits such as free delivery from Grubhub for a year, exclusive access to NFL Thursday Night Football games starting Sept. 15, and releasing the highly anticipated series The Lord of the Rings: The Rings of Power.” (63 comments)

The ‘r’ word

U.S. gross domestic product dropped at a 0.9% annualized rate in the second quarter, driven by a decline in consumer spending and private inventories, as well as weaker housing and business investment. The contraction followed the economy shrinking at a 1.6% pace in Q1, translating into two consecutive quarters of negative growth that are typically defined as a recession (though any official decision is left up to NBER). As mentioned yesterday, the term “recession” is now as charged as the midterm elections in November, and the White House was the latest to weigh in on the matter as it battles other economic headwinds like four-decade high inflation.

President Biden: “Now, there’s no doubt we expect growth to be slower than last year, and for the rapid clip we had. But that’s consistent with a transition to stable, steady growth and lower inflation. Fed Chairman Powell made it clear that he doesn’t think the U.S. is currently in a recession. He said, quote, ‘There are too many areas where the economy [is] performing too well.’ It’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation, but even as we face historic global challenges, we are on the right path and we will come through this transition stronger and more secure.”

Treasury Secretary Janet Yellen: “Even in the face of global headwinds, including a war in Europe and successive variants of the pandemic, our economy remains resilient. Our unemployment rate stands at 3.6%, household finances are strong, and industrial output continues to grow. I think what we can constructively do is talk about what is the state of the economy, and as I’ve tried to describe, the labor market remains exceptionally strong. That is not what we see in past episodes that the NBER has labeled to be a recession. We shouldn’t just get involved in the semantics. Let’s talk about what’s going on.”

Bad news is good news? While it’s not entirely clear whether a recession has begun, investors are now betting on a slightly more dovish Fed, with a more moderate pace of rate hikes. Slower growth expectations were displayed in the bond market on Thursday, with the 10-year Treasury yield falling below 2.7% for the first time since early April as the economy loses momentum. Meanwhile, stocks continued to build on a post-Fed rally that was triggered by Jay Powell saying a 75 bps rate hike for September was not guaranteed as the central bank sizes up “the data on a meeting-to-meeting basis.” (32 comments)

Fifth largest U.S. airline

That didn’t take long. Shortly after Spirit Airlines (SAVE) vetoed a tie-up with Frontier Group (ULCC), JetBlue (JBLU) came to the runway with its own $3.8B merger. It follows a months-long bidding war that would create the fifth-largest U.S. carrier after American Air (AAL), Delta (DAL), United (UAL) and Southwest (LUV). JetBlue also attempted to buy Virgin America in 2016, but lost a contest to Alaska Air Group (ALK).

Backdrop: Both airlines previously accused each other of acting in bad faith, which had held up the discussions. “I have wondered whether blocking our deal with Frontier is, in fact, their goal,” Spirit CEO Ted Christie announced on an earnings call back in April, saying he can’t imagine getting regulatory approval for the deal when JetBlue faces antitrust scrutiny over an agreement with American Airlines, as well as overlaps in cities like Orlando and Fort Lauderdale. In response, JetBlue called the concerns a “smokescreen” and pointed to historical relationships between top brass at Spirit and Frontier Airlines.

While the regulatory hurdle is still high, Spirit now appears to be viewing it as a necessity after failing to garner enough support for the Frontier deal. “Many things were said, but business is business,” Christie added in a statement. Jetblue hasn’t even raised its prior offer of $33.50 per share, though it does include a prepayment of $2.50/share once the agreement has been approved by Spirit shareholders. A so-called ticking fee of $0.10 per month will also be applied from January until the deal officially closes.

Go deeper: Some consumer advocates fear that ticket costs will rise if Spirit disappears, but JetBlue argues that creating a fifth major competitor would provide the best value for travelers by lowering fares and improving customer service. “The best thing that we can do to create a more vibrant, a more competitive industry is to really empower this new larger JetBlue,” said CEO Robin Hayes. The combined fleet of the two airlines would include 458 planes, with annual revenue anticipated to total about $11.9B. (29 comments)

Eye on China

President Biden and Xi Jinping ended a two-hour call on Thursday with plans to arrange their first in-person meeting since Biden took office (Xi also hasn’t left China since the pandemic given the country’s strict zero-COVID strategy). The leaders of the world’s two largest economies discussed areas of potential cooperation like climate change and healthcare, as well as stabilizing supply chains and protecting global food and energy security. Biden also pressed Xi not to support Russia’s war in Ukraine, but didn’t mention a possible rollback of Trump-era tariffs on Chinese imports.

Commentary: “That the call happened is a mild positive and shows both leaders want to maintain a floor under deteriorating bilateral ties,” Eurasia Group analysts wrote in a research note. “Any future cessation of top-level U.S.-China dialogue would be a negative sign for global stability.”

During the conversation, the two leaders also warned each other about rising confrontation over Taiwan, which has been exacerbated by a potential upcoming visit to the island by House Speaker Nancy Pelosi. “Those who play with fire will only get burnt,” Xi told Biden, adding that he’ll “resolutely safeguard China’s national sovereignty and territorial integrity.” In response, Biden reiterated the U.S. ‘One China’ policy – under which Beijing is only recognized as the sole government of China – but strongly opposed “unilateral efforts to change the status quo or undermine peace and stability across the Taiwan Strait.”

China competition bill: Members of the House of Representatives have voted 243-187 to send the $280B Chips and Science Act to President Biden, who is expected to sign it into law in the coming days. The bill, which aims to make the U.S. more competitive with China, will provide $52B in subsidies for domestic chipmakers and more than $100B in technology and sciences investments. Washington has been worried about reliance on microchips made in Taiwan for years, but the dependence became more apparent during the pandemic, when supply chain issues affected everything from cars and electronics to healthcare equipment and advanced weapons systems. (126 comments)

Today’s Economic Calendar
8:30 Personal Income and Outlays
8:30 Employment Cost Index
9:45 Chicago PMI
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
3:00 PM Farm Prices

What else is happening…

Eurozone CPI hits record 8.9% in July, but GDP surprises to the upside.

Intel (INTC) cuts spending ‘near term’ as chip giant sees PC weakness.

Roku (ROKU) slides 25% on earnings miss, sees rough second half ahead.

Report: House Democrats to propose ban on lawmaker stock trading.

Pfizer (PFE) tightens 2022 guidance as COVID franchise outperforms.

Biden administration mulls updated booster rollout in September – NYT.

Petrobras (PBR) to shower shareholders with $17B dividend windfall.

Sunrun (SUN) posts largest one-day gain on climate spending hopes.

Mastercard (MA) Q2 earnings bolstered by robust consumer spending.

Musk says inflation may be easing, Ackman scoffs at Fed at neutral.


Good morning. Happy Thursday. Happy GDP Day.

The Asian/Pacific markets did well. South Korea, India, Australia, New Zealand, Malaysia, Indonesia and the Philippines posted solid gains. Europe, Africa and the Middle East are currently mostly up. Denmark, Poland, Turkey, South Africa, Finland, Norway, Hungary, Italy, Portugal, Sweden and Saudi Arabia are leading while Russia, Spain and Austria are down. Futures in the States point towards a flat open for the cash market, but this can change as the market is still digesting the GPD number.

————— VIDEO: This is a Fantastic Time to Learn Trading —————

The dollar is up. Oil and copper are up. Gold and silver are up. Bonds are down.

Stories/News from Seeking Alpha…


Get ready for a contentious GDP readout that will be the talk of the markets for the rest of the day (and the coming sessions and weeks ahead). The first estimate of gross domestic product for the second-quarter will be reported at 8:30 a.m. ET, with most forecasts ranging anywhere from a 1% increase to a 1% decline. The stakes couldn’t be higher as annualized growth in Q1 already contracted 1.6%, meaning if the U.S. sees another quarter of negative growth it could be in recession. Or is it?

Snapshot: “Recession” has become a charged term in recent weeks, with the phrase being traditionally identified as two consecutive quarters of negative economic growth. While that may be a technical definition (and the one that’s possibly more important to the markets), the official pronouncement boils down to a team of eight economists chosen by the National Bureau of Economic Research. Called the “Business Cycle Dating Committee,” the group has been responsible for identifying recessions, and has set the dates of peaks and troughs of the U.S. economy since 1978.

The funny thing is, that the committee generally waits a while after a recession has begun to officially pronounce it, and on occasion, even after it is already over. In the meantime, inflation is running at more than four times the Fed’s 2% target, while many companies have already frozen hiring and higher borrowing costs are expected to slow investment. Industrial production additionally fell in June, while personal consumption data has triggered a whole host of gloomy forecasts.

Interesting times: Since the end of WWII, a recession has never been declared without a loss of employment (hundreds of thousands of jobs in the U.S. are currently being added every month, while the unemployment rate has fallen to 3.6%, from 4% in January). That has some economists warning of a milder “growth recession,” though the market may be fearful of something bigger. The widely followed 2y10y Treasury yield curve has remained inverted since early July, while the benchmark S&P 500 continues to weave in and out of bear market territory. (6 comments)


In a similar vein to the GDP drama, economists are still haggling over whether the Fed appeared “dovish” or “hawkish” during yesterday’s meeting. The central bank raised the federal funds rate by three quarters of a percentage point for the second month in a row – to a range of 2.25% to 2.5% – but Jay Powell’s vision of an end to the current rate-hiking cycle excited investors and triggered an equity rally during the session. According to the Fed, rates are now “right in the range” of “neutral” (i.e. an interest rate that neither hinders nor fuels economic growth), while Power expressed further doubt that the U.S. was in a recession – given the low unemployment rate and solid job gains.

Mixed messaging: “These rate hikes have been large and they have come quickly, and it’s likely that their full effect has not been felt by the economy. So there’s probably some additional significant tightening in the pipeline… As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how are our accumulative policy adjustments are affecting the economy and inflation.”

“We do see there are two-sided risks: There would be the risk of doing too much – imposing more of a downturn on the economy than was necessary, but the risk of doing too little and leaving the economy with this entrenched inflation – it only raises the costs of dealing with it later to the extent that people start to see it as part of their economic lives on a sustained basis. I don’t think that’s happened yet, but when that starts to happen, it just gets that much harder and the pain will be that much greater… Restoring price stability is just something we have got to do. There isn’t an option to fail.”

Outlook: Over the past few press conferences, Powell was clearer than usual about telegraphing what lay ahead at coming gatherings, though this time around, things were less specific. “While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data we get between now and then,” he said on Wednesday. “It’s time to just go to a meeting-by-meeting basis and to not provide the kind of clear guidance that we had provided.” That could make things more opaque going into the second half of 2022, though it’s not as extreme as the ECB, which last week scrapped forward guidance “of any kind.” (6 comments)

Meta revenue decline

Shares of Meta Platforms (META) fell about 5% AH during a Q2 earnings call on Wednesday as CEO Mark Zuckerberg took the mic. It came after the Facebook-parent posted its first decline in revenue as a public company, on the heels of its first-ever decline in users just three months ago. A full-year forecast also showed that current-quarter revenues would fall somewhere from 6%-14% short of expectations as marketing departments shrink their budgets and Apple’s (AAPL) privacy rules make ads less effective.

Quote: “Engagement trends on Facebook have generally been stronger than we anticipated and strong real growth is continuing to drive engagement across Facebook and Instagram,” Zuckerberg declared. “That said, we seem to have entered an economic downturn that will have a broad impact on the digital advertising business. And it’s always hard to predict how deep or how long these cycles will be, but I’d say that the situation seems worse than it did a quarter ago.”

As a result, the company may look to speed up its transition to the metaverse, with sales and marketing costs climbing 10% Y/Y to $3.6B in Q2. Revenue at Meta’s Reality Labs division rose 48% to $452M during the quarter, but it recorded a loss of $2.8B (and is expected to generate less revenue in Q3). The company also announced some executive news, saying current CFO David Wehner will become the company’s first chief strategy officer – overseeing strategy and corporate development – while Susan Li will be promoted to chief financial officer.

Earnings season: The last Thursday of July is always the busiest date on the earnings calendar and today is no different. A total of 55 constituents of S&P 500 – with a combined market value of $6.8T – are scheduled to post Q2 results. Big Tech will be primarily in the spotlight with highly-anticipated results from Amazon (AMZN) and Apple. (34 comments)

Gas reduction plan

Speaking of a recession, Russia keeps cutting back on its gas supplies to Europe, raising overall economic risks for the continent. The key Nord Stream 1 pipeline is now pumping at only 20% of capacity, according to Gazprom (OTCPK:OGZPY), which cited maintenance problems and turbine issues that haven’t been resolved. The latest announcement will make it harder and costlier for the bloc to fill up storage ahead of the winter, and saw Dutch TTF natural gas futures, a European benchmark, jump as much as 12% to €179/MWhr on Wednesday.

Bigger picture: While Moscow has blamed the supply cuts on servicing delays and sanctions, the EU has accused the Kremlin of energy blackmail and is hastily making backup plans. Each European government is trying to source as much alternative fuel supplies as they can, while working together on a strategy to reduce gas consumption by 15%. The joint proposal opens the door for rationing across the bloc, forcing heavy industry and factories to shut down for certain periods of time. Households and essential services, like hospitals and schools, will remain protected unless the crisis takes a turn for the worse, but targets could become mandatory in case of an emergency.

“Russia is playing a strategic game here,” declared Simone Tagliapietra, senior fellow at economic think tank Bruegel. “Fluctuating already low flows is better than a full cutoff as it manipulates the market and optimizes geopolitical impact.”

Go deeper: The EU’s conservation measures may not be enough if Russia completely cuts off the flows. Europe has made itself super dependent on Russian energy in recent years, building out its natural gas pipeline network to Moscow instead of diversifying via LNG import terminals or beefing up sources like nuclear and coal. The eurozone will also release its latest GDP print tomorrow, which is expected to show that growth is stagnating, while casting a shadow on the second half of the 2022.

Today’s Economic Calendar
8:30 GDP Q2
8:30 Initial Jobless Claims
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
1:00 PM Results of $38B, 7-Year Note Auction
4:30 PM Fed Balance Sheet

What else is happening…

Boeing (BA) returns to positive operating cash flow, lowers 737 targets.

Ford (F) drives higher on big earnings beat, raising dividend by 50%.

Senate passes CHIPS Act, sends bill to House of Representatives.

Manchin reaches deal with Schumer on spending, healthcare and climate.

Teva (TEVA) soars 22% after Q2 update addresses opioid uncertainty.

Qualcomm (QCOM) stays ‘disciplined,’ unveils weak Q4 guidance.

Spirit (SPR) ends merger with Frontier (ULCC), JetBlue (JBLU) nears deal.

Jack Ma gives up control of Ant Group to reduce governance risks.

Teladoc (TDOC) tanks with full-year guidance expected on lower end.

Apple (AAPL) signs Lamborghini exec to accelerate EV efforts – Bloomberg.


Good morning. Happy Wednesday. Happy FOMC Day.

The Asian/Pacific markets were split. China and Hong Kong did well; India and Taiwan were weak. Europe, Africa and the Middle East are split. The UK, Denmark, Russia, South Africa and Norway are up; Poland, Germany, Hungary and Italy are down. Futures in the States point towards a down open for the cash market.

————— VIDEO: This is a Fantastic Time to Learn Trading —————

The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are down.

Stories/News from Seeking Alpha…

Ladies and Gentlemen … the Fed

In a packed Wall Street week, the headlining act arrives. The Federal Reserve releases its decision on interest rates this afternoon with a hike of 75 basis points priced in by the markets. The FOMC seeks to prove to investors that they’re serious about reining in inflation. Traders, though, are likely to home in on cues for when the central bank will pause tightening.

The CPI jumped 9.1% in June from a year ago, its fastest rate in more than 40 years, accelerating from 8.6% in May. And the PPI surged 11.3% in June Y/Y, up from 10.9% in May. In response, traders started pricing in a 100-basis-point rate hike in July, but Fed officials quickly pushed back in their public comments, guiding them back to a 75-bps increase.

The CME FedWatch tool puts a probability of 75.1% on a 75-bps rate hike to 2.25%-2.5% for the July meeting and a 24.9% probability for a 100-bps increase; for September, markets are pricing in a 49.6% probability for a 50-bps hike on top of that and a 42% chance of a 75-bps increase.

Scaling the peak: Debates over the size of the rate hike miss the point, said RSM Chief U.S. economist Joseph Brusuelas on Friday. “The far more important issue is just how far into restrictive terrain central bankers should lift the policy rate, and at what point they will choose to take the central bank’s foot off the monetary brakes and allow the economy space to further absorb the rate shock the Fed has imposed on the economy to restore price stability,” he wrote.

Lifting the rate to 2.25%-2.50% from the current 1.50%-1.75% moves policy restrictive territory, even at the risk of a slower economy, Brusuelas said. RSM sees the Fed continuing to raise rates until it reaches 3.25%-3.5% before it pauses to assess its impact on growth, inflation and employment, he added.

“Another three-quarter percentage point rate hike will take the benchmark fed funds rate back to where it was in July 2019, at the peak of the last cycle,” Bankrate Chief Financial Analyst Greg McBride said. “But with inflation running north of 9%, we’re not at the finish line and there will be more interest rate increases to come in the months ahead.”

Morgan Stanley economists led by Ellen Zentner expect the fed funds rate to peak at 3.625% in December 2022, with the Fed taking the first steps toward normalizing the rate by the end of 2023.

What stocks say: Morgan Stanley strategist Mike Wilson says equity markets may already be pricing in a pause in the Fed’s rate hikes. In the last four economic cycles, the Fed paused its tightening well before the recession arrived, and the period between the pause and the economic downturn was “good for stocks, often VERY good,” he wrote in a note on Monday. “The problem this time is that the pause is likely to come too late.” Wilson still sees the Fed continuing to raise rates to fight stubbornly high inflation. “The battle on inflation should have begun a year ago, not now when demand destruction is already well developed and likely to take care of inflation on its own.”

J.P. Morgan equity strategists headed by Mislav Matejka, meanwhile, see the growth-policy tradeoff, which worsened from both sides in the first half of 2022, as “likely to improve as we move through 2H.” With challenged activity momentum and softer labor markets, “the reset in activity is what many want to see.”

“Crucially, this could open the doors to a more balanced Fed, and is driving a rollover in bond yields, potentially peaking USD and a leveling off in inflation,” Metejka said. This could be a case of “bad data is starting to be seen as good,” he added. The broad pullback in commodity prices “should be interpreted not only as a traditional indicator of softer demand, but also as bringing the relief in inflation pressures.” (11 comments)

Rock of Microsoft

Microsoft stock (MSFT) rebounded in extended-hours trading following surprisingly upbeat guidance after a Q4 miss. On its earnings call, the company said it expected double-digit growth in sales and operating income in fiscal 2023, with margins roughly flat. That sticks to its previous guidance, an encouraging sign given the concerns of a looming recession.

“MSFT bullish guidance for FY23 will be heard around the world and Street,” Wedbush analyst Dan Ives tweeted. “Rock of Gibraltar in an economic storm. Cloud and enterprise growth forecast key.” (37 comments)

Alphabet earnings

Alphabet (GOOG) (GOOGL) rose following its Q2 earnings near-miss, even as the company used its earnings call outlook to warn of ongoing tough comparisons, more currency challenges from the strong dollar and some brand spending slowdown ahead.

In the call, CFO Ruth Porat pointed to challenging Q2 comparisons and said “going forward the very strong revenue performance last year continues to create tough comps that will weigh on year-on-year growth rates of advertising revenues for the remainder of the year.” (17 comments)

Twitter vote

Twitter (TWTR) has set a shareholder vote on the Musk deal for a meeting Sept. 13, at 1 p.m. ET. The company also said that it’s spent $33.1M in transaction expenses tied to its arranged acquisition by billionaire Elon Musk. (10 comments)

PayPal stake

PayPal (PYPL) jumped after reports that activist investor Elliott Management is building a stake in the payments company.

The size of the stake wasn’t immediately known, according to a WSJ report. Elliott has taken the stake to try to speed up the company’s cost-cutting efforts, according to a Bloomberg report. The activist may become one of the fintech company’s five largest investors. (9 comments)

Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Durable Goods
8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
10:00 Pending Home Sales
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:30 Results of $24B, 2-Year FRN Auction
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference

What else is happening…

Credit Suisse Group AG (CS) reports Q2 results, announces CEO transition.

Feds may need $7B to adequately respond to monkeypox outbreak.

Exxon (XOM) makes two more oil discoveries offshore Guyana.

Yield curve inversion reaches point last seen in 2006.

Enphase Energy (ENPH) shines after posting big Q2 beat, upside Q3 guidance.

CrowdStrike (CRWD) said to target $2B acquisition of Israeli company.

Teva Pharmaceutical (TEVA) climbs 14% on top and bottom line beat; revises 2022 outlook.

GE’s (GE) strength in aerospace sparks Q2 beat.


Good morning. Happy Tuesday.

The Asian/Pacific markets were split. China and Hong Kong did well; India and Taiwan were weak. Europe, Africa and the Middle East are split. The UK, Denmark, Russia, South Africa and Norway are up; Poland, Germany, Hungary and Italy are down. Futures in the States point towards a down open for the cash market.

————— BLOG: Stan Weinstein’s Stage Analysis —————

The dollar is up. Oil and copper are up. Gold and silver are down. Bonds are up.

Stories/News from Seeking Alpha…

Walmart makes waves

Retail stocks are under pressure premarket Tuesday after Walmart (WMT) laid out a dismal consumer landscape when it preannounced results late yesterday. The retail giant cut its Q2 and full-year profit outlook, noting that while it is attracting customers, their spending is eaten up by higher food and gas prices. That’s forcing markdowns in other items like apparel, hitting Walmart’s margins.

“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars,” CEO Doug McMillon said. “We’re now anticipating more pressure on general merchandise in the back half.”

Walmart is down 10% before the bell. Major retailers followed, with Target (TGT) down 5% and Amazon (AMZN) off 4%. Grocery stocks like Kroger (KR), down 3%, are also under pressure after Walmart specifically cited high food prices. To put the move into perspective, while today would be the second time this year WMT has gapped down 7% or more at market open, that has only happened 10 times since 1985, according to Bespoke Investment Group.

Macro or micro? Investors will have to gauge whether this is a nationwide problem of persistent inflation or more of a company problem.

Walmart framed its numbers as a broader problem of higher prices for essentials hitting other categories (indeed its same-store sales will be above consensus at 6%). But it also echoes the inventory mix issues that Target warned about at the start of June.

The guidance is “not a comp problem with 6% (same-store sales) and reiteration for F/Y BUT a mix issue with higher sales of lower margin food/consumables. Not a surprise but they are not alone,” Stephanie Link, strategist at Hightower, tweeted.

Gas prices are actually down since the last time WMT gave financial guidance, so it may be a case of the retailer using the macro backdrop as an excuse for getting caught flat-footed on its clothing inventory. But if it is a symptom of crumbling U.S. consumer, how will that affect Fed thinking as the FOMC starts its two-day meeting?

Fed factor: Walmart’s warning will give the Fed pause, but will it prompt the Fed to pause?

Recent weak economic indicators have already raised some problems for the FOMC’s very hawkish path. But it can also be argued that deflation on non-essentials like Walmart is seeing is exactly what the central bank wants and will only galvanize it to keep hiking sharply.

“The Federal Reserve is in a tough spot, as inflation is still raging and the economic backdrop has dramatically deteriorated since its last meeting in mid-June,” Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence, said. “All signs point to an economy in recession.”

The consensus is still for a hike of 75 basis points tomorrow, but that has come down since yesterday with odds of a full-point hike edging up to 27%. That could indicate bets that the Fed will surprise with a mega-hike and then look to pause quickly.

Some of the recent rally “may be the equity market looking forward to the Fed’s eventual attempt to save the cycle from recession and with time running short on that front, that opportunity is now or never,” Morgan Stanley’s Mike Wilson wrote.

“Part of the reason is the fact that they are having their desired effect on demand and so it seems quite plausible inflation could look considerably lower in 6 months time,” he said, but he also predicts the Fed will pause too late. But 100 basis points would “shock the markets,” Booth said. “Bond sales have collapsed in recent weeks, amid signs of stress emerging in the U.S. corporate debt market, and a 100-basis point rate hike would risk further depleting liquidity from the issuance market.”

“The continuation of quantitative tightening, which only began last month, remains a clear and present danger to markets,” she added. “The Fed’s last foray into quantitative tightening in 2018 greatly disrupted markets and this current foray is of a much greater magnitude.” (1 comment)

Insider Trading

The U.S. Securities and Exchange Commission charged 10 individuals with insider trading, including a former congressman and a former FBI trainee.

Stephen Buyer, a retired congressman from Indiana who formed a consulting firm, was accused of making at least $334K in profits using information he received from clients of the Steve Buyer Group. (41 comments)

Cannabis hearing

Five witnesses are scheduled to testify at a Senate Committee on the Judiciary subcommittee hearing on cannabis legalization Tuesday afternoon.

Among them are a city police chief; an individual convicted of marijuana and firearms charges who was later released from prison and received a presidential pardon; and a former New York Times reporter who authored a book that claims there is a link between cannabis use and psychosis and violence. (45 comments)

Newmont dividend

Newmont (NEM) closed at its lowest level since April 2020 on Monday after missing Q2 earnings estimates and issuing disappointing H2 guidance, which Andrew Bary at Barron’s said could raise concerns about the security of its dividend.

Newmont (NEM) pays an annual base dividend of $1/share, which it says is sustainable down to a gold price of $1,200/oz, and has paid an incremental annual dividend of $1.20/share since the start of 2021, for a total payout of $2.20/share. (36 comments)

F5 Jumps

F5 (FFIV) rallied following its fiscal third-quarter earnings beat, where it posted particularly strong non-GAAP profits and grew revenues by 4% as well as issued upbeat guidance. Revenues hit $674M, and product revenues grew 5% (including 38% growth in software revenues). (1 comment)

Today’s Economic Calendar
FOMC meeting begins
9:00 S&P Corelogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:00 Consumer Confidence
10:00 New Home Sales
10:00 Richmond Fed Mfg.
1:00 PM Results of $46B, 5-Year Note Auction
1:00 PM Money Supply

What else is happening…

Alibaba (BABA) plans primary listing on Hong Kong Stock Exchange.

Logitech (LOGI) misses on earnings, lowers FY23 guidance, increases buyback.

Universal Health (UHS) down despite Q2 beat as COVID impact will remain.

AGNC (AGNC) stock slides after book value declines in Q2 on agency MBS weakness.

House lawmakers said to delay bipartisan stablecoin bill until September.

Boeing (BA) hit with proposed FAA safety directive over fuel tanks on some 777s.


Good morning. Happy Monday. Hope you had a good weekend.

The Asian/Pacific markets closed mostly down. Japan, China, Hong Kong, New Zealand, Indonesia and the Philippines posted losses. Europe, Africa and the Middle East are split. Turkey, Spain, Italy, Portugal and Austria are up; the UAE Norway, Hungary and Saudi Arabia are down. Futures in the States point towards a positive open for the cash market.

————— BLOG: Stan Weinstein’s Stage Analysis —————

The dollar is down. Oil and copper are up. Gold and silver are down. Bonds are down.

Stories/News from Seeking Alpha…

Earnings on rush

In arguably the most important week for Wall Street this summer, with the Fed decision and GDP on tap, earnings could actually end up determining direction. There are 175 S&P 500 (SP500) (SPY) companies set to report Q2 results, including 12 Dow (DJI) (DIA) components. Big names on this week’s calendar include McDonald’s (MCD), ExxonMobil (XOM), Ford (F) and the rest of the megacaps: Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Meta (META) and Alphabet (GOOG) (GOOGL). To date, results have been below par. Of the 21% of S&P companies reporting, 68% have topped expectations. That’s below the five-year average of 77%, according to FactSet. The average beat of 3.6% is shy of the 8.8% average. The earnings growth rate of 4.8% is improving, but would be the lowest since Q4 2020. The 65% of companies beating on the top line is below the average of 69%. Still, the S&P is up 7% since the reporting period started and Citi says results are showing “resilience” that will push the broader market higher in the second half of the year.

Where to look: It is important to dig into earnings on a sector level and take into account the concentration of profits in the big names. So far, positive surprises “have been the norm in most sectors,” Citi strategist Scott Chronert wrote in a note.

Investors “need to look more deeply at sector contributions to index earnings to better understand how recession risk may play into the earnings picture,” Chronert said. “In addition, it is critical to recognize concentration in the largest earnings contributors when assessing index earnings.”

“The top 20 stocks by earnings contribution are expected to determine 35% of Q2 index earnings, while the top 50 comprise 53% of index earnings. The early takeaway is that earnings surprises are running stronger for the top 100 earnings contributors than the ‘bottom 400’. Interestingly, per this data, the earnings concentration among the top 100 stocks is over twice that of the next 400.”

Outlook: Citi says earnings expectations for 2023 look optimistic, but “there may be more earnings resilience in a mild recession scenario than commonly expected” and while “earnings cuts are widely expected, they need to be weighed relative to the valuation compression which has already occurred.”

“In looking at the past week’s action in response to early earnings reports, we point out that expectations have likely soured to the point where ‘less bad than feared’ results can trigger a positive market response,” Chronert said.

MKM strategist Michael Darda says equities can avoid a second leg down this year, even if there is an impending earnings collapse. “In other words, we could have two bear markets (the first half of 2022 and again sometime in 2023 if there’s a recession next year) with a large unanticipated bull market in between,” Darda said. “There is also the possibility that the bear market already happened and even if there is a relatively mild recession this year or next year, equity markets will be supported by lower discount rates and the anticipation of an (eventual) recovery.” (2 comments)

Monkeypox global emergency

The World Health Organization (WHO) designated the current monkeypox outbreak a public health emergency of international concern (PHEIC) on Saturday. PHEIC designation is WHO’s highest level of warning, previously issued for the COVID-19 pandemic and Ebola. The decision follows a meeting of the WHO’s Emergency Committee on Thursday in which the advisors could not reach a consensus.

However, the Director-General of the WHO, Tedros Adhanom Ghebreyesus, overruled the committee on Saturday to add PHEIC designation to the current outbreak, which has caused over 16,000 cases across 75 countries, so far.

“Under the International Health Regulations, I am required to consider five elements in deciding whether an outbreak constitutes a public health emergency of international concern,” Tedros noted. (102 comments)

Boeing strike

Nearly 2,500 members of a union that represents three Boeing (BA) defense plants in the St. Louis area voted Sunday to reject the company’s contract offer and plan to strike starting August 1.

Workers at the three plants in Missouri and Mascoutah, Illinois, build military aircraft including the F-15, F-18, T-7A trainer and MQ-25 unmanned refueler. The International Association of Machinists and Aerospace Workers District 837 union said the company previously took away its members’ pensions and is not fairly compensating their 401(k) plans. (20 comments)

Watch this space

High-end watch prices continue to plummet, making for another possible bad sign for luxury retailers like LVMH (OTCPK:LVMHF), Richemont (OTCPK:CFRHF) and more that either directly sell flashy watches themselves or rely upon high-end consumers willing to splash out on statement-making jewelry.

But even as watch prices fall, a recent Bank of America study found that overall European luxury spending rebounded 11% in May and June, reversing losses in the months prior. In fact, the bank cited luxury and beauty segments as the only two sectors within online retail that saw a reacceleration to start the summer. (4 comments)

Streaming surge

Streaming video surged to still another record share of television usage in the past month, maintaining a trend where it’s set to soon become the top use of consumers’ TV time.

Streaming usage took more than a third of TV usage in June, its latest record share according to “The Gauge” from Nielsen, the ratings giant’s monthly macro look at TV delivery platforms. Streaming captured 33.7% of total TV consumption, and other formats hit their smallest shares yet: Cable fell, but still leads at 35.1%, and broadcast dipped to 22.4%. The share of “Other” usage (heavily videogaming) bounced back to 8.8% share of TV time. (62 comments)

Today’s Economic Calendar
8:30 Chicago Fed National Activity Index
10:30 Dallas Fed Manufacturing Survey
1:00 PM Results of $45B, 2-Year Note Auction

What else is happening…

Bavarian Nordic (OTCPK:BVNKF, OTCPK:BVNRY) monkeypox vaccine Imvanex gets approval in EU.

China Evergrande (OTCPK:EGRNF, OTCPK:EGRNY) CEO and CFO resign after probe into diverted loans.

U.S. housing affordability poised to fall to lowest since GFC on soaring prices, rates.

Apple’s (AAPL) rise to $3T called ‘cheaper than a cup of coffee’.

Pfizer (PFE), Moderna (MRNA) to see sales decline for COVID shots before recovery.

Credit Suisse reevaluates fintech/payment stocks for dimmer macro outlook.

Energy stocks begin to bounce even with lethargic crude prices.


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