Things you need to know.
**I will be travelling next week in Europe – speaking at the Forbes Investor Summit – I will try to post each day…. along with making the daily video from a different European locale….…. If I miss a day or two – don’t stress…. I’ll be back! **
– AMZN reports better – they take it up and then down – concern over cloud.
– Weaker GDP with stubborn inflation suggests – stagflation….
– Eco data today will give further insight.
– XOM & CVX are the ones to watch this morning.
– Try the Eggs in Purgatory
So while MSFT and GOOG failed to ignite the markets on Wednesday, META did not hold back on Thursday……Now remember on Wednesday after the bell, Marky Z – reported that META earned $2.20/sh vs. the $2.00/sh estimate – advertising revenues rose by 4.1% y/y, ($28.1 bil), Ad impressions up 26% and their ‘family of apps’ (Instagram, What’s app…) revenue also rose by 4% ($26.88 bil). He explained how AI technology has propelled IG Reels to the top of the leader board and that time spent by users on IG rose by 24%.
Facebook daily active users (DAU) rose by 4.1% to 2.04 billion people, Monthly active users (MAU) rose by 1.7% to 2.99 billion people, Reality labs (metaverse) revenue fell by 51% y/y, ($339 mil) resulting in a $3.99 billion loss and ‘other revenue’ fell by 4.7% y/y (205 mil) …. He went on to say that META was well positioned in the current AI race and that ‘generative AI was going to impact every single one of our apps and services” – and all that caused investors/trader and algo’s to celebrate – taking META up 14% and that set the tone for the day….it was all about the excitement and all about how he said the words ‘artificial intelligence – AI) 22 times in 11 minutes and then he emphasized it 5 more times in the Q&A…. In any event – the good news out META helped to send the Nasdaq higher by 2.4%. Yesterday’s action has now taken META up 74% ytd – helping it recover from the 65% beating it took in 2022.
OK – enough about META…..but I’ll say one more thing….while the report was good, my sense is that the move suggests that there was a large number of short bets and/or a number of ‘tech’ funds were underweight the company and so when he reported ‘better than expected’ eps….it set the place on fire…..Algo’s went into overdrive forcing the others to ‘go along’…. Now, META follows the strong numbers we heard from MSFT and GOOG and what was expected to be strong numbers from AMZN last night.
In fact – AMZN did report and they ‘killed it’ too….36 cts/sh vs the expectation of 21 cts/sh….a 71% increase….net sales rose 9% to 127.4 billion, North American sales rose 11%, International sales rose 1% (or 9% if you exclude changes in exchange rates)….Operating Income came in at $4.8 bil, vs. 3.7 bil y/y. I could go on, but you get it…initially they took the stock up 12% in the moments after the report, but then turned lower as investor supposedly are concerned about slowing growth in the cloud (it only grew by 16%) …. Whatever!
Yesterday I discussed this with Charles Payne on Making Money and said I would not be surprised to see the stock ‘back off’ on the report – partly because they have taken up 34% ytd and 8% since the start of earnings season…..So, it would make some sense that the trader types would ring the cash register….Here – I did not see the shorts get ‘scared into covering’ nor do I think the major funds are ‘underweight’ AMZN….It’s a different stock than META. You can find my appearance with Charles in the link below.
https://video.foxbusiness.com/v/6326336000112
In any event – stocks closed higher…. the Dow gained 525 pts or 1.6%, the S&P added 80 pts or 2%, Nasdaq rose 290 pts or 2.4%, the Russell took back 20 pts or 1.2% while the Transports added 355 pts or 2.6%…
So far – we are 2 weeks into earnings season….235 companies have reported and 80% of them have beaten the (lowered) estimates…..if we stay the course – then it appears that earnings will only fall by 4.2% vs. the better than 6% estimate months ago……but remember – we are working off of a much weaker starting point….analysts slashed and burned the original estimates – cutting them by about 12% across the board…..but, like food – it’s all in the presentation…..if it looks good, most likely it is sure to taste good. Reported earnings are up 8% on average over the estimates….(for those that reported a beat) and that has helped to mute any selloff……But we still have 2 weeks to go and while revenues are up, profit margins are under pressure….and in the end – that is what will cause investors to re-think prices and multiples.
Now, once again – it was those sectors that were up the most and then got hit the most to benefit from the move yesterday…..so TECH, Communications, Consumer Discretionary, were all substantially higher….+2.1%, 5.8% and 2.6% respectively – coincidentally – those are the 3 sectors leading the markets higher this year…..up 20%, 24% and 14% respectively. Industrials gained 2% leaving them unchanged on the year, while Utilities remained lower by 2%, Financials -4.1%, Staples up 3%, Energy -4%, Healthcare -2.5%, Basic Materials +2.5% and Real Estate +1% ytd.
Housing stocks up 15%, Airlines +3.5%, Disruptive Tech up 14%, The value trade up 5.6% while Growth is ahead by 10%. Semi’s up 20%, AI up 22%, Cybersecurity up 3.5%, Coal Stocks down 10%, Metals & Miners flat, Biotech -5%, Aerospace and Defense up 1.5%
Now – away from all of this…yesterday we got 1st Q GDP, and it came in weaker than expected at 1.1% vs. the expected 1.9%. In addition, the Core PCE came in at 4.9% which was above last month’s 4.4% and above the elevated expectation of 4.7% – so what that suggests is building stagflation…. weaker growth/higher inflation…. But the inflation news does support what the market expects…. rates will rise by 25 bps next week and may rise again in June. We also got weaker numbers in Pending Home Sales -5.2% vs. the expected +0.8% m/m and down 23.3% y/y- Mortgage rates are now pushing 6.6% up from 6.4%…….and things are not ‘ok’ in Kansas City….the KC FED Manufacturing survey was down 10 vs the down 2 expectation…..YET – inflation remains an issue…..Capisce?
Bond yields rose in response to all of this….clearly more worried about persistent inflation……the 10 yr. yielding 3.57% up from 3.4%, the 2 yr. yielding 4.09% up from 3.75%, the 3 & 6 month yields are now 5.18% and 5.07%.- Not bad for short term money that is completely guaranteed against loss….at a time when investors angst remains elevated….
Oil tested lower overnight trading down to $73.95 but is now trading at $74.40. The Iranians seized a Chevron tanker in the Gulf of Oman yesterday apparently ‘just because’, Supertanker oil flows to China are on the RISE, EIA information earlier this week reported a drop in inventories (more than expected) and those 2 points suggest demand is alive and well. The Iranian thing – that’s just Iran begging for attention….
Gold fell and this morning is trading down $7 at $1,992 – this as interest rates are clearly expected to move higher and bond yields confirm the fact….remember higher rates will force the dollar index higher and that is what we see….the DXY is now trading at 102 – up from 100.50 last week and that has kept the lid on the commodity complex….. think – oil and gold. I still like gold and think it has a $2100 price tag on it by year end.
Eco data today includes Personal Income and Personal Spending of +0.2% and-0.1%. the PCE deflation m/m of +0.1% and y/y of +4.1%. Core PCE of +0.3% m/m and +4.6% y/y. We will also get the U of Mich 1 yr. inflation report expectation of 4.6%.
And it’s more earnings…. XOM, CVX, NWL, CL SAIA, before the bell…. XOM & CVX are clearly the ones to watch here – speaks to energy!
US futures are all down…. Dow -100, S&P’s -15, the Nasdaq -41 and the Russell is down 11 pts.
European markets are all lower as well. Italy off 1.3% while Germany is down 0.3%. The story in Europe is about earnings…. And how the ECB is expected to continue down the path of higher rates.
The S&P closed at 4135 up 80 pts…. For all the reasons I outlined above….it is Friday- my sense is that the markets will churn today IF the PCE core number is not WORSE than expected. Even if it’s a bit better (which I don’t expect) do not run with the idea that the FED will pause…. they aren’t pausing right now…. Don’t kid yourself.
Remember – stay the course….be patient…. keep putting money away into your account – maybe just holding it in cash until it settles down. Now while the market surged yesterday….it feels tried to me…. toppy here…. but we remain in the 4000/4200 trading range.
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kace Capital Advisors.”
Eggs in Purgatory
Considering the purgatory that we are stuck in……time for a Sicilian classic.
This is a dish that keeps making the rounds…but makes sense as investors and traders continue to feel like we are being held in this ‘netherworld’…. Enjoy.
Fresh marinara sauce – basic….olive oil, onions, garlic, plum tomatoes, fresh basil, s&p and a pinch of sugar…Sauté the garlic and then add the chopped/diced onions….cook for 15 mins or so…now add the crushed plum tomatoes, season with s&p, fresh basil and a pinch of sugar – bring to a boil and then turn down to simmer….cover and let simmer for 30 mins or so…..This is just a very basic marinara – I also add grated carrots and celery – but you can do as you wish….
Now you need a loaf of fresh Italian bread and Eggs.
After you make the Marinara sauce – transfer some into a shallow frying pan…. turn heat to med and now crack open some eggs……drop them in the sauce – whole – as if you are poaching…. with a spoon – move the sauce over the eggs so that they cook – do NOT let the yolk get hard…you want the whites to cook and the yolk to remain soft…….transfer to a plate, cover with more marinara and serve with the fresh bread…. Go on…just try it!
Enjoy!
