Things you need to know
- They accentuated the negatives!
- Markets closed lower, despite strong earnings.
- Oil UP, Yields UP, VIX UP
- INTC absolutely crushes it – stock up 28%
- Next week is just as HOT – Strap in
- Try the Sicilian Linguine and Clams (a nod to my grandmother)
Remember what I told you yesterday morning when futures were weak –
“Now be careful – the tone was negative, so there’s no need to rush – let the news hit the tape and settle in…”
OK – so what actually happened? Because the headlines say “stocks closed lower” — but that misses the point. We came into the session sitting on all-time highs in the S&P and Nasdaq — riding a wave of ceasefire optimism and strong earnings momentum. And then Thursday happened and market participants accentuated the negatives and eliminated the positives and down we went.
Now – do not misunderstand – it was not a crash. Not panic. Buyers didn’t disappear — they just got more selective…more cautious. And when you’re sitting at all-time highs? That’s all it takes.
We got a slew of earnings reports — most of them beat — in fact we’re running at an 80% beat rate. Not bad. But instead of focusing on the positives, they focused on anything that suggests caution, weakness, vulnerability and that caused hesitation…. And that subtle shift? That’s what pressured stocks.
By the close, every major index was in the red – off of the intra-day lows but still RED. The Dow gave back 180 pts, the S&P lost 30 pts, the Nasdaq down 220 pts, the Russell, which had been green for most of the morning, faded into the close – losing 10 pts, the Transports lost a whopping 835 pts or 3.8%, the Equal Weight S&P ended down 5 pts or less than 0.1% but not before losing more than 1% by mid-day. The Mag 7 rounded it out – losing 540 pts or 1.6%.
So again – you ask What happened? Really? Three things. Iran. Oil. And a brutal lesson in what traders and algo’s do to companies that beat but don’t raise OR beat and raise BUT offer cautious guidance.
Here’s a list of the negatives –
Iran’s parliament speaker Ghalibaf resigned from the U.S. negotiating team – midday headline, instant oil spike! WTI crude ripped toward $97 intraday before settling around $95-96 – this morning it is up $1.50 or another 1.6% at $97.35 (and that is not going to be helpful). — Brent is up 1.8% this morning trading at $107 now up 24% in one week. (again, not helpful!)
IBM – 8.3%, ServiceNow – 17.6%, and Salesforce – 8.7% all sold off hard — not on bad quarters, but on what comes next – think forward guidance.
Tesla beat on EPS, came in roughly in line on revenue — stock fell 3.5% on $25B+ CapEx guidance (much bigger than expected) and a negative free cash flow outlook for the rest of the year.
American Airlines posted a Q1 beat — then SLASHED & BURNED full-year guidance and reminded everyone what $4 billion in extra fuel costs looks like. The stock only lost 2.4% – which should be viewed as a ‘win’ considering what could have happened.
Meta announced a 10% workforce cut – that’s 8,000 jobs AND they cut the 6000 new jobs they were going to fill – all in the name of “efficiency.” Look – Zuck said it himself in January – “We’re starting to see projects that used to require big teams now be accomplished by a SINGLE very talented person.”
Microsoft – 4% offered its first-ever voluntary buyout offer for senior directors — in 51 years, never done this before. And Meta cutting 10% of its workforce the same day is not a coincidence.
So, what’s really going on here? Is this the AI day of reckoning everyone’s been warning about — or is it just Big Tech finally cutting the fat from the pandemic hiring binge? Honestly, it’s probably both. These companies went on an absolute hiring frenzy (paying stupid money to hire ‘talent’) in 2020 and 2021 and have been working off that excess ever since. But don’t kid yourself — when GitHub Copilot is generating nearly half the code for its users and AI is handling work that used to require entire teams of senior engineers, that changes the staffing math permanently. The over hiring gave them cover to start cutting and now AI gives them the reason to keep cutting.
Then we have what’s happening in the bond market – The 2 yr rose 4 bps to end the day at 3.93%, the 10-yr ticked up 2 bps to end the day at 4.323% while the 30 yr rose 1 bps to end the day at 4.91%. To be clear – the 2-yr yield is up 4.5%, the 10 yr is up 3% and the 30 yr is up 1.1% – all in one week. So, what does that mean? No Fed cuts in sight……and the market knows it.
Is that enough? Cause if I dig, I can give you more! I mean, I didn’t even mention sticky inflation or rising raw material prices. Now, if you were in the camp that was expecting the volatility to subside – find a new camp…. Not happening – at least not yet. Which – btw – does not mean it’s a disaster, it just means get used to volatility (because volatility creates opportunity) and have a plan.
OK -can we focus on the positives? S&P Manufacturing and Services PMI’s surprised on the upside – moving further into the expansion zone – that’s a positive. Earlier in the week – we had very strong Retail Sales, we have Pending Home Sales that surprised to the upside, and yesterday – the Kansas City Fed Manufacturing Index came in at a strong 10 – suggesting that the heartland is strong. And the future expectations only amplified the strength – going from 16 to 18 – all that is positive.
But none of this matters when all they want to do is discuss the negatives….
Now last night INTC reported and guess what? They CRUSHED IT! Now let’s be clear — two years ago Intel was left for dead. Losing share, bleeding cash, written off by the Street. Lip-Bu Tan came in, tore it apart, said “trust the process” …and last night? The process delivered.
1Q revenue $13.6B vs. $12.3B — big beat. EPS $0.29 vs. basically zero. Data Center/AI +22%. Margins were expected to be 34.5% and they came in at 41% – that is an enormous beat. And this makes six straight quarters of beats.
But here’s what lit the fire – the forward guidance that is all about huge demand for processors used in AI. And the stock? Exploded in the after-hours trading…printing at new all-time highs. This morning – INTC is up 28.5% or $19 at $85.80.
And here’s the kicker – remember the US gov’ts support tied to domestic chip manufacturing? That investment – $11.1 billion ($2.2 in CHIPS grants and $8.9 in equity) – is now worth $38 billion. Who had THAT in their bingo card in January?
This morning that report is having a ripple effect across the sector – MRVL +3.5%, AMD +7.8%, ARM +7.1%, – and the semi’s etf – SOXX is up 28% in April alone an up 48% ytd. Can it get any better?
But this morning – markets continue to struggle…futures are mixed…..Dow – 150 pts, the S&P’s are up 3, Nasdaq is up 182 (thank you INTC) while the Russell is down 6.
It is Friday – it was an exciting week – but next week is setting up to be just as exciting…. We got a lot going on…. so, strap in.
Tuesday is KEY…. Four of the world’s largest companies report after the close — the same day as the FOMC rate decision. MSFT, GOOG, META, and AMZN all deliver results after the close, meaning traders process the Fed’s decision before the earnings hit. The shared narrative across all four will be – AI capital expenditure and whether it’s producing commensurate revenue growth. Period. AAPL reports on Wednesday.
Now to be clear – the FOMC decision should be a non-event – no cut, no raise, but as usual – everyone will listen to what JJ says….and I do not expect him to say anything we don’t already know….The FED remains ‘data dependent’ – at least until Kevy takes over.
Look for more reports from GM, V, KO, UPS, PFE, HON, MA, LLY, MRK, CAT, XOM, CVX, BRK, AMGN.
And don’t forget the March PCE Price Index on Thursday – that is the FED’s favored inflation gauge, and it is expected to be UP…which should surprise absolutely NO ONE. There’s more eco data – but that can wait til next week.
The S&P closed at 7,108 down 30 pts – only after we tested a low of 7,046. My sense is that anything tech will be busy today – other sectors not so much…Investors are going to be patient – traders and algo’s will continue to take advantage of the anxiety. Trendline support is officially down at 6,840 – a level we could test IF the earnings next week disappoint…. which is always interesting – because the definition of disappointment depends on who you are and what your time frame is. I am not expecting to be disappointed, are you?
Call me at 561-931-0190 and let’s talk about how SlateStone Wealth can help you navigate all of this and reach your goals.
Take good care,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Sicilian Linguine and Clam Sauce.
This is in honor of my Sicilian Grandmother – see below
Sicily – the largest island in the Mediterranean Sea – located off the tip of the boot – and along with some smaller islands makes up an autonomous region of Italy….otherwise known as the Regione Autonoma Siciliana……It is rich in history culture, food, art, music & architecture…..Many of the recipes make use of fish – so today we are featuring this classic Sicilian Style Linguine and Clam Sauce….This is just a spectacular dish – not your usual linguine and clam sauce…. Try it – won’t you?
For this you will need: 2 doz clams, plus a container of minced clams, olive oil, chorizo, garlic, shallots, white wine, clam juice, Linguine, Parmegiana Cheese, breadcrumbs and butter.
Take ½ of a chorizo sausage and remove the skin…then dice – add to the pot. Next dice two shallots – add to pot. Third – 3 cloves of garlic – smashed them with the side of the knife and then give them a rough chop – add to pot.
Now add a bit of olive oil – like twice around the pot. Heat on med heat and sauté for about 4 – 5 mins…careful not to burn. Now add some white wine – I just pour it in…but I am thinking like no more than two cups (but it depends on how much you are making) …. – bring to a boil…. Now add the bottle of clam juice and the 2 doz clams and the container of minced clams. Turn heat to low and allow the clams to open – remembering to discard any clam that does not open on its own.
While this is simmering – in a frying pan – add a dollop of butter and some Italian seasoned breadcrumbs – turn heat up to med high and turn the breadcrumbs and allow them to toast – they will get crunchy – be careful not to burn. Set it aside.
Add the linguine to the pot of water of boiling, salted water and cook until aldente – maybe 8 mins. Strain – always reserve a mugful of pasta water always. Return the pasta to the pot and add back a bit of the pasta water to re-moisten…. Now add the clam sauce – mix well – add 2 handfuls of Parmegiana cheese – mix again. Serve in warmed bowls adorning each portion with 3 or 4 clams still in the shell along with half a ladle of the clam sauce.
Now top with a spoonful of the toasted breadcrumbs and serve. Have extra cheese on the table for your guests. Serve with a chilled white – I prefer Pinot Grigio with this meal as you do not want to overwhelm the food….
Buon Appetito