Things you need to know 

• Stocks march higher….GDP is negative but no recession in sight
• Yields are still inverted – isn’t that an issue?
• Earnings continue to drive the action…..AMZN and AAPL do NOT disappoint
• Try the Apple Pie (and Ice Cream)

 
Stocks close higher – extending gains that we’ve seen this month leaving many to ask – did I miss it?

Dow up 332 pts or 1%, S&P’s up 48 pts or 1.2%, the Nasdaq up 130 pts or 1.1%, the Russell gained 25 pts or 1.3% while the Transports rocketed higher by 430 pts or 3.1%

Stocks continued to march higher on Thursday, even as the macro data continued to raise the RED flag…..2^nd Qtr. GDP came in at -0.9% – a bit better than what the Atlanta Fed thought (-1.2%)  but well below what the cast of characters (otherwise known as Wall Street ‘paparazzi’)  told us it was going to be…consensus among the ‘paparazzi’ was calling for a increase of 0.3% – offsetting the negative print from the 1st qtr. – which hit the tape at -1.6%.  But alas, that was not in the cards…. the 2^nd qtr. hit the tape and it is a negative print – now I understand – it will be revised 2 more times – and so could it go positive?  Of course – and it will go positive faster if they can change the definition of the answer to 1+1.  I know it as 2 but – maybe it is something else, maybe I’ve been wrong all of the years – who knows.

Personal Consumption also came in weaker at 1% – down from 1.8% which is down from 6.1% in July 2021 – just a year ago….…. clearly the data point is going in the wrong direction…but hey, that’s not important.  Initial jobless claims rose just a bit coming in at +256k while Continuing Claims were a bit weaker.

Stocks are now at 7-week highs….and who led the way higher yesterday? 

Utilities!  The most ‘defensive’ sector of the 11 major ‘food’ groups (so what does that tell you?)  …. the XLU rose by 3.6% – names in that ETF include NextEra Energy +5.2%, Duke Energy +3.6%, Southern Co’s +3.5%, Dominion Energy +2.6%, Sempra Energy +2.24%, Exelon +4%, Con Ed +2.9% – all names that have a 2+% dividend yield.  Next up – the Real Estate Sector – up 3.6% as well…names in that group include AMT +4.1%, Prologis +4%, Crown Castle Int’l + 4.5%, PSA +3% etc.…and those too are nice divvy payers. Are you seeing anything in common?

Communication – XLC was the only sector that ended the day in the red – not big but lower due to 2 members – META (Formerly FB) – down 5.22% – we know the drill there and then is CMCSA – 9% – it’s biggest drop in 13 yrs.… Revenues were up, 5% but EPS were down 5% – coming in at 0.76/cts. vs. the expected 0.80 cts.  They did return $4.2 billion to shareholders via stock repurchase and dividends but none of that mattered – the decline due to the direct result of adding NO NEW customers in the last quarter.  That’s right – apparently the number was zero – but I guess the positive in that is that it wasn’t negative!  So, look on the bright side…This morning the stock is quoted at $39/$39.50.

All of the other major S&P sectors were up between 1 – 2% overall….

In the end – it appears that investors/traders and algo’s are latching themselves onto the idea that JJ is going to choke and that he will pivot sooner rather than later as the economy loses momentum during the second half of the year.  The language he used was simple…. ‘Hikes would slow at one point’ and that is all they needed to hear…. apparently they think the hikes are due to slow any day now….which is not happening with inflation running at 9.1%.

But look – we are now in that cycle where Bad News is Good News for stocks…. a slowing economy should see inflation retreat and if that happens – guess what?  It should be the end of the tightening cycle – and the markets will like that. But let’s not kid ourselves…. they need to see REAL progress against inflation BEFORE they stop raising rates…. which means the recession (when it comes) will need to get deeper before it gets better. 

And then at about 1 pm – guess who stepped onto the world stage to address the negative growth in GDP?  Janet Yellen…and she gave us a half glass FULL assessment – telling us that a slowdown (not a recession) was necessary to tame inflation but that we need not worry – because the country is no where near a recession. She cited job creation, strong household finances, gains in consumer spending as just a couple of the reasons to be hopeful. She did though, admit that inflation is too high, and it remains a top priority for the administration – and expects it to come down ‘in the days ahead.’  Great – and the algo’s took stocks higher.

Lots of chatter around the 2 big reports did dominate the day…. what would AMZN and AAPL report?  Would they reveal cracks in the foundation or not?  And by now you know that they did not…AMZN reported that net sales jumped by 7.2%, – let’s just put a number on that – sales for the 2^nd qtr. came in at $123.2 billion,  Store sales +12%, 3^rd party seller services rose by 9%, Subscription services up by 10%, AWS sales up 33% are you getting the picture….the stock shot higher – rising by 12% in the post market trade and this morning it is quoted at $137.30/$137.40….reflecting that 12% move.

And AAPL – well – it’s Apple – what else do we need to say?  EPS came in better than the estimate at $1.20/sh vs. $1.16.    Higher iPhone sales, higher services sales – both of those gains more than offset a slowdown in Mac/iPad and wearables that were hurt by supply constraint and lockdown issues. Revenues for the quarter rose by 2% to $82.9 billion vs. the estimate of $82.76 billion. iPhones revenue +2.8%, Services revenue rose by 12% and gross margins up by 1.8%.  Mac’s, iPads and wearables down 10%, 2% and 8% respectively. Traders and algo’s took that stock up 2.5% in the post market and this morning the stock is quoted at $161/$161.50 – also reflecting that 2% move up.

The treasury market remains inverted and that screams recession – but that’s not important right now….2 yrs. yielding 2.88%, 5 yrs. yielding 2.74% and 10’s are yielding 2.71%.
This morning US futures are up again on the last trading day of July…. Dow futures +95 pts, S&Ps +30, Nasdaq +155 and the Russell up 9 pts.  It is a big day for the preferred inflation read….

Today will bring us the FED’s favored data point – the PCE Deflator – and it is expected to show a gain of 0.9% m/m and 6.8% y/y….both reads up over last month…. Now the issue is – will investors react to this report or not?  Have they accepted the idea that it is going to be a hot number and priced it in?  Have the convinced the markets that while inflation is up – it has topped out and the worst is over?   It is starting to feel like that – but don’t get too comfortable just yet. 

We will also get personal income and personal spending of +0.5% and +0.9% respectively.  U of Michigan sentiment survey of 51.1 – a report that has been in decline over the past couple of months….

We will get about a dozen earnings reports today – PG, CL,  CVX and XOM the biggest ones – CVX, XOM  and CL beat and are quoted higher….PG misses and is quoted higher too!  (go figure! – we’ll have to pull those reports apart.   What investors need to consider is – that while this season has not been a disaster – forward guidance by many of the companies has been cautious and estimates for the 3^rd and 4^th qtrs. will likely be revised lower – and that will put a cap of the upside for now.  The depth of the revisions will set the broader tone.

Remember – there are still estimates for the S&P to test significantly lower – think 3100 ish…that’s a 22% move lower from here…I am not in THAT camp…. although I do think we will test the June lows of 3600 before this is over and that represents a 10% move from here.  The S&P is trading at 17.8 x’s 2022 estimates and 16.5 x’s 2023 estimates… – down significantly from the low 20’s at the beginning of the year and still slightly above the longer term averages which is why we are seeing some renewed strength….but the story is far from over….

In Europe – markets are up…. Eurozone growth accelerated in the 2^nd qtr. – despite what is going on…..the bloc posted a rise of 0.7% vs. the expected rise of +0.2%.  Earnings are also front, and center and they have not been a disaster either.  At 6:30 – markets across the region are up about 1%.

The S&P closed at 4072….  Remember – when I told you on Tuesday that IF we closed the gap created on June 10^th – it would mean further gains ahead – and that is exactly what we have seen…..The S&P breached it on Wednesday and has gained nearly 1.5% since…..the S&P is now in the 3920/4125 trading range….If we hit resistance at 4125 and pierce it – then expect the algo’s to go into a frenzy and take stocks higher….4350 would be the next target.  3920 remains support and the further we move away from it, the stronger its support becomes.

Take Good Care

Chief Market Strategist
kpolcari@slatestone.com

Apple Pie (And Ice Cream)

Who doesn’t love Apple?  And who doesn’t love Apple Pie and Vanilla Ice Cream?

For this you need – 2 tablespoons all-purpose flour, plus more for dusting, readymade pie crust, 2 Granny Smith apples, peeled, cored, and sliced, 3/4 cup sugar, plus additional for pie top, Zest and juice of 1 lemon, 1 1/2 teaspoons cinnamon, 1/2 teaspoon nutmeg,2 tablespoons unsalted butter, 1 large egg, beaten

Preheat your oven to 375 degrees.

Roll out the pie crust – on a floured surface.   – lightly butter the pie dish – and then place one of the dough’s into the pie plate.

In a large bowl – mix apples, sugar, lemon zest and juice, spices, and flour. Toss well. Pout the mix into pie pan. – always add a bit of butter….and then take the other half of the pie crust and cover the pie.  Using your thumb and forefinger – make a ‘ribbon’  by crimping the edge.  Using a butter knife – cut 2 or 3 vents into the top.

Brush the top with the beaten egg, and finish by sprinkling a bit of sugar on top.

Place in oven and bake for about 45 mins or so….You want a nice golden brown crust – remove and let cool.  Serve with your favorite vanilla ice cream.
Enjoy.

Buon Appetito.