Things you need to know.
– NFLX and TSLA cause weakness in anything tech
– Investors trade ‘sexy’ for ‘boring’ (and that’s not bad)
– Existing Home Sales disappointment- are you surprised?
– AXP reports a 5th straight qtr. of RECORD earnings but is concerned.
– Try the Rotini Michael Angelo
Stocks and bonds both fell yesterday as investors, traders and algo’s continue to digest the latest news on earnings reports along with ongoing mixed macro data points…. Disappointing guidance from both NFLX and TSLA were top of mind yesterday – causing some investors and traders to reconsider their outsized moves ytd….and so they decided to ‘lock in some profits’ taking NFLX down 8.5% and TSLA down 9.8% and all that did was force tech investors to reconsider taking profits in some of the other ‘outperformers’ – think the ‘Magnificent 7’ – AMZN -4%, GOOG –2.7%, MSFT -2.3%, NVDA -3.3%, META – 13.5%, AAPL – 1% (TSLA is the 7th name). And all THAT did was cause weakness across the board in any tech – the XLK lost 2%, Cyber Security – CIBR – 2.2%, Semi’s – SOXX -3.6%, AI – 4.4% – Capisce? And that sent the Nasdaq down 295 pts or 2%! The S&P (that includes these names as well) lost 31 pts or 0.7%, the Russell lost 17 pts or 0.9% the Dow Transports lost 5 pts while the Dow Industrials was the star performer – GAINING 163 pts or 0.5%.
And that also makes some sense…..investors and algo’s recognizing that if they want to stay in the market but want to reduce ‘risk’ – Then move OUT of ‘sexy’ and into ‘boring’ and that is NOT a disparaging remark at all….Boring is GOOD when anxiety levels rise….and while many of the 30 names in the Dow are solid, foundational holdings for long term investors – I for one, wouldn’t necessarily say there is anything sexy about JNJ, BA, MCD, TRV, WMT, MRK, MMM, KO, NKE, CAT, DIS, HD, VZ, AXP, DOW, PG, but I would say owning them (or some of them) as part of your portfolio is a smart idea – And that is what we saw….Money came out of ‘sexy’ and went into ‘boring’….
Economic data yesterday gave more mixed results…. a decline in Initial Jobless Claims surprised analysts causing some to suggest that we could see rate hikes beyond July…. (Something I and others – have been saying all along). The Philly FED Business Outlook fell by 13.5 pts – worse than the expected -10 while Existing Home Sales also fell more than expected at -3.3% and this makes sense on a couple of levels that we have discussed. The media suggested that they fell because of lack of supply, I offer another reason – If you are in the market for a home – and you can buy a new home with all the bells and whistles, financed by the home builder at a better rate – in a brand new community or you can buy an ‘existing home’ that needs TLC and is financed by a bank that is tightening lending standards at higher rates – what would you do? Come on…. You know the answer……. You would buy NEW and that is exactly what we are seeing…. recall that in June – New Home Sales rocketed higher – rising 12.2% vs. the expected decline of 1%. New is nice, and a 6.5% rate (financed by the builder) on a $500k mortgage for a NEW home is $3160/mo vs. a 7.25% rate (financed by the local bank) on a $500k mortgage for an EXISTING home is $3410/mo…..an 8% difference for a home that then needs more money invested into it…. to make it your own. It’s just a math problem…. nothing more.
In the last two weeks, we have seen stocks rally even harder (in what felt like a ‘blowoff), we have gotten ‘better than expected’ big bank earnings, better than expected regional bank earnings, better than expected airlines (DAL, UAL & AAL) , Large Pharma (JNJ) & healthcare (UNH) and while the season is still young, the facts are pointing to a ‘better than expected’ quarter. But we have also gotten ‘warnings’ about commercial real estate losses from GS, we have seen a worsening conflict in Ukraine – with Vlad telling the world that ‘any’ ship seen docking in Odessa would be assumed to be carrying weapons (thus free to blow up) along with slowing eco data out of China (if you believe it). And then Wednesday’s ‘guidance warning’ coming from two of the ‘hottest’ names in tech was enough to slam the brakes on…. causing a swift reversal yesterday. And then you have the FOMO buyers – who are always the last to the party say – “Wait! What happened? How come stocks sold off?” In any event- earlier in the week, I told you that all we needed was something that the market didn’t expect to cause stocks to go into sell mode….and this time it was the warnings out of NFLX and TSLA.
There is no eco data today, but earnings include RF and CMA (both announced already, and both beat – Imagine that!), HBAN, AXP, IPG, SLB – These names representing regional banks, Advertising and Marketing, Oilfield Services and Equipment and Consumer Finance. My gut says that AXP will be the talk of the day – because that speaks directly about the health of consumers…. What will they say about delinquencies, or write-offs or spending habits? Where are consumers using their AMEX cards? What are they buying? Experiences or Necessities?
And there it is! AXP reports RECORD REVENUES AND EARNINGS BUT IS BRACING FOR DEFAULTS. – They said that while they are proud to announce a 5th straight qtr. of RECORD REVENUES and an all-time high EPS – they are building reserves for credit LOSSES. Capisce? What did I tell you???? This is like taking candy from a baby! The positive news though is not helping the stock – it is trading down 2.5% in the pre-mkt – but remember it is up 12.4% this qtr. and +20% ytd….
US futures this morning is bouncing back a bit after the weakness yesterday…. Dow futures +40 (they were higher prior to the AXP announcement – AXP is a DOW stock), S&P’s +12, the Nasdaq +70 and the Russell is +12. Last night – after the bell we heard from both CSX (rail freight) and Knight-Swift (trucking) both disappointed and both are trading down about 5% in the pre-mkt…. but they do not seem to be causing distress in the broader market….
So far, 73% of the reports have beaten on both the top and bottom lines, while 76% have beaten on the bottom line….and that is in line with recent historical trends – I still think that number will climb because the bar is low…..which doesn’t necessarily mean that stocks will continue to rise, it just means – the bar was low!
European markets are up……small but up. UK Prime Minister Rishi Sunak’s Conservative Party suffered losses in a series of local elections that saw his party lose 2 seats in Parliament – this is not good for his leadership, but it has not caused a vote of ‘no-confidence’ either. In Spain – Sunday’s snap election could end the left-wing Prime Minister Pedro Sanchez’s tenure as the expectation is for the election to shift to the right. Spain is the EZ 6th largest economy. Next week will see earnings from European major banks, pharma, automakers, energy giants and airline manufacturers.
The 10 yr. treasury yields rose to 3.83% – up from 3.74% as talk of more hikes took center stage. The 2 yr. yielded 4.83% up from 4.75%. Shorter duration 3 month and 6-month bills are yielding 5.44% and 5.49%.
Oil continues to trade around the trendline, and this morning is just NORTH of it…trading at $76.44 (Trendline is $75.32. We remain in the $73.50/$80 trading range.
The dollar index is trading at 101 while Gold is holding steady at $2000.
The S&P ended the day at 4534 – down 31pts….…. We are in this 4400/4600 trading range, but I think it feels a bit tired…..so I am betting the next move will be a pullback – not a crash, just a pullback that will shake the branches a bit causing some of the weaker hands to let go….In any event – this is not the time to fall asleep….there is so much opportunity out there. Once again – I am just saying the best performing sectors yesterday were defensive. Utilities + 1.8%, and Healthcare +1.6% – that should tell you something about the underlying tone.
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
This is a simple dish to make….it was a favorite of Italian sculptor, painter, architect and poet of the high renaissance. A man of unparallel influence over the world. Michael Angelo – long considered one of the greatest living artists the world has known was also a simple man – enjoying simple dishes – so give this a try.
Rotini Michael Angelo
For this you need:
Rotini, fresh spinach, yellow raisins, pignoli nuts, fresh ricotta olive oil and fresh grated parmigiana.
This comes together quick….20 mins max….
In a bowl -add hot water and soak the raisins.
Bring a pot of salted water to a boil. Then add the Rotini.
Now in a deep-frying pan – add a bit of olive oil and toast the nuts…. stirring not to burn. Once toasted – set aside. In the same pan – add a bit more oil and the spinach. Season with s&p and sauté.
After about 3 mins – turn heat down to low and add in a small container of the fresh ricotta – stir to melt and blend. Now – add in a ladle of the pasta water. Stir.
Now add the raisins – stir – When the pasta is almost done – remove directly from the pan and add to the sauté pan with the spinach and ricotta mix. Toss nicely to coat. Add the pignoli nuts and another ladle of pasta water to keep it moist – not watery…
Once well mixed – add in a couple of hands of fresh cheese – toss and serve.
Simple and very classic – just like Michael-Angelo.
Buon Appetito
