Things you need to know.
– Earnings continue to impress – Stocks advance.
– MSFT and GOOG both beat – traders sell MSFT and BUY GOOG
– It’s FED Day…. Expect a 25-bps hike and then talk of more to come.
– Try the Roasted Chicken Parts with Sausage and Sweet Vinegar Peppers
Markets closed higher again yesterday…. The Dow gained 28 pts, the S&P’s up 12, the Nasdaq ahead by 85, the Russell up 1 while the Transports lost 17 pts.
The day got off to a rousing start….22 of the 25 names that reported yesterday morning – BEAT – some of them beating on both lines while some beat on just the bottom line – but they all offered up exciting and robust guidance and investors loved it. 3M, GE, DOW, PII, PHM, GM etc.….in fact – Mary Barra (CEO GM) was so excited to announce ‘blow out’ numbers and a strong outlook for the coming months – she couldn’t contain herself…. – I can’t wait to see what the UAW (United Auto Workers) do to her when they sit down to ‘negotiate’ their contract- starting on Tuesday – (the contract expires on September 14th – with all of them). In fact – the UAW has already made it clear – ‘We are prepared to strike…’ Need we say more?
Shawn Fain – UAW President and far more confrontational than prior leadership could not be any clearer – “If the Big Three don’t give us our fair share, then they’re choosing to strike themselves, and we’re not afraid to take action.”
In fact – GM’s forward guidance is contingent on GM successfully managing that process….so, if negotiations with UAL & AA or with UPS are any indication – then prepare yourself for some fireworks…..In any event – the focus on union negotiations is directly tied to the outstanding earnings numbers that they are all reporting….and the front of the line wants what the back of the line takes home as well….Better pay, better benefits, better options and more stock awards!
But investors were playing it close to the vest as the morning turned to afternoon and the clock ticked to reports from both MSFT and GOOG…. Now, let me be clear – it’s MSFT and GOOG……
MSFT beat $2.69/sh vs. $2.56/sh.….(no surprise there), Revenues of $56.19 billion +8.3, Intelligent Cloud Revenue of $23.99 billion vs. $23.8 billion estimate, Personal Computing Revenue of $13.91 billion vs. estimate of $13.58 billion…..yet they sold the stock off….because the cloud business (Azure) grew slightly slower y/y – 27% vs. 31% and Nadella projects that it will continue to slow in the current qtr. as they look to boost spending to expand services…..They took the stock down 4% in the afterhours mkt….but remember the stock is up 46% ytd….I say – let them sell it….because it just means better prices for the long term investor….It’s MSFT – come on!
GOOG on the other hand also reported beats all over the place and they took the stock up 6.5% in the after-hours market…..better ad trends, better revenues and lots of capital spending to drive AI, CFO Ruthy Porat to become President and CIO in September….…..GOOG is up 38% ytd….I can’t wait to hear how many times both CEO’s mentioned AI in their presentations…because that will be directly tied to how far up or down the stocks go! Apparently – GOOG said it more! Whatever – neither one of those reports would make me change my investment thesis as a long-term investor….as a day trader – sure – whip it around, but as a long-term investor – I’d be buying more MSFT on weakness and sitting pretty with my GOOG.
We are now on the verge of a host of tech earnings – so this is when the rubber hits the road for the Nasdaq…..Can it maintain its advance or will we see it come under some pressure in the weeks ahead….Look, the Nasdaq index is up 35% ytd….expectations are high, the market is priced to perfection – leaving little to no room for error. Capisce? Any big misses or weaker guidance would be the perfect excuse for a broader pullback – while it is possible, I do not see it right now…. My guess is that it will be an economic issue that is the catalyst for a retreat.
Today is FED day…..JJ is due to announce in 7 hrs.….and while no one expects any surprises – they are all curious about what is next for forward commentary…..40% of the street is looking for this hike to be the last one, while 40% are expecting another hike before November…..20% are betting on a September hike. A 25 bps hike today brings us to 5.25% – 5.5%….slightly below what some members of the FED have been suggesting…..I’m in the 5.5% – 5.75% camp (I’m really in the 6% camp – but I don’t see that happening anymore unless inflation really kicks up again)….I want to see them raise them enough to kill inflation – leaving no doubt that they have achieved their goal….and 5.25% – 5.5% doesn’t’ t do that for me. But that’s what makes a market – buyers and sellers….
In fact – ‘Nicky T’ – the FED mouthpiece for the WSJ writes that JJ remains concerned….
On the 24th he penned a piece –
“Why the FED ISN’T ready to declare Victory on Inflation.”
and this morning his piece continues to call into question the FED’s next move….
“Fed to Raise Rates to a 22 yr. High, Here’s What to Focus on……and then he says – Economic growth has likely been too strong for central bank officials to validate investor expectations that this will be the last hike.”
And there it is…. The FED leaks the commentary to Nicky, he writes a piece in the WSJ and then the FED can go back and say – why is everyone surprised – Nicky laid it out in his piece on July 26th…. It’s all very choreographed….
Eco data today includes Mortgage Apps and New Home Sales – and the expectation is for a decline of 5% which I think is total non-sense…..Remember – home builders have all kinds of ways of attracting new home buyers….we have seen surprises over the prior 5 months….Last month – the expectation was for a decline of 1% and we got a gain of 12% – an 11% swing….and while I do not expect the same excitement – I do expect it to in positive territory.
US futures are lower…. Dow futures -80, S&P’s down 5, Nasdaq down 27 and the Russell is up 4. Earnings include: KO (beat), HLT, TMO, T, ADP, along with 20 more…after the bell we will hear from META, CMG, MAT, and a few more.
Treasuries are steady…. still holding the line….2 yr. is yielding 4.86%, the 10 yr. is yielding 3.89%, 30 yr. mortgage rates are better than 7% and likely going higher after today. the shorter duration bills are still yielding better than 5.4%.
Oil continues to trade in the $78/$80 range…..Yesterday saw it trade as high as $79.80…..The story remains the same…..Chinese gov’t stimulus to help boost their economy, will only increase demand for energy…..it’s the same story…We are in the $75/$81 trading range.
The dollar index is trading at 101.14 and remains below all 3 trendlines. Gold is trading at $2,010. We are now between the intermediate and the short term trendlines….of $2001/$2022….I suspect we will remain there unless the dollar moves significantly one way or the other….The rate rise today won’t be a surprise – the mkt already knew this…what could be a surprise is if JJ makes it emphatically clear that rates are going up again at the next meeting. That would suggest that he remains concerned about underlying inflationary pressures that remain sticky which would push the dollar up….…. Leaving the door open, but not committing suggests that he is not sure about sticky inflation – allowing the dollar to sit tight.
European stocks are lower….…. It’s all about earnings and global central bank policy…the FED today and the ECB tomorrow…. BoJ on Friday……
The S&P ended the day at 4567 up 12 pts…….…. But this morning – mkts feel just a bit tired…. Traders and investors remain cautious ahead of today’s FED announcement and then the press conference after….…and while we all expect a 25-bps hike – the focus will be on what JJ says about the data and the September meeting…
We are in this tighter 4400/4600 trading range, but trendline support is at 4330 just fyi. I am being patient with new money…. want to wait and see what happens and how investors react. I want to see a pullback that shakes the branches a bit causing some of the weaker hands to let go….
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
Roasted Chicken Parts with Sausage and Sweet Vinegar Peppers
You will need: Thighs & legs, (bone in/skin on), s&p, olive oil, sweet Italian sausage, Vinegar peppers, garlic, white wine, chicken broth, marinated artichoke hearts, thin sliced potatoes, s&p, and flour. Total time 1 hr… start to finish.…
Preheat oven to 400 degrees – Preheat grill for cooking the sausages.
Season chicken pieces with s&p – heat up oil in frying pan – when hot – reduce heat to med/hi – now add chicken and brown on all sides – maybe 10 mins total. While this is cooking – place the sliced potatoes in the baking dish – season with s&p – add a splash of oil. Now remove the chicken from the frying pan and place in the baking dish and put in the oven and continue to cook for about 30 mins….
Next – cook the sausage on the grill – careful not to burn…. maybe like 10 mins total…. remove from grill and let rest for 3 or 4 mins then cut into bite size pieces. In the meantime – add the chopped garlic to frying pan (that still has the juices and oil from chicken) along with sliced vinegar peppers – sauté. Now add the sausage and some white wine and reduce (5 mins) – next add chicken broth and the artichoke hearts…. sauté for another 5 – 8 mins…
Remove the chicken from the oven. Using tongs – place the chicken pieces in the sauté pan. Turn the oven from baking to broil and then put the potatoes back in to crisp up a bit.
Now serve on a large, warmed platter family style. Chicken in the middle with the potatoes all around. Accompany with a large mixed salad dressed in a balsamic vinaigrette dressing. Enjoy your favorite chilled White wine –
Buon Appetito
