What to Make of this Market (In Plain English)

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What’s in Today’s Report:

  • What to Make of This Market (In Plain English)
  • Weekly Market Preview:  Is the Recovery Pausing/Stalling?
  • Weekly Economic Cheat Sheet:  Jobs Friday, Manufacturing Today

Futures are marginally higher following decent economic data combined with some mild progress on stimulus hopes.

Global manufacturing PMIs were generally better than expected as the Chinese PMI rose to 52.8 vs. (E) 51.1 while the EU number also beat expectations (51.8 vs. (E) 51.1).

On the stimulus front, both parties acknowledged some progress on negotiations, but they remained far apart.

Today focus will be on the ISM Manufacturing PMI (E: 53.5) and the market needs/wants a strong number here to help refute the growing list of indicators that imply the economic recovery is pausing/stalling.

Regarding stimulus, headlines will move the market this week but more broadly, investors are expecting some significant progress by the end of the week.  If that progress doesn’t occur, that will become a headwind on stocks.

Finally, there are also two Fed speakers today, Bullard (12:30 p.m.ET) and Evans (2:00 p.m. ET), but neither should move markets.

Tom Essaye Interviewed with Yahoo Finance on June 29, 2020

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Tom Essaye – Sevens Report Founder and President weighs on on current market moves with Adam Shapiro and Julie Hyman on Yahoo Finance’s On The Move. Click here to watch the full interview.

Tom Essaye

What the Fed Decision Means for Markets (Positive but not a Silver Bullet)

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What’s in Today’s Report:

  • What the Fed Decision Means for Markets (Positive, But Not a Silver Bullet)

Futures are lower following disappointing headlines on U.S. stimulus progress, combined with profit taking ahead of multiple important market catalysts coming today.

U.S. stimulus bill talks were said to be at an “impasse” late Wednesday, and that’s weighing on sentiment (although this drama is to be expected, as we cautioned last week, and a deal is still very much expected by mid- August).

Economically, German Q2 GDP missed estimates (-10.1% vs. (E) -9.4%), which is a reminder just how much damage was inflicted on the global economy in Q2.

As mentioned, one of the reasons futures are weaker this morning is book squaring ahead of several important economic and earnings events today.

First, the most important economic report of the day is Jobless Claims (E: 1.38M).  We address this more in the Report, but there are growing signs the U.S. economic recovery is pausing or stalling, and that’s not priced into stocks above 3200 in the S&P 500.  If we see another notable increase in weekly claims (say through 1.5M) that will amplify fears the recovery is stalling and likely weigh on stocks.

Then, on the earnings front, we get four of the most important stocks in the market announcing results after the close: AMZN (E: $1.75), AAPL (E: $1.99), FB (E: $1.44), GOOGL (E: $8.43).  The earnings results will be “fine” but these stocks have had huge runs, and if they disappoint vs. elevated expectations, just due to these stocks weights in the S&P 500, it could pressure markets after hours.

Finally, today we will get the initial look at Q2 GDP, and it will be historic as it’s estimated to be -35% seasonally adjusted annual rate (remember GDP is usually around 2% saar).  I never in my life thought we’d see such a number, and I hope we don’t ever see it again.  But, today history will be made as the worst GDP print ever.

Tom Essaye Quoted in CNBC on July 28, 2020

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“To be clear, from an actual policy standpoint, it’s universally expected that the Fed won’t make any changes to 1) Rates…” wrote Tom Essaye, editor of the Sevens Report. Click here to read the full article.

Owning Gold for the Right Reasons

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What’s in Today’s Report:

  • Owning Gold for the Right Reasons
  • What About Silver?
  • Fed Day

Futures are marginally higher ahead of the Fed as markets bounce from Tuesday’s declines thanks to decent earnings.

Earnings after the bell were decent as AMD and SBUX both rallied, although Visa (V) made cautious comments on consumer spending late in Q2, which again implies we’re seeing a potential stall in the economic recovery.

Economically there were no notable reports overnight.

Today the key event is the FOMC Decision (E:  No Change to Rates or QE) and Fed Chair Press Conference at 2:30 p.m. ET.  Again, if there’s going to be a surprise from the Fed today (which is unlikely) it’s going to come from the press conference – so we’ll be watching.

FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview (What’s Expected/Dovish If/Hawkish If)

Futures are modestly lower following a quiet night of news as markets digest yesterday’s rally ahead of several days of critical earnings and tomorrow’s FOMC decision.

Economic data was sparse.  UK CBI Distributive Trades (it’s like retail sales) beat estimates rising to 4 vs. (E) -25 but the number isn’t moving markets.

Today there are only two notable economic reports,  Case-Shiller HPI (E: 4.2% yoy) and Consumer Confidence (E: 95.7) and neither should move markets.

Instead, focus will be on stimulus (negotiations will accelerate and the market expects a done deal in two weeks) and earnings.  Specifically, the volume of important earnings reports spikes between now and Friday, so we’ll be watching these results closely (especially the reports on Thursday).  Today, some notable earnings include:  MMM ($1.77), MCD ($0.76), PFE ($0.64), AMD ($0.16), SBUX ($-0.61), V ($1.02).

Is the Rally Starting to Stall?

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What’s in Today’s Report:

  • Is the Rally Starting to Stall?
  • Weekly Market Preview:  Important Earnings and Stimulus Negotiations
  • Weekly Economic Cheat Sheet:  Fed Decision on Wednesday.

Futures are moderately higher as the Republican version of the stimulus bill is largely in-line with expectations.

The Republican stimulus bill will be released today with weekly unemployment checks cut to $200-$300/week, but one time stimulus checks roughly equivalent to the last time (in both the amount and scope, i.e. the number of people eligible to receive checks).  The weekly payment amount is mildly disappointing, but the scope of the stimulus checks is larger than expected so they basically offset one another.

On balance this version of the bill isn’t a disappointment, especially considering the amount of stimulus will likely increase modestly during negotiations with Democrats.

Looking forward, the negotiation process on the bill will now begin in earnest,  and since Washington always has a flair for the dramatic, so expect a few “scares” over the next two weeks that imply a deal won’t get done.  But, as we all know, it will get done, and likely in the next two weeks (and the sooner the better because weekly unemployment checks ended Friday, until there’s a new bill passed).

Today stimulus chatter will dominate the news wires, and beyond that there’s one notable economic report, June Durable Goods (E: 6.5%).  But, it shouldn’t move markets as investors know June was a solid month for data, and instead the weekly jobless claims are the key report for this week (out Thursday).

Sevens Report Co-editor Tyler Richey Quoted in MarketWatch on July 23, 2020

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“Oil has shown resilience this week” with WTI prices just shy of multi-month highs thanks, in part, to “optimism that a COVID-19 vaccine will eventually help the global economy normalize…” said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Is Super Cap Tech Momentum Fading?

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What’s in Today’s Report:

  • Is Super Cap Tech Momentum Fading?

Futures are modestly lower on momentum from yesterday’s declines combined with a further uptick in U.S./China geo-political tension.

Secretary of State Pompeo gave a  harsh speech on China Thursday, while China closed the U.S. consulate in  Chengdu, in a further escalation of tensions.

Positively, July EU flash composite PMIs handily beat expectations, surging to 54.8 vs. (E) 51.1, implying that a global economic recovery is ongoing.

Today the focus will be on the July Flash PMI (E: 50.3), and if we get a disappointing number (showing a lack of improvement from June) then we’ll see concerns grow that the U.S. recovery is “pausing” and that could weigh on stocks further.

Stimulus Update (Progress Is Being Made)

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What’s in Today’s Report:

  • Stimulus Update
  • Weekly EIA/Oil Market Update (Can the Rally Continue?)

Futures are modestly higher thanks to stronger than expected earnings and progress on the stimulus front.

TSLA earnings beat lofty expectations and the stock rallied after hours, while the rest of the major earnings reports (MSFT/CMG) were generally in-line (i.e. no disasters).

Republicans apparently reached a consensus on their version of next stimulus bill, so progress continues and a new stimulus bill is expected in the next few weeks.

Today the key number will be weekly jobless claims.  There are rising fears that the U.S. economy is plateauing after the recovery in May/June, and if weekly claims move back towards, or through 1.5M, that will likely spook markets and imply that the recovery is stalling.  Regarding earnings, the two reports we’re watching are T ($0.78), AAL (-$6.40), but earnings shouldn’t move markets toda