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Follow Up to “How Does the Rally Ultimately End?”

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What’s in Today’s Report:

  • Follow Up to “How Does The Rally Ultimately End?”

Futures are modestly higher mostly on momentum from Thursday’s earnings-driven rally.

Alcoa (AA) was the only notable earnings report overnight but like most reports on Thursday, it beat estimates.  While it’s very, very early in earnings season, so far the results are better than feared and that’s driving the rally.

Today is another busy day of economic data, Fed speak, and earnings.  Economically, the three key reports are Retail Sales (E: -0.1%), Empire State Manufacturing Index (E: 25.0), and Consumer Sentiment (E: 74.0).  Markets will want to see stability in the first two, and the focus will be on inflation expectations in the third (they need to stay close to last month’s readings).

On the earnings front, we have three notable reports today:  GS ($9.78), PNC ($3.64), JBHT ($1.77), and we also get two Fed speakers, Bullard (11:45 a.m. ET) and Williams (12:20 p.m. ET), with the latter being the more important of the two.

Focus Turns to Earnings and Yields

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What’s in Today’s Report:

  • Focus Turns to Earnings and Yields (And Away from Washington, For Now)
  • Weekly Market Preview:  Will Earnings Results Ease Market Anxiety?
  • Weekly Economic Cheat Sheet:  Key Inflation and Growth Data this Week

Futures are modestly lower on a resumption of the commodity rally following an otherwise quiet weekend.

Energy prices (oil, natural gas, coal) are all rallying again (up 2% – 3%) and that’s increasing global inflation anxiety, which is weighing moderately on futures.

Global bond yields are also rising as two hawkish Bank of England members warned of a possible rate hike this year, although that is not the consensus expectation (although a rate hike from the BOE in early 2022 is looking more likely).

Today is Columbus Day and the U.S. bond markets are closed and there are no economic reports today, although there is one Fed speaker: Evans (6:00 p.m. ET).  So, commodity prices are Treasury yields should drive trading today.  The more they rise, the stronger the headwind on stocks will become.

Tom Essaye Quoted in Bloomberg on August 24, 2021

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U.S. Stocks Top Record as Strong Earnings Continue: Markets Wrap

How the Fed tapers is the next major variable for this market…wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.

Tom Essaye Quoted in CNBC on August 2, 2021

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Dow tumbles nearly 100 points after late-day sell-off in stocks

At the end of the day, the stock market is driven by two things: 1) Earnings and…Tom Essaye, founder of Sevens Report, said in a note. Click here to read the full article.

Tom Essaye Quoted in The Byron Review on August 3, 2021

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Analysts increase third and fourth quarter estimates after second quarter blowout

On the earnings front, most of the systemically important companies are behind…wrote Tom Essaye in a recent memo. Click here to read the full article.

Tom Essaye Quoted in Barron’s on August 3, 2021

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Clorox Drops, Take-Two Interactive Falls, and the Stock Market Is Rising

Stock futures are rebounding following yesterday’s losses as positive earnings help offset…writes Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Why Did Cyclicals Outperform?

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What’s in Today’s Report:

  • Why Did Cyclicals Outperform?

Stock futures are little changed this morning after a quiet night of news as markets look ahead to key economic data in the U.S. and the latest commentary from Fed leadership.

Economically, Composite PMI data overseas largely met estimates and therefore did not materially impact markets.

Looking into today’s session, focus will be on the ADP Employment Report (E: 715K) which is due out at 8:15 a.m. ET as investors look for the latest insights to U.S. labor market trends (important for Fed policy) and then the ISM Services Index (E: 60.4) which will hit shortly after the open (important regarding the health of the broader economic recovery).

Attention will then turn to Fed Vice Chair Clarida’s speech at 10:00 a.m. ET in which the market will be looking for further reiteration that the labor market has a ways to go before any policy changes will occur (so basically just repeating Powell’s recent comments). Any hawkish surprises could result in a spike in yields and pullback in stocks as policy expectations are very dovish right now.

Finally, earnings season continues with: CVS ($2.07), GM ($1.89), RCL (-$4.26), and KHC ($6.54) reporting before the bell while ROKU ($0.13), UBER (-$0.53), and EA ($1.28) will release Q2 results after the close.

Tom Essaye Quoted in Barron’s on July 30, 2021

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Amazon Sinks, Chevron Pops, and the Nasdaq Is Down

Futures are moderately lower on disappointing earnings…wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Watch TSA Throughput (Again)

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What’s in Today’s Report:

  • Watching TSA Throughput, Again

Stock futures are rebounding following yesterday’s losses as positive earnings help offset renewed volatility in Chinese markets and mixed Fed speak to start the week.

Volatility in Chinese equities spiked again overnight as regulators reportedly took aim at gaming companies, but the state-owned news article that initiated the largely tech-focused selling was removed and Chinese indices ended well off the lows.

Economically, EU PPI was the latest “hot” inflation print as it surprisingly rose 0.1% to 1.4% vs. (E) 0.6% in June, but for now, investors are largely shrugging off the release.

Today, there are two economic reports: Motor Vehicle Sales (E: 15.7) and Factory Orders (E: 0.8%) as well as one Fed official scheduled to speak: Bowman (2:00 p.m. ET), however, they should not materially move markets with the July jobs data looming.

Solid earnings have been a major supporter of equity markets in recent weeks and the Q2 reporting season remains in full swing with BABA ($2.24), LLY ($1.89), CLX ($1.29), BP ($0.61), and COP ($1.15) releasing results before the bell, and notables LYFT (-$0.24) and AMGN ($4.23) reporting after the closing bell.

Bottom line, the sharp drop in bond yields played a big role in yesterday’s stock market pullback, so if Treasuries stabilize today, stocks should be able to regain some ground however there are several risks that could see the major indexes make new lows for the week including hawkish Fed chatter and negative Delta-variant developments.

Economic Breaker Panel (Some Loss of Momentum)

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What’s in Today’s Report:

  • Economic Breaker Panel (Some Loss of Momentum)

Futures are moderately lower on disappointing earnings and more negative COVID commentary.

AMZN earnings disappointed investors and the stock was down –6% after hours and that’s weighing on futures.

On COVID, a CDC internal memo called the Delta variant potentially as contagious as Chickenpox, although markets remain generally optimistic given positive corporate commentary on economic activity.

Today the key number will be the Core PCE Price Index (E: 0.5%, 3.7%) which is the Fed’s preferred measure of inflation.  If that number runs well above expectations (so above 4% yoy) expect a “hawkish” reaction from markets (yields up, stocks flat to down).   Also today we get Consumer Sentiment (E: 80.8) and have one Fed speaker, Bullard at 9:00 a.m. ET, but they shouldn’t move markets.

On the earnings front, much of the discussion this morning is on AMZN but there are some other notable reports out this morning including:  PG ($1.08), CAT ($2.38), XOM ($1.02), ABBV ($3.11), CVX ($1.54).