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Why Stocks Dropped Again

What’s in Today’s Report:

  • Why Stocks Dropped (Again)
  • A Question About Silver

Futures are sharply lower following a very negative earnings pre-announcement from FedEx (FDX).

FedEx (FDX) earnings were terrible as the company reported EPS of $4.37 vs. (E) $5.10 and guidance was even worse with estimates of $2.75 vs. (E) $5.46.  The company sited significant macro-economic deterioration and the CEO warned about a “worldwide recession.”

Economically results were mixed as Chinese data beat estimates while UK Retail Sales were soft (–5.4% vs. –3.9%).

Today focus will be on Consumer Sentiment (E: 59.9) and more specifically the five-year inflation expectations.  In August they were 2.9% and if they rise back above 3.0% that’ll only compound the damage from Tuesday’s CPI and push stocks lower, while a decline below 2.9% will help offset CPI and help support stocks (although I think it’d take a sharp from below 2.9% for stocks to fully erase these early losses).

Time to Reduce Commodity Allocations?

What’s in Today’s Report:

  • Is it Time to Reduce Commodity Allocations?
  • Why Q2 GDP Wasn’t as Bad As It Seemed

Futures are moderately higher following a solid night of earnings.

AAPL (up 2%) and AMZN (up 12%) both beat estimates and that’s helping to extend this week’s rally.

Eurozone inflation came in slightly hotter than expected, as EU HICP rose 8.9% yoy vs. (E ) 8.8% yoy, but stronger than expected earnings are helping the market look past the slightly hot number.

Today the focus will be on inflation as we get three notable inflation readings:  Core PCE Price Index (E: 0.5% m/m, 4.7% y/y), Employment Cost Index (E: 1.1%), and the University of Michigan Five Year Inflation Expectations (E: 2.8%).  Markets have aggressively priced in a near term peak in inflation, and the data needs to start to confirm that, starting today.  If these inflation stats run hot, don’t be surprised to see stocks decline.

On the earnings front, the season is starting to wind down but there are still a few more days of notable results.  Some reports we’re watching today include: XOM ($3.80), CVX ($5.02), PG ($1.23) and CL ($0.71).

Two Clear Takeaways from the Fed Decision

What’s in Today’s Report:

  • Two Clear Takeaways from the Fed Decision
  • EIA Analysis and Oil Update

Futures are modestly lower on disappointing earnings and the increased probability of higher corporate taxes.

Earnings from META, QCOM, and others disappointed and that’s reversing some of Wednesday’s tech-driven gains.

Senate Democrats agreed on a smaller Build Back Better bill that includes some corporate tax increases, although it’s still not clear when this becomes law.

Today will be a busy day from a data and earnings standpoint.  Economically, Jobless Claims (E: 249K) is the key report and if it moves considerably above 250k that will signal further deterioration in the labor market.  We also get Preliminary Q2 GDP (E: 0.5%) and as we said yesterday, don’t be shocked if it’s negative and you hear a lot of recession commentary.

On the earnings front, today is an important day and the key reports will be:  PFE ($1.72), MA ($2.36), AAPL ($1.14), AMZN ($0.15), INTC ($0.69).

Brace for a Recession on Thursday

What’s in Today’s Report:

  • Brace for a Recession on Thursday
  • Housing Data Points to Slowdown in Real Estate Market
  • Chart: S&P 500 Holds 50-Day Moving Average by One Point

Stock futures are solidly higher this morning as quarterly earnings results from tech giants MSFT and GOOGL were both well received by investors after the close yesterday while investor focus shifts to the Fed today.

This morning, economic data will be in focus early with Durable Goods Orders (E: -0.5%), International Trade in Goods (-$103.2B), and Pending Home Sales (-1.0%) all due out by 10:00 a.m. ET.

From there, expect price action to slow considerably as focus turns to the Fed with the FOMC Meeting Announcement at 2:00 p.m. ET followed by the Fed Chair Press Conference at 2:30 p.m. ET.

Markets have priced in a 75% chance of a 75 basis point hike today while no changes to forward-guidance are expected so any variance from those expectations could result in sizeable moves in the market this afternoon.

Finally, earnings season remains in full swing with SHOP ($0.03), TMUS ($0.41), HLT ($1.06), SHW ($2.81) reporting ahead of the bell and META ($2.51), F ($0.43), and QCOM ($2.86) releasing results after the close. Any of those reports could lead to sector specific volatility despite the Fed today.

What Happens After Inflation Peaks?

What’s in Today’s Report:

  • What Happens After Inflation Peaks?
  • Weekly Market Preview:  Fed Decision Wednesday
  • Weekly Economic Cheat Sheet:  Q2 GDP and Inflation Stats are the Highlights

Futures are modestly higher as markets bounce from Friday’s declines, following a quiet weekend and as investors look forward to numerous important catalysts this week.

Chinese authorities are considering some restrictions on movement in Shanghai as COVID cases rise, but are still resisting broad lockdowns (for now).

Economically, German Ifo Business Expectations declined further (80.3 vs. (E) 83.3).

Today there’s only one notable economic report, the Chicago Fed National Activity Index (E: 0.05), and markets will want to see stability here following last week’s disappointing data.  If this number is surprisingly weak (like the PMIs last Thursday/Friday) then that will likely weigh on stocks as recession fears grow.

Earnings season continues and this will be a very busy and important week for results.  Some earnings we’ll be watching today include:  WHR ($5.22), NXPI ($3.39), and LOGI ($3.39).

Why Stocks Dropped Again

What’s in Today’s Report:

  • Why Stocks Dropped Again
  • Consumer Confidence Takeaways
  • Gold Update: A Soft Landing Is the Worst-Case Scenario

Stock futures are modestly lower thanks to some hawkish Fed chatter and another hot inflation print in Europe.

Economically, Spanish CPI jumped to 10.2% vs. (E) 9.2% in June, up from 8.5% in May suggesting inflation has not yet peaked, at least in parts of Europe.

Domestically, the Fed’s Mester reiterated that a 75 bp hike is likely in July given elevated consumer inflation expectations.

Today, there is one economic report to watch early: Final Q1 GDP (E: -1.4%) and investors would like to see the headline at least hold unchanged from the previous revision (if not get revised higher) before focus turns to several global central bankers speaking at an ECB Forum including Fed Chair Powell at 9:00 a.m. ET.

If the discussion takes on a more hawkish tone or there is any sign the market is losing confidence in the Fed (which would be evident in the bond markets) then yesterday’s selling pressure could continue.

Yield Curve Update

What’s in Today’s Report:

  • Yield Curve Update (Are Recession Risks Rising?)
  • Why European Energy Companies Buying Gas in Rubles Matters to Stocks
  • Q1 GDP – Not as Bad as It Looks

Futures are moderately lower following underwhelming earnings and guidance from AMZN and AAPL.

AMZN results underwhelmed the street (especially margins) while APPL beat earnings but had cautious guidance for Q2 based on supply chain issues.

Economically, inflation pressures remained high as core EU HICP (their CPI) rose 3.5% yoy vs. (E) 3.1%.

Today focus will be on inflation as we get two important readings: Core PCE Price Index (E: 0.3%, 5.3%) and the Employment Cost Index (E: 1.1%).  Markets will want to see the actual numbers miss estimates, and in doing so further hint at a peak of inflation.  If the opposite happens (the numbers are hotter than estimates) that will further pressure stocks.  We also get Consumer Sentiment (E: 65.6) and the Inflation Expectations sub-index will be watched closely.

On the earnings front, some important results today include:  XOM ( $2.25), CVX ($3.44), CL ($0.74).

December Economic Breaker Panel

What’s in Today’s Report:

  • December Economic Breaker Panel – Are Economic Clouds Gathering on the Horizon?

Futures are little changed following a quiet night as investors digest the recent volatility and look ahead to the holiday at the end of the week.

Economic data was sparse overnight and the only notable report was UK GDP which slightly missed estimates (1.1% vs. (E ) 1.3%) although that’s not moving markets.

The Omicron outlook remained unchanged, as cases continued to surge but hospitalizations remain low, and as long as that’s the case market fallout will be limited.

Today we get three economic reports including Final Q3 GDP (E: 2.1%), Consumer Confidence (E: 110.7) and Existing Home Sales (E: 6.510M) but unless they provide a major surprise they won’t move markets. So, with the holiday quickly approaching and tomorrow’s Core PCE Price Index the only remaining “big” report of the week, and we’d expect both liquidity and activity to begin to decline into the weekend starting today.

 

Annual Discounts on Sevens Report, Alpha and Quarterly Letter

We’ve continued to be contacted by advisor subscribers who want to use the remainder of their 2021 pre-tax research budgets to extend their current subscriptions, upgrade to an annual (and get a month free), or add a new product (Alpha or Quarterly Letter).

If you have unused pre-tax research dollars, we offer month-free discounts on all our products. If you want to extend current subscriptions or save money by upgrading to an annual subscription (across any Sevens Report product), please email:  info@sevensreport.com.

What the Fed Decision Means for Markets

What’s in Today’s Report:

  • What the Fed Decision Means for Markets
  • EIA and Oil Market Update

Futures are marginally higher following some infrastructure progress combined with a bounce in Chinese stocks.

The bi-partisan $1 trillion infrastructure bill (which the market wants) comfortably passed a key Senate vote on Wednesday, although it still remains a long way from becoming law.

Chinese shares bounced as officials tried to calm markets, although nothing materially positive happened and this should be viewed as nothing more than an oversold bounce.

Today the financial media focus will be on Initial Q2 GDP (E: 8.0%), but as we and others have said, GDP doesn’t usually move markets, and likely won’t today.  Instead, Jobless Claims (E: 390K) will be the key economic report today, specifically whether the increase from last week continues, or is reversed (if it’s reversed, that will be a mild positive for stocks).  We also get Pending Home Sales (E: -0.8%) but that shouldn’t move markets.

On the earnings front, the key number today comes after the close from AMZN ($12.22), while we’ll also be watching MA ($1.72) and MO ($1.17).

All About Demand

What’s in Today’s Report:

  • All About Demand
  • Weekly Market Preview:  The Fed and Inflation
  • Weekly Economic Cheat Sheet:  Fed Meeting, Core PCE Price Index and GDP.

Futures are marginally lower as increased concerns about regulation in China caused a sharp drop in Chinese shares, and that’s weighing on global equities.

The Hang Seng dropped more than 4% on Monday on fears of increased regulation from the Chinese government, following reports China was going to make the education business sector “not for profit.”

COVID headlines remained generally unchanged over the weekend as cases continued to rise in the U.S, although governments continue to resist restrictions and lockdowns.

Today there’s only one notable economic report, New Home Sales (E: 800k), and that shouldn’t move markets.  On the earnings front, the key report today comes after the close (TSLA $0.96), so focus will be on COVID headlines and if there are any reports of increased restrictions or lockdowns here in the U.S., that will hit stocks.