– Jay Raises Rates by 75 bps, promises more and then less.
– Says we are not in a recession and the WH confirms that we aren’t in a pre-recession either!
– He also promised to be ‘less transparent’ going forward.
– Stocks explode higher – but will they retreat?
Stocks EXPLODED higher on the back of the latest FED policy statement……The Nasdaq and ‘Tech’ in general – rising by 2x’s greater than the broader market as JJ raised interest rates by 75 bps (expected), makes clear that we could see (very possibly) another 75 bps increase in September (August everyone is on vacation), He also tells us that it is still possible to navigate a ‘soft landing’ (comical) and that we are not in a recession – even though the economy is slowing and spending is softening. He also said that the committee has decided that maybe they should be ‘less transparent’ on future moves – future moves will now be made on a meeting by meeting basis and not by guiding ahead of time and not by ‘leaking it’ to our friends at Goldman Sachs (another comical comment) – an interesting position at this moment in time ……and while he didn’t define a date – he also said that ‘at some point it will be appropriate to slow down rate hikes’ – and the algo’s took that to mean ‘rate CUTS’ and before you could say ‘what did he just say’ the algo’s went into overdrive……sell side supply getting cancelled – leaving a void in the ‘supply chain’ while buyers (representing demand) tripped over each other trying to buy stocks first before they got more expensive (think price inflation!).
The WH wasted no time in sending out Press Secretary KJP – Karine Jean-Pierre to say that while JJ said we are not in a recession – they want to make clear that nor are we in a ‘pre-recession’ – which is really comical – Why? Because it’s called a business cycle. Econ 101 defines it as Boom & Bust, Econ 201 defines it Expansion & Contraction while Econ 301 defines it as ‘Pre-Recession & Recession – because if we are not in a Bust part of the cycle – we must be in the Boom part, if we are not in the Contractionary part of the cycle – we must be in the Expansionary part and so the logic says that if we are not in the Recession part of the cycle – we MUST be in the Pre-Recession part of the cycle! See how I did that! Amazing!
In any event – stocks blasted off – by the end of the day – the Dow added 440 pts or 1.4%, the S&P rose by 102 pts or 2.6%, the Nasdaq rose a stunning 470 pts or 4.1%, the Russel tacked on 45 pts or 2.4% while the Transports rose 235 pts or 1.7%.
While the action was fascinating – let’s not get all giddy – let’s remember that the data is weakening, rising rates are causing a business slowdown, a housing slowdown and a consumer slowdown, etc., while rising prices are causing pain across the board for everyone…. business owners and consumers. Yesterday revealed that weekly mortgage apps fell again – down 1.8% from one week ago, Retail Inventories ROSE by 2%, Wholesale Inventories ROSE by 1.9% – suggesting a tiring consumer, – Brian Deese – economic advisor to the President – flipped that idea on its head saying that ‘multiple companies may have over ordered inventory’ while Pending Home Sales fell by a stunning 20% y/y and by 8.6% m/m – reflecting the rising cost of home ownership.
30 yr. mortgage rates spiked higher – going from 5.3% to 5.8% and that is up from 2.9% in January…. To make this clear – a $500k mortgage in January would have cost you $2.081/mo. – today that same mortgage will cost you $2933/mo. – a $900 increase or 43% MORE. All while food, energy and durable goods inflation move up as well. Speaking of Durable Goods – we also learned that they rose by 1.9% too – (that is bullish actually) but is that rise in durable goods a direct result of the idea that you better buy it today because tomorrow it will be more expensive? More than likely – yes…But let’s not go there.
And then Double Line’s CEO Jeffrey Gundlach – who told us last week that the FED needed to raise rates by 200 bps at yesterday’s meeting – to re-establish credibility and get out in front of the curve – did a complete 180 after yesterday’s announcement saying that the ‘fed is no longer behind the curve and that Powell has regained credibility’. Wow! What is HIS Kool Aid?
Everything was on fire…. Tech – XLK +4.3%, Communications – XLC +4.2%, Consumer Discretionary – XLY +3.8%, Energy – XLE +2.3%, Basic Materials – XLB, Industrials – XLI, Financials – XLF all up by about 1.4%, while Healthcare – XLV and Real Estate – XLRE rose by 0.5% and Utilities – XLU gained 0.1%.
Disruptive Tech – ARKK rose by 6.7%, while Short Disruptive Tech – SARK lost 6.7%, Semi-conductors – SMH & SOXX rose by 4.5%, NVDA rose by 7% to end the day at $178/sh – all while Nancy Pelosi tries to convince us that her husband who made a $5 million bet on NVDA last week – when it was trading at $161/sh – sold his position at a $369k LOSS (hysterical!) ……. Artificial Intelligence – BOTZ rose by 3.8%, Coal and Natural Gas Stocks rose by 4.5% and 3.5% respectively. Metals and Miners – XME rose by 3.4%.the Triple Leveraged S&P Long – SPXL rose by 8% while the Triple Leverage S&P Short – SPXS fell by 8%.
And then we got a slew of earnings reports and as expected – 70% of the reports beat lowered expectations – leaving 30% to disappoint – and all of them expressed concern about what the future looks like – so nothing new to report there…..and after the bell – we heard from META – (the former Facebook) and Marky Mark told us that HE is worried about the future as well and expects it to be more severe than originally thought, this as he reported the first ever revenue drop and the first ever sales drop (lower ad spending) – causing some on the street to LOWER their price targets….(gasp!).
In his remarks – he also made clear that FB and Instagram will dramatically increase the number of posts you see from people you DON’T follow….this, his attempt to build a ‘discovery engine’ that is designed to show you ‘other kinds of content’ – this assumes I want to see ‘other kinds of content’ – which I don’t….I want to see what I want to see, NOT what you want me to see. So back off…. Just fyi – they took the stock up 6.5% during the day to close at $169 and then took it down 5.5% in the after-hours session…. this morning it is quoted at $160/$161.
In any event – expect the chatter today to be all about dissecting the FED commentary – others will focus on META and TDOC – they just reported a wider loss and much weaker guidance…. that stock is quoted down by $10 or 25%! …. especially in light of today’s 2nd qtr. GDP report…. which the Atlanta Fed revised to negative 1.2% from negative 1.5%. all while the consensus estimate of polled economists are calling for +0.3%…. So, sit tight…. because THIS is gonna be interesting! Can’t wait to see how the sides line up…. post the report at 8:30 am.
This morning US futures are down – not big, but they are digesting the explosive move from yesterday. Dow futures -60 pts, S&Ps off 18, Nasdaq down 120 and the Russell off by 2. Recall, that since the FED has started raising rates – we have seen the markets react positively on the day, but then digest and reconsider the move and the commentary only to sell off over the following days making new lows. Is that what we will see again?
Late last night – Chucky Schumer announced that he carried Joe Manchin ‘over the line’ to pass the – get ready – “Inflation REDUCTION Act of 2022”…..this bill will spend $369 billion to fight climate change, and look to curb carbon emissions by 40% by 2030 – It also includes a $7500 tax credit for buying a new EV or a $4,000 tax credit for buying a used EV – but only if you are a lower or middle income consumer. (Those are the people getting hit the hardest and you think they are gonna go out and spend $80,000 on a TESLA?) Joey wasted no time in telling us that this bill will create thousands of new jobs…while urging the Senate to advance this bill ASAP – they are set to vote on it by next week and then it goes to the House and then to Joey’s desk for his signature….If this passes – it will be seen as a Democratic win – just ahead of the mid-terms.
Interestingly though, no one has mentioned Kirsten Sinema – where does she stand on this whole thing?
We are due to get another 50+ earnings report today…. but the big ones will be after the bell…. Apple and Amazon – expect that they will dominate the conversations today…yes – they will mention all the others, but the focus will be on these two mega caps, widely owned, economy defining stocks.
Look for results from SWK, MAS, HSY, NOC, TROW, PFE, MRK, LUV, VLO, MA, HON, MLM, BTU, MO, IP and the list goes on.
And YES, the yield curve is still inverted……. the 2’s yielding 2.97%, the 5’s yielding 2.82% and the 10’s yielding 2.78%.
And oil? It is trading at $99 this morning…. right in line where it has been trading…. yesterday we learned that crude inventories are lower – fell by 4.5 million barrels while gasoline demand is 8.5% higher week/week. Exports of US oil rose to a record high – because WTI ($99) trades at a steep discount to Brent Crude ($108) and that makes it more attractive to foreign buyers – especially when we see the dollar weaken a bit – making it even more attractive – recall oil is priced in dollars – so a weaker dollar is bullish for foreign buyers while a stronger dollar is bearish for those same buyers.
In Europe – markets are slightly lower….as they also dissect and digest the latest FED comments along with the deluge of earnings reports hitting the tape there. Markets across the region are down about 0.2% – with the exception of Italy- which is up 1%. And that makes sense only because it is the worst performer across the Eurozone – down 21% ytd….so investors scouring the Italian countryside for bargains!
The S&P closed at 4023…. after trading as high as 4039 and as low as 3951. We also CLOSED (amazingly) the gap created on June 10th – and that means there are further gains ahead – until the next negative headline! … the S&P is now in the 3920/4125 trading range….3920 while trendline support is not expected to be really strong support – the headlines are still too skittish and one really negative headline will cause the algo’s to go into sell mode. I still think that 3600 represents the bottom and would not be surprised to see us retest it.