Stock Market Overview – August 1, 2022

Following Thursday’s GDP print of -0.9%, the US is in a recession by the standard definition of two consecutive quarters of GDP contraction. The stock market, however, is unbothered, rallying on the news. 

The “official” forecasts for Q2 GDP were -0.5%, while it came in at -0.9%. That the market rallied on this tells me it was expecting a far worse GDP print and some money came off the sidelines serving as a relief rally.

The Technical View

The stock market just had its best month in nearly two years in July, a month full of scary economic data where we “officially” reached recession territory. The Harris Kupperman quote “if you don’t have an inflection point, you’re just a slave to monthly data” can’t ring more true right now. 

The price action in the S&P 500 has shattered the months-long downtrend that started in March. After a few weeks of consolidation, the market made its mind up to rally decisively upward. 

We’re beginning to see the skeleton of an uptrend form, as you can see by the higher low and higher high established in the last few weeks marked on the chart: 

Worth mentioning is the risk appetite of investors this week. While the market aggressively rallied, defensive stocks still outperformed more risk-on stocks. I represent this using the spread between the ARK Innovation ETF and the utilities sector: 

On the energy front, while crude oil is still in consolidation, energy equities, represented by the XLE ETF, rallied hard this week, up 9.7% after a tough couple of months: 

The most inflationary equity sector rallying hard this week can’t make the Fed feel good about their 75bps hike. 

While the downtrend in crude oil seems to be losing steam, it remains vulnerable to significant volatility should it breakdown below the well-respected several month range: 

Federal Reserve Watch

The Fed hiked rates 75 basis points on Wednesday, which was in line with the market’s expectations.

Crucially, Powell sees inflation as being too high and the labor market as tight–nothing new there. But following that, he said “another unusually large increase could be appropriate at the next meeting.” 

Because there’s no Fed meeting in August, the Fed will have extra time to sniff out how their rate hikes are playing out in the economy, and if inflation shows any sign of cooling down. 

Currently, the market is pricing in a 50bp hike for the September meeting, with a 30% chance of another 75bp hike. 

Some interesting inflationary data followed the Fed meeting, like the Employment Cost Index for Q2 coming in hot at 1.3%, and now many are making the observation that the Fed would have hiked 100 basis points if the meeting was just a few days in the future. 

But in the same breath, many are expecting a pivot back to accommodative policy as the recession pain sets in and the economy slows down. And the Eurodollar market, a proxy for Fed funds, is pricing in this pivot: 

Chart of the Week

Everybody loves a nice zoomed out parabolic chart. Today’s is German food.

Last Week’s News

• US GDP declined 0.9% vs 0.5% expected. The stock market rallied on the news
• The US enters a recession following two consecutive quarters of GDP contraction
• The Federal Reserve hiked rates 75 basis points, in line with market expectations
• July was the best month in nearly two years for the stock market
• Charles Schwab (SCHW) to list a crypto ETF on the NYSE next week
• SEC adds Alibaba (BABA) to list of US-listed Chinese firms facing delisting
• Amazon (AMZN) beats earnings, with AWS serving as a highlight
• Chipotle (CMG) stock rockets on earnings as the company shows their pricing power
• Alphabet (GOOG) narrowly misses estimates and warns investor of tough comps, but the stock still rose
• Meta (META) misses earnings, posts first YoY revenue decline. Also rose the price of their Meta Quest VR headsets by $100
• Walmart (WMT) cut profit outlook and the stock declined roughly 8%
• The SEC is still investigating Tesla (TSLA) regarding Elon Musk’s “going private” tweets
• Elon Musk thinks inflation has peaked
• US Senators Pat Toomey and Kyrsten Sinema introduced a bill to exempt small crypto transactions (<$50) from capital gains taxes
  

Upcoming Catalysts

General/no specific date:

• Charles Schwab issuing a crypto ETF on the NYSE next week

Monday, August 1:

• Activision (ATVI) in the midst of being acquired by Microsoft (MSFT) is reporting earnings.

Tuesday, August 2:

• PayPal (PYPL) reports earnings. The stock has been destroyed in 2022, down over 70% from highs. The options market is pricing in a double digit move on earnings.

Thursday, August 4:

• Tesla (TSLA) shareholder meeting

Upcoming Earnings

We’re about halfway through earnings season and 74% of S&P 500 components that have reported earnings already beat EPS expectations, roughly in line with Q1’s reading of 76%. However, only 60% of components beat revenue expectations, the worst percentage since Q1 2020. 

Monday, August 1:

• Activision Blizzard (ATVI)
• HSBC (HSBC)
• Credit Acceptance Corp (CACC)
• Builders FirstSource (BLDR)
• Jacobs (J)
• Kellogg (K)
• CNA Financial (CNA)
• Aflac (AFL)
• DaVita (DVA)
• Mosaic (MOS)
• Devon Energy (DVN)
• Avis Budget Group (CAR)
• CVR Energy (CVI)
• Diamondback Energy (FANG)
• Onsemi (ON)

Tuesday, August 2:

• Starbucks (SBUX)
• PayPal (PYPL)
• Gilead Sciences (GILD)
• Occidental Petroleum (OXY)
• Advanced Micro Devices (AMD)
• Herbalife (HLF)
• Electronic Arts (EA)
• Airbnb (ABNB)
• MicroStrategy (MSTR)
• BP (BP)
• JetBlue (JBLU)
• Uber (UBER)
• Molson Coors (TAP)
• Marriott (MAR)
• KKR (KKR)
• Zebra Technologies (ZBRA)
• Ferrari (RACE)
• International Game Technology (IGT)
• S&P Global (SPGI)
• Marathon Petroleum (MPC)
• Caterpillar (CAT)
• Cummins (CMI)
• Eaton (ETN)
• Lear (LEA)
• DuPont (DD)

Wednesday, August 3:

• CVS Health (CVS)
• McKesson (MCK)
• Metlife (MET)
• Energy Transfer (ET)
• AmerisourceBergen (ABC)
• Allstate (ALL)
• DISH Network (DISH)
• Sunoco (SUN)
• Moderna (MRNA)
• DXC Technology (DXC)
• Trane Technologies (TT)
• Brookfield Infrastruture (BIP)
• Altice USA (ATUS)
• MGM Resorts (MGM)
• Yum Brands (YUM)
• Under Armour (UAA)
• Western Union (WU)
• Robinhood (HOOD)
• New York Times (NYT)
• Enterprise Products (EPD)
• Exelon (EXC)
• CDW (CDW)
• Regeneron (REGN)

Thursday, August 4:

• Cigna (CI)
• Alibaba (BABA)
• Block (SQ)
• Monster Beverage (MNST)
• Restaurant Brands (QSR)
• Apollo Global Management (APO)
• Zillow Group (ZG)
• DoorDash (DASH)
• Opendoor (OPEN)
• Embraer (ERJ)
• Public Storage (PSA)
• Crocs (CROX)
• Carvana (CVNA)
• Rocket (RKT)
• IntercontinentalExchange (ICE)
• Expedia (EXPE)
• PENN National Gaming (PENN)
• Parker Hannifan (PH)
• Wayfair (W)
• ConocoPhilips (COP)
• Nutrien (NTR)
• Arrow Electronics (ARW)
• Eli Lilly (LLY)
• Amgen (AMGN)
• CBRE (CBRE)
• Duke Energy (DUK)
• NRG Energy (NRG)
• XPO Logistics (XPO)

Friday, August 5:

• Western Digital (WDC)
• EOG Resources (EOG)
• Qurate Retail (QRTEA)
• Telus (TU)
• Global Partners (GLP)
• Adient (ANDT)
• Fluor (FLR)
• Goodyear Tire (GT)
• AMC Networks (AMCX)
• DraftKings (DKNG)

Upcoming Economic Data

Between GDP and the Fed meeting last week, expect a less volatile and action-packed coming week, although we do hear from the ISM with their Report on Business, as well as nonfarm payrolls Friday. 

Monday, August 1:

• ISM Manufacturing Index
• S&P US manufacturing PMI

Tuesday, August 2:

• Job openings and quits

Wednesday, August 3:

• S&P US services PMI
• ISM services index

Thursday, August 4:

• Initial and continuing jobless claims
• Trade deficit

Friday, August 5:

• Nonfarm payrolls

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