Third Week Down

Worries about the Chinese economic decline and higher rates and pressure it creates in the financial sector left markets little changed on Friday in a very choppy session.  However, the short-term oversold condition suggests a relief rally to challenge overhead resistance could begin at any time.  Uncertainty and price volatility are likely as we wait on the Fed speakers and talking head marketeering coming our way later this week from Jackson Hole. 

Asian markets finished the day mixed after China cut their 1-year prime rate but surprisingly left the 5-year rate unchanged as their real estate crisis continues to expand.  European markets trade higher across the board this morning as investors look to relieve some of last week’s selloff.  U.S. market ahead of a light day of earnings and economic reports also point to some bullish relief with futures suggesting a gap up open though substantial overhead resistance awaits the challenge.

Economic Calendar

Earnings Calendar

Notable reports for Monday include FN, NDSN & ZM.

News & Technicals’

China has lowered its one-year loan prime rate (LPR) by 10 basis points to ease the financing costs for businesses and households amid the economic slowdown caused by the coronavirus pandemic. The one-year LPR, which is the benchmark for most consumer and corporate loans in China, was reduced from 3.55% to 3.45%, according to the announcement by the People’s Bank of China on Monday. However, this cut was smaller than the 15 basis points that most economists had expected, according to a Reuters poll. On the other hand, China kept its five-year LPR, which is the reference for most mortgages, unchanged at 4.2%, despite the market anticipation of a 15-basis point reduction. This suggests that China is still cautious about stimulating the housing market, which has shown signs of recovery in recent months.

A former regional manager of Starbucks has won a legal victory against the coffee giant, after claiming that she was discriminated against because of her race. Shannon Phillips, who is white, sued Starbucks for wrongful termination, alleging that she was fired in 2018 for opposing the company’s policy of punishing white employees more harshly than Black employees following the controversial arrests of two Black men at a Philadelphia store. Phillips said that she was singled out and treated differently from other managers who were not white. In April, a jury awarded Phillips more than $25 million in damages for lost earnings and emotional distress. On Friday, a judge ordered Starbucks to pay an additional $2.7 million in lost wages and tax damages to Phillips, bringing the total amount to nearly $28 million. Starbucks said that it was disappointed with the verdict and planned to appeal.

The U.S. Treasury market saw a rise in yields on Monday, as investors prepared for a busy week of economic data and speeches from Federal Reserve officials. The yield on the 10-year Treasury note, which moves inversely to its price, climbed 4 basis points to 1.62%, while the yield on the 30-year Treasury bond rose 3 basis points to 2.32%. The higher yields reflected the expectations of stronger economic growth and inflation in the U.S., as well as the uncertainty about the Fed’s monetary policy stance. Investors were looking forward to hearing from Fed Chair Jerome Powell and other Fed policymakers, who were scheduled to speak at various events throughout the week. They were also awaiting the release of key economic reports, such as the consumer price index, retail sales, and industrial production, which could provide more clues about the state of the U.S. economy and the outlook for interest rates.

The S&P 500 ended the week with little change on Friday, but it was still down for the third week in a row due to worries about China and rising interest rates. The Nasdaq, which is more sensitive to interest rates, also suffered from the high level of the 10-year Treasury yield, which dropped slightly Friday but stayed close to its highest point in 11 years. Global markets also fell, as investors were concerned about the troubles in China’s property sector. The months of August and September tend to be more challenging for stocks, with bigger swings and deeper corrections but the short-term oversold condition now suggests a relief rally could begin at any anytime.  With very little on earnings and an economic calendar expect volatility as we wait for all the talking head speeches from Jackson Hole later in the week. 

Trade Wisely,

Doug

Continued to Slide

Indexes continued to slide on Wednesday after a miss from Target and Fed minutes revealed that policymakers were concerned about higher inflation.  Technical damage grew with the SPY, QQQ, and IWM failing below their 50-day averages and the VIX-X confirmed its lower high following though.  However, the T2122 is signaling a short-term oversold condition suggesting a relief rally could occur at any time if the pending data can give the bulls some encouragement.  Today we have several notable earnings reports with Wal-Mart leading the way this morning fullered shortly after with numbers on Jobless Claims and the Philly Fed MFG. 

Asian markets closed mostly lower overnight as Fed minutes add investor worry about further rate increases. European markets trade mixed and relatively flat in a cautious morning session.  With earnings and economic numbers pending the U.S. futures are trying to show confidence in a relief rally beginning but that could fade quickly if the data doesn’t support the hope.  Plan for more volatility as uncertainty grows.

Economic Calendar

Earnings Calendar

Notable reports for Thursday include AMAT, BILI, DOLE, FTCH, KEYS, LITE, ROST, TPR, & WMT.

News & Technicals’

The U.S.-China trade tensions escalated on Wednesday when President Biden signed an executive order to ban American investments in 59 Chinese companies that are allegedly involved in developing advanced technologies for military purposes. The order, which will take effect on August 2, aims to protect the national security and interests of the U.S. and its allies from the threats posed by China’s military-industrial complex. However, China’s Ministry of Commerce expressed its strong opposition to the move and warned that it would take necessary countermeasures to safeguard its legitimate rights and interests. The ministry’s spokesperson also said that China and the U.S. were in close contact on trade issues, but did not confirm the date of a possible visit by U.S. Commerce Secretary Gina Raimondo to Beijing. The spokesperson urged the U.S. to respect the market principles and the rule of law and to stop interfering in China’s internal affairs.

Russia’s central bank surprised the markets on Tuesday by raising its key interest rate to 12% from 8.5%, in an attempt to stop the free fall of the ruble, which has lost more than 40% of its value against the dollar this year. The decision came after sharp criticism from President Putin’s economic advisor, who blamed the bank’s “loose monetary policy” for fueling inflation and weakening the currency. The advisor argued that the bank should focus on stabilizing the exchange rate rather than supporting economic growth, which has been hit hard by Western sanctions and falling oil prices. However, the bank’s governor had previously defended her policy, saying that the main causes of the ruble’s decline were external factors, such as the shrinking trade surplus and the increased demand for foreign currency by Russian companies. She also warned that a higher interest rate could further damage the already fragile economy, which is expected to contract by 4.5% next year.

The stock market continued to slide in August, as the Fed’s minutes from its last meeting revealed that policymakers were concerned about higher inflation. Some investors took this as a sign that the Fed might tighten its monetary policy sooner than expected, but we note that inflation and wage growth have slowed down since the meeting. Global stocks also suffered from fears about China’s slowing economy. On a positive note, U.S. industrial production increased in July for the first time in three months, thanks to a boost in auto production. This suggests that the economy is starting the third quarter on a strong footing. The 10-year Treasury yield climbed to 4.27%, matching its highest level since last October*.

Trade Wisely,

Doug

Credit Rating Cuts?

Credit Rating Cuts

Despite the better-than-expected retail sales figures the Tuesday market reacted negatively to the slowing China economy and the possible bank ratings cuts that Fitch warned could be on the way.  The VIX made its first higher low in months as sentiment shifted as the SPY, QQQ & IWM dipped below their 50-day moving average at the close.  Today we will continue with the big box retailers with TGT kicking off the notable reports this morning along with Housing, Industrial Production, Oil Status, and the FOMC minutes to inspire.  Expect price volatility watching for the possibility of a relief rally that begins at any time if the data can allow the bears to relax.

Overnight Asian markets closed red across the board reacting to the warning of U.S. banks facing possible credit downgrades from Fitch. However, European markets trade mixed as the U.K. continues to deal with inflation with house prices rising 1.7%.  Ahead of earnings and economic data U.S. futures point flat open as the recent confidence fades to uncertainty.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include ZIM, JD, TGT, TJX, STNE, and CSCO.

News & Technicals’

Tencent, one of the largest technology companies in China, announced its second-quarter earnings on Wednesday, revealing a strong increase in profit but a disappointing revenue growth. The company said that its net profit rose by 29% year-on-year to 42.6 billion yuan ($6.6 billion), beating analysts’ estimates. However, its revenue only grew by 20% to 138.3 billion yuan ($21.4 billion), missing the market expectations of 143.4 billion yuan ($22.2 billion). The mixed results reflect the impact of Tencent’s cost-cutting measures and the challenging economic environment in China amid the pandemic recovery.

Intel, the world’s largest chipmaker, announced on Wednesday that it has called off its deal to acquire Tower Semiconductor, an Israeli company that specializes in contract chip manufacturing. The reason for the termination was the failure to obtain the necessary regulatory approval from various authorities. Intel will pay a break-up fee of $353 million to Tower, as per the terms of the agreement. The deal, which was valued at $5.4 billion, was announced in February 2022 and aimed to boost Intel’s production capacity and diversify its product portfolio. However, the deal faced scrutiny from regulators amid the global chip shortage and geopolitical tensions.

Disney, the entertainment giant, is facing a lawsuit from TSG Entertainment, a film financing company that has backed many of its 20th Century Fox movies. The suit, filed on Tuesday in Los Angeles Superior Court, claims that Disney breached its contract with TSG by withholding profits from the films and diverting them to its streaming platforms, such as Disney+ and Hulu. The suit also accuses Disney of manipulating its accounting and reporting practices to inflate its stock price and reduce its obligations to TSG. TSG alleges that Disney’s actions have harmed its ability to invest in new films and to sell its stakes in existing films, causing it significant losses.

The stock market ended the day with losses on Tuesday, as investors were worried by weak economic data from China and the possibility of U.S. banks facing credit rating cuts by Fitch. These negative factors outweighed the positive news of higher U.S. retail sales and pushed the stocks further down in August. The 10-year Treasury yield also rose again, reaching 4.2%, the highest level in 2023 and close to the peak seen last fall. Oil prices also fell by more than 1.5% due to concerns over China’s economic slowdown. The T2122 indicator fell into the short-term oversold area as the VIX made its first higher low in months raising some concerns.  The bull or bears will be looking for inspiration today in Mortgage Apps, Housing Starts, Industrial Production, Petroleum Status, and FOMC minutes.  Of course, we also have several notable earnings with the theme of big box retailer Target kicking it off this morning.

Trade Wisely,

Doug

Mixed Results

On Friday the producer price data failed to reassure investors concerning the Fed’s next rate move creating a choppy low-volume session that produce mixed results in the index charts.  The struggling Chinese economy with a worsening real estate crisis added to the uncertainty as the tech titans continued to slide south.  With a very light day on both the earnings and economic calendar expect more choppy price action as we wait for the Tuesday Retail Sales figures.  The wide range between the support and resistance levels suggests big point swings are possible so plan your risk carefully.

Asian markets continued moving lower as the real estate giant Country Garden dropped 17% as China’s real estate crisis worsens.  However, European markets trade mixed but mostly higher this morning trying to relieve last week’s selling.  U.S. futures continue the practice of pumping higher in the premarket despite the growing economic uncertainties.   

Economic Calendar

Earnings Calendar

Notable reports for Monday include ALC, HRTX, JKS, & MNDY.

News & Technicals’

The Russian currency is facing a sharp decline as it reached a new low against the U.S. dollar on Monday. The ruble traded at more than 100 per dollar, the weakest level since March 2020, when the coronavirus pandemic and an oil price war triggered a massive sell-off. The ruble has lost about 30% of its value since January, as Russia’s economy suffers from lower oil revenues, Western sanctions, and rising inflation. President Vladimir Putin’s economic advisor, Andrey Belousov, blamed the central bank for the ruble’s woes, saying that its loose monetary policy and high-interest rates have discouraged investment and growth. However, the Bank of Russia has defended its stance, saying that it is necessary to curb inflation and support financial stability. The bank has also attributed the ruble’s depreciation to the shrinking balance of trade, as Russia’s current account surplus fell 85% year-on-year from January to July.

China’s credit and economic activity data for July showed signs of a slowdown in the world’s second-largest economy, as businesses and households faced tighter liquidity conditions and regulatory pressures. The demand for new loans fell sharply in July, as the central bank kept its policy stance unchanged and cracked down on risky lending practices. The total social financing, a broad measure of credit and liquidity in the economy, dropped to 1.06 trillion yuan ($163.5 billion) in July, down 63% from June and well below market expectations. The money supply growth also slowed to a record low of 8.3% year-on-year. On Tuesday, China is expected to release other economic indicators for July, such as industrial production and fixed asset investment, which are forecasted to remain unchanged from June at 8.8% and 12.6% year-on-year, respectively. However, some analysts warn that the actual figures could be lower than expected, as power shortages, floods, and Covid-19 outbreaks have disrupted the economic activity in some regions. Meanwhile, the Chinese property sector, a key driver of growth and demand, is facing increasing challenges as the government tightens its grip on the industry. Over the weekend, one of the largest developers in China, Country Garden, announced that it was suspending trading in at least 10 of its mainland-China traded yuan bonds, citing “abnormal price fluctuations” and “recent market conditions”. The move sparked concerns over the financial health of the company and the sector as a whole, as many developers are struggling with high debt levels and regulatory curbs.

The combination of consumer and producer price data failed to reassure investors about the Fed’s next move creating mixed results on Friday with another choppy low volume session. Record short taking on the 10-year bond continued to pressure the security higher pushing the dollar higher while the VIX oddly declined as uncertainty appears to be on the rise. We begin this week with a very light day on the earnings and economic calendar so don’t be surprised if we see another choppy day of price action as we wait to see the strength of the consumer with Retail Sales figures Tuesday morning.  With speculation so high be careful not to overtrade as big point up or down moves remain likely.

Trade Wisely,

Doug

Temporarily Reignited Fears

Although Moody’s shined a light on the struggling, debt-laden financial yesterday it only temporarily reignited fears in the sector as traders quickly returned to buying adding another warning to the list of the things it chooses to ignore.  Earnings continue to inspire buyers and with a slew of reports today I expect the push higher to continue testing recent resistance levels.  Mortgage, Petroleum, and bond auctions on the economic calendar may also provide some temporary inspiration for the bulls or bears as we wait on the CPI figures Thursday morning.  Plan for more volatility ahead with a likely morning gap Thursday to be considered in your risk calculations.

During the night China reported a consumer price drop for the first time in 2-years as their economy continues to weaken with indexes closing the session mixed.  European markets trade decidedly bullish this morning as the government in Italy quickly moves to water down their bank windfall tax announced yesterday.  U.S. futures point to bullish open with a light day of economic reports and another big day of earnings to inspire investors.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include ALRM, AAP, ALDP, CLNE, CDE, DIS, ENS, G, GDRX, ILMN, INFN, JACK, JAZZ, LL, MFC, NOMD, ODP, PAAS, PENN, PLUG, REYN, RBLX, SSYS, TBLA, SKIN, TTD, VVV, VERX, WRBY, WEN, & WYNN.

News & Technicals’

Rivian Automotive, a leading electric vehicle (EV) maker, announced its second-quarter financial results on Tuesday. The company reported a net loss of $995 million, which was lower than the $1.3 billion loss that analysts had expected. Rivian also raised its production guidance for 2023, saying that it plans to build about 52,000 vehicles, more than double the 25,000 vehicles it made in 2022. The company said that it had $10.2 billion in cash and cash equivalents at the end of June, which gives it enough liquidity to fund its growth and expansion plans. Rivian is preparing to launch its first two models, the R1T pickup truck and the R1S SUV, later this year.

David Portnoy, the founder and face of Barstool Sports, has regained full ownership of his media empire, after buying it back from Penn Entertainment. Portnoy announced the news in a blog post on Tuesday, saying that he and Penn had “gone our separate ways.” He did not disclose the terms of the deal but said that he was “very happy” with the outcome. Portnoy sold a 36% stake in Barstool to Penn in January 2020, valuing the company at $450 million. The deal gave Penn access to Barstool’s loyal fan base and online sports betting platform. However, Portnoy said that he and Penn had different visions for the future of Barstool and that he wanted to return to his “roots” as an independent media mogul. He thanked Penn for their partnership and wished them well. He also said that he was excited to take Barstool to the next level, with plans to launch new shows, podcasts, and events.

Kyle Bass, a well-known China hawk, and hedge fund manager, warned on Tuesday that he expects Chinese President Xi Jinping to launch a military invasion of Taiwan before the end of 2024. Bass, who is the founder and chief investment officer of Hayman Capital Management, told CNBC’s “Street Signs” that Xi is driven by his ambition to “bring war to the West,” and that he does not care about the economic consequences of such a move. Bass said that Xi is similar to Russian President Vladimir Putin, who annexed Crimea in 2014 despite international sanctions and condemnation. Bass said that he believes Xi will try to “reacquire Taiwan by force by the end of next year,” based on his speeches and actions. Bass said that Taiwan is a vital ally and partner of the United States and that its loss would be a “tragedy” for democracy and freedom. He urged the US and its allies to stand up to China and defend Taiwan’s sovereignty and security.

Several banks faced negative rating actions from Moody’s on Tuesday, dragging down the stock market. State Street and Bank of New York Mellon were put on review for a downgrade, while M&T and others were downgraded. Big banks like JPMorgan and Goldman Sachs also suffered losses of more than 0.5%. Moody’s banking downgrades and warnings only temporarily reignited fears about the debit-laden financial sector but the afternoon recovery suggests we can add that to the list of things the market chooses to ignore. Investors sought safety in Treasury bonds, pushing the 10-year yield below 4% briefly before hurrying back into stocks seemingly unconcern that consumer credit card debt topped 1 Trillion for the first time in history and defaults continue to rise. Global stocks also declined. Oil prices dipped in the morning after weak Chinese data, but also recovered later. The Chinese slowdown weighed on currencies like the Australian dollar, which weakened against the U.S. dollar. Today we only have Mortage Apps, Petroleum numbers, and bond auctions on the economic calendar.  However, with a slew of earnings reports in the wings, the push upward continues to test recent resistance levels.

Trade Wisely,

Doug

Markets Bounced Back

Monday’s price action relieved some of last week’s selling pressure as markets bounced back with the Dow leading the buying while the other indexes suffered from low volume.  However, bad economic data from China overnight could reverse a significant portion of yesterday’s gains at the open.  Investors will also have a slew of earnings reports and International Trade numbers to find inspiration as the looming inflation data looms on the horizon.  With stocks priced near and even above perfection expect considerable volatility as weakening economic conditions bring a rise to a rapidly restricting liquidity condition.

Asian markets traded mixed overnight as China’s trade numbers fall more than expected as their economy continues to struggle with contraction.  European markets trade bearishly this morning with worries of pending inflation data and sinking Italian banks.  U.S. futures are under pressure this morning with banks seeing weakness, and bad Chinese trade data suggesting a gap down open ahead of earnings results. 

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include ADT, AKAM, BIRD, AMG, ANGI, ARMK, ARRY, TECH, BLNK, BMBL, CPRI, CELH, CHH, CMP, CPNG, DAR, DDOG, APPS, DUK, DUOL, BROS, LLY, ENR, EXPD, FLT, FOXA, GFS, HL, HNST, TWNK, IAC, NVTA, IRBT, J, KLIC, LI, LYFT, MTTR, MPW, NYT, NVAX, OGN, PAYO, PRGO, PTRA, PUBM, QSR, RIVN, SEE, SEAS, SMCI, TTWO, TWLO, UAA, UPS, WMG, WE, & ZTS.

News & Technicals’

United Parcel Service (UPS), the world’s largest package delivery company, has revised its revenue outlook for 2023, citing slower growth in e-commerce demand and a more generous labor contract for its workers. The company now expects to generate about $93 billion in consolidated revenue in 2023, down from its previous estimate of about $97 billion. The lower forecast reflects the challenges that UPS faces in maintaining its profitability and market share in the highly competitive and dynamic e-commerce sector.

Lucid Motors, a leading electric vehicle maker, reported disappointing financial results for the second quarter of 2023, missing both revenue and delivery targets. The company generated only $150 million in revenue, below the average analyst estimate of $170 million. It also delivered only 1,200 units of its flagship Air electric luxury sedan, falling short of the expected 1,500 units. The company blamed the lower-than-expected performance on supply chain disruptions and production challenges amid the global chip shortage and the COVID-19 pandemic. However, the company also announced that it had raised $3 billion in a private placement in May, which extended its cash runway by about a year, until 2025. The capital raise was seen as a positive sign by some investors, who believe that Lucid has strong growth potential and a competitive edge in the electric vehicle market.

China’s trade activity slowed down sharply in July, indicating a weakening of both domestic and global demand amid the ongoing COVID-19 pandemic and geopolitical tensions. The country’s exports fell by 8.1% year-on-year in July, while imports dropped by 11.2%. Both figures were worse than the market expectations of a 3.5% decline in exports and a 6.8% decrease in imports. The trade surplus also narrowed to $42.8 billion from $51.5 billion in June. The data showed that China’s trade with its major partners, such as the US, the EU, Japan, and ASEAN, all contracted in July. Among the few higher-value export categories that saw a significant increase in the first seven months of the year were cars and suitcases, which rose by 28.9% and 25.6% respectively. However, these gains were offset by the sharp declines in other sectors, such as textiles, garments, footwear, and furniture. The trade data suggested that China’s economic recovery from the pandemic was losing momentum and that the country faced increasing challenges from both external and internal factors.

Markets bounced back on Monday with the Dow leading the way although the SPY, QQQ & IWM delivered a lackluster performance on a choppy low volume day. Investors appear to be giving a nod to the uncertainty ahead in the U.S. inflation data that will be released on Thursday morning. Bond yields also edged up slightly, with the 10-year U.S. yield rising by about 0.03% to 4.09%, as the VIX pulled back relaxing some of last week’s market fears. Today investors face a big day of earnings as well as the International Trade numbers coming in before the bell. 

Trade Wisely,

Doug

Jobs Data

The mixed bag of jobs data only inspired the bulls early on Friday with the hope the data will back off the Fed, however, the fact that the jobs market is beginning to reflect the slowing economy kept the bears active into the close. With the economic calendar light on data today the focus will likely turn back to earnings results for inspiration and a possible relief rally.  However, be careful with the thought we will zoom back to new highs as we have entered a sessional period when the market struggles for liquidity not to mention that the bears have now woke up and smell blood in the air. They may not give up as easily as they have most of this summer.

Overnight Asian markets traded mixed but mostly lower with Chinese inflation data on the horizon.  European markets trade decidedly bearish in a choppy morning session waiting also on inflation data.  However, here in the U.S. futures seem to have fewer worries about inflation suggesting a bullish open ahead of the next round of earnings reports.  Plan for price volatility with thoughts of CPI and PPI data later this week.

Economic Calendar

Earnings Calendar

Notable reports for Monday include BYND, BNTX, CBT, CXW, CTRA, ELAN, FRPT, GOGO, HSIC, IFF, JRVR, KKR, KD, LCID, MTW, MED, OKE, PARA, PLTR, RNG, SWKS, SRC, TSN, & TDC.

News & Technicals’

Siemens Energy, a leading global energy company, faced a major setback in its financial performance as it reported a net loss of around 4.5 billion euros for the year. The main reason for this loss was the 2.2 billion euro impairment charge related to its wind turbine subsidiary Siemens Gamesa, which suffered from quality problems and project delays. The CEO of Siemens Energy, Christian Bruch, admitted that the company had been too hasty in launching new platforms into the market, resulting in costly failures that could take years to resolve. He also said that the company was working hard to improve its quality standards and customer satisfaction. Siemens Energy’s shares dropped sharply after the announcement of the disappointing results.

Aramco, the world’s largest oil producer, saw its net profit plunge by nearly 40% in the second quarter of 2021, as the global oil demand was still recovering from the impact of the Covid-19 pandemic. The company reported a net profit of 112.81 billion riyals ($30.07 billion), down from 48.4 billion recorded in the same period last year. However, the profit was slightly higher than the analyst’s expectations of 29.8 billion riyals. Carole Nakhle, an energy expert, said that Aramco’s financial position was still strong, despite the lower results, and that it was in line with the overall industry trend. Aramco also announced that it would pay a dividend of $18.8 billion for the second quarter, in line with its commitment to pay $75 billion for the year.

Berkshire Hathaway, the diversified conglomerate led by billionaire investor Warren Buffett, reported a strong increase in its operating earnings and net income in the second quarter of 2021, as the economy rebounded from the effects of the Covid-19 pandemic. The company’s operating earnings, which reflect the performance of its core businesses, rose by 6.6% to $10.043 billion, compared with $9.42 billion in the same quarter last year. The company’s net income, which includes the changes in the value of its stock portfolio, surged to $35.91 billion, a sharp contrast to the $43.62 billion loss it suffered in the second quarter of 2020 when the stock market crashed due to the coronavirus outbreak. Berkshire also increased its cash pile to $147.377 billion at the end of June, near a record high and much higher than the $130.616 billion it had at the end of March. The company has been looking for attractive acquisition opportunities to deploy its cash but has faced stiff competition from private equity firms and other investors.

The U.S. credit-rating downgrade was the main topic of discussion for most of this week, but Friday the focus shifted back to the economy with the latest jobs data. Although the market was slightly up in early-Friday trading, investors interpret the employment figures as a mixed bag of results showing signs of slowing down. The bond market is reacting to the Fed policy implication, with 10-year yields falling near 4.1% after reaching 4.2% on Thursday. The T2122 shows it has relieved a significant amount of the short-term overbought condition however with the sharp rise in the VIX the emotion can create some big price whipsaws.  With a light day on the economic calendar, earnings reports will take center stage and a possible relief rally but be careful because we are entering a typically difficult time for the market seasonally. 

Trade Wisely,

Doug

Debit Downgrade

The debt downgrade to AA+ provided just enough encouragement to the bears to relieve some of the short-term overbought conditions in the indexes.  Although it was the worst day for stocks in a while the bullish trends took no damage and prices continue to be stretched well above key moving averages. Today will be busy with economic reports and a slew of earnings events capped off by the highly anticipated reports from AAPL and AMZN after the bell. Plan for considerable price volatility and don’t be surprised to see a morning gap on Friday due to the big tech reports and market reaction.

While we slept Asian market traded mostly lower with only the Shanghai index squeaking out a 0.58% gain.  European markets trade lower across the board this morning waiting on a Bank of England rate decision.  U.S. futures point to bearish open ahead of a huge day of earnings and economic data making anything possible by the time the market opens.  Plan your risk carefully!

Economic Calendar

Earnings Calendar

Notable reports for Thursday include AAPL, AMZN, ADT, AL, APD, ABNB, AMGN, BUD, TEAM, BHC, BDX, SQ, BE, BKNG, BIP, GOOS, CARS, LNG, CQP COHU, COIN, COP, CEG, CTVA, CUBE, CMI, DVA, DEN, DIN, DKNG, DBX, LOCO, EOG, EXPE, EXR, FND, FTNT, GIL, GILD, GDDY, GPRO, HAS, HGV, HII, H, ICE, IDCC, ITT, K, KTOS, LAMR, MTZ, MMP, MLCO, MCHP, MRNA, MNST, OPK, PZZA, PH, DOC, PBI, PLNT, PTLO, QLYS, PWR, RKT, RYAN, SHAK, SO, SWN, SYK, SYNA, TPX, TRMB, MODG, VMC, WBD, W, WRK, WW, & YELP.

News & Technicals’

JPMorgan Chase CEO Jamie Dimon dismissed the significance of the Fitch Ratings downgrade of the U.S. long-term credit rating in a CNBC interview on Wednesday. He argued that the market, not rating agencies, sets the interest rates for borrowing, so the downgrade “doesn’t matter that much”. He also expressed his frustration that some countries that rely on the U.S. for security and stability have higher credit ratings than the U.S., calling it “ridiculous”.

AMD, the U.S.-based chipmaker, sees India as a key market for its growth and innovation, according to its CTO Mark Papermaster. In an exclusive interview with CNBC on Thursday, Papermaster revealed that AMD plans to invest $400 million in India to expand its design capabilities and workforce. He said that the firm will build its largest design center in Bangalore and hire about 3,000 engineers in India. He added that the India design team is involved in almost every product that AMD develops.

Qualcomm, the leading maker of smartphone chips, posted better-than-expected earnings for the third quarter on Wednesday, but its revenue and outlook for the fourth quarter disappointed investors. The company’s revenue fell 9% year-over-year to $8.24 billion, missing analysts estimates of $8.28 billion. Qualcomm blamed the weak revenue on the slowdown in the smartphone industry, which affected its handset chip sales, which dropped 25% year-over-year to $5.26 billion.

On Wednesday, markets fell due to the short-term overbought condition with the encouragement debt downgrade. Indexes had their worst day in a while, partly because of the latest report on the labor market (ADP payroll report) that showed more job growth than expected for the month and the rising bond yields. Today investors have a huge number of earnings events to find inspiration including the highly anticipated reports from AAPL and AMZN after the bell.  We also have a busy economic calendar with Jobless Claims, Productivity & Costs, PMI Composite, Factory Orders, ISM Services, and Natural Gas numbers to keep the traders guessing as to what comes next.  Expect considerable volatility as the market reacts to all the data and watch for a Friday morning gap after the big tech reports.

Trade Wisely,

Doug

Low-Volume Session

Tuesday proved to be a choppy low-volume session though the Dow managed a bullish close while the other indexes traded in the red most of the day.   While we had some good earnings reports after the bell the sentiment quickly shifted in markets here and around the world after Fitch downgraded the U.S. due to the rapidly growing debit.  The downgrade could have serious economic consequences so expect considerable price volatility even as the administration tries to downplay the situation.  ADP number will also be in focus this morning as well as a huge round of earnings events for traders to look for buy or sell inspiration.

Overnight Asian markets printed red tapes across the board on the Fitch downgrade of the U.S. with Hong Kong leading the selling down 2.47%.  European markets are also decidedly bearish this morning in reaction to the U.S. rating downgrade.  Ahead of a big day of earnings, the ramifications of the U.S. downgrade due to the rapidly growing national debt have the bears showing their teeth with the futures suggesting a bearish open.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include ALB, ALGT, ABC, APA, ATO, BOOT, BWA, BLDR, BG, CHRW, CCJ, CDW, CF, CAKE, CIVI, CLH, CLX, CTSH, CVS, DISH, DD, EMR, ET, ETR, ETSY, EXC, FICO, FSLY, RACE, FWRD, FDP, GRMN, GNRC, GT, GXO, HLF, HI, HST, HUBS, HUM, IR, JCI, KHC, LMND, LPX, MOR, VAC, MCK, MPW, MELI, MET, MTG, MGM, NRDS, NI, NE, NOG, NTR, OXY, PACD, PK, PYPL, PDCE, PSX, PSA, QRVO, QCOM, RDN, RYN, O, HOOD, RGLD, SMG, SHOP, SPG, SPR, SHOO, SSYS, RGR, SUN, TRIP, UTHR, U, UPWK, WMB, WING, WWE, SYL, YUM, & ZG.

News & Technicals’

The United States suffered a blow to its credit rating on Tuesday as Fitch Ratings downgraded the country from AAA to AA+. The rating agency cited the ongoing political gridlock over the debt ceiling as a reason for the move, saying that it undermined confidence in the country’s fiscal management. The downgrade came after months of warnings from Fitch, which had put the U.S. on negative watch in May. The news rattled the markets, as U.S. stock futures opened lower on Tuesday night.

The U.S. House of Representatives Select Committee on the Chinese Communist Party is probing the role of MSCI and BlackRock in enabling U.S. investments in Chinese companies that are subject to U.S. sanctions or restrictions. The committee sent letters to the two firms on Tuesday, requesting details on how they select, include, and monitor the performance of those companies in their indexes and funds. The committee said it was concerned about the potential risks and implications of such investments for U.S. national security and human rights.

All through the CAT earnings had the Dow edging high the other markets ended slightly lower on Tuesday in a choppy low-volume session. The VIX ended the day slightly higher and the T1222 indicator pulled back reliving some of the over-bought condition.  The market seems to be waiting with great anticipation for the earnings from AAPL and AMZN Thursday afternoon.  However, Fitch downgraded due to the rapidly growing U.S. debit after the bell yesterday engaged the bears around the world quickly shifting sentiment. The downgrade could have far-reaching economic ramifications despite the fact the administration is attempting to downplay its seriousness.  Expect considerable price volatility as the market reacts to the light being shined on the rapidly growing national security threat of the massive U.S. debt and overspending.

Trade Wisely,

Doug

Market Extended

With remarkable confidence or irrational speculation ahead of huge market-moving data, the stock market extended gains to begin the week.  Today begins the FOMC meeting and we will get the highly anticipated reports from Google and Microsoft with bond yields rising due to pending rate decisions from the Fed as well as other central banks through the week.  Expect considerable price volatility watching for intraday whipsaws, reversals, and substantial morning index gaps as the market reacts.  Anything is possible with bullish enthusiasm at such an extreme so plan your risk carefully.

Overnight China announced stimulus plans to aid their decorating property market moving all but the Nikkei higher as Hong Kong lept higher closing up a whopping 4.10%.  As European markets await an ECB rate decision markets are modestly bullish this morning as earnings keep spirits high.  U.S. futures also point to a modestly bullish open reversing some overnight selling with huge anticipation of Google and Microsoft earnings after the bell. 

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include GOOG, GOOGL, MSFT MMM, ALK, ACI, ADM, ASH, AVY, BIIB, CALM, CNI, CB, GLW, DHR, DOV, GEHC, GE, GM, IVZ, KMB, LW, MCO, MISCI, NEE, NEP, NUE, NVR, PACW, PHM, SHW, SNAP, SPOT, TXN, TRU, UHS, VZ, V, WM, WFG, and XRX.

News & Technicals’

As China faces a slowing economy amid the pandemic and other challenges, its leaders are preparing to take various steps to stimulate growth and recovery. A high-level meeting of the Politburo, the ruling Communist Party’s top decision-making body, will be held this week to assess the country’s economic performance in the first half of the year and set the tone for the second half. Analysts expect that China will focus on boosting domestic consumption, innovation, and green development, as well as easing monetary and fiscal policies. However, China’s economic slowdown will have significant implications for the rest of the world, especially for commodity exporters and industrial sectors that depend on Chinese demand. Rory Green, chief China economist at TS Lombard, warned that China’s shift away from its traditional growth drivers will also create “second-order impacts” for the global economy in the long term.

The U.S. bond market was under pressure Tuesday as investors awaited the outcome of the Federal Reserve’s two-day meeting that will likely result in a rate hike. The Fed is widely expected to raise its benchmark interest rate by a quarter percentage point on Wednesday, the first increase this year and the sixth since it began normalizing rates in 2015. However, investors are more interested in the Fed’s projections for future rate hikes and its assessment of the economic outlook. The Fed is one of several major central banks that will announce their policy decisions this week, along with the European Central Bank and the Bank of Japan. While the ECB and the BOJ are expected to maintain their ultra-loose monetary policies, investors are looking for clues on when they might start to tighten or taper their stimulus measures. The diverging paths of monetary policy among the world’s leading economies could have significant implications for global financial markets and currencies.

The U.S. stock market extended its winning streak on Monday, with the Dow Jones Industrial Average posting its longest run of gains in more than three years. The market was lifted by strong earnings reports from some of the biggest companies in the energy and financial sectors, which offset the weakness in the utilities and healthcare sectors. The market also shrugged off the mixed performance of global equities due to the political turmoil in Japan and the economic recovery in Europe.  Today the market’s focus will be the big reports from the tech giants GOOG and MSFT after the bell.  The FOMC meeting begins today, which will likely announce another interest rate hike on Wednesday. However, their guidance on its future policy plans is the biggest uncertainty. With the indexes so extended on tremendous anticipation and speculation wild price volatility is likely so watch for whipsaws, reversals, and morning gaps that could be substantial in the days ahead.

Trade Wisely,

Doug

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