I’m looking for answers to two big questions that earnings from Amazon (AMZN) and Caterpillar (CAT) left us with last week. In the case of Amazon, where the company reported a slide in revenue growth after a big bump in sales due to everybody ordering everything on line during the Pandemic shutdown, the question is What is the actual sales growth trend once you remove all the plus and minuses from the Pandemic? This isn’t a question just for Amazon, of course. It’s important for figuring out the valuation of everything from Las Vegas hotel and casino play MGM Resorts International (MGM) to streaming champion Netflix (NFLX) to Starbucks (SBUX). The other question left hanging at the end of the week is whether or not we’re about to see a string of companies forecasting lower margins due to rising prices for raw materials. That was the takeaway message from Caterpillar’s (CAT) earnings report.
With everything tech (just about) selling off today (along with the rest of the market) and with the shares of the tech companies due to report today dropping as well, I think the odds have improved for a bounce in those reporting companies on earnings surprises. Microsoft (MSFT) is due to report today after the close and I think there’s a good likelihood that the company will post even better than expected numbers from its Azure Cloud business.
With the major indexes all down ahead of tech earnings–and fear up–I’m pulling out my VIX options trade again. The rule here, until modified by reality (pesky little thing) is to buy when complacency drives the “fear index” to 16 or below, and to sell when fear rises and pushed the CBOE S&P 500 Volatility Index (VIX) to 20 or so. This morning selling in the market sent the VIX up to 19.85, close enough for me to 20, and I’m selling the October 20, 2021 Call Options
An odd market before big tech earnings #1–I’m holding onto my AMD and APPL options until after earnings
As of 12:15 p.m. the Standard & Poor’s 500 was down .01% and the Dow Jones Industrial Average was lower by 0.75%. Tech stocks were down much more with the NASDAQ Composite off 1.85% and the NASDAQ 100 lower by 1.82%. The tech companies due to report earnings today after the close were all down. Apple (AAPL) was lower by 1.68%. Advanced Micro Devices (AMD) had dropped 2.01%. And Microsoft (MSFT() was off 1.66%.
The Standard & Poor’s 500 closed up 0.20% today, July 22. The Dow Jones Industrial Average squeezed out a 0.07% gain. But if you were looking for bigger upside moves, turn your eyes to the technology sector.
The Federal Reserve has said that the current jump in inflation is temporary, a result of post-pandemic glitches in the supply chain. So far the market is going along with that view. But huge jumps in monthly inflation in May and now, this morning, June are treating that confidence.
The consumer price index (CPI) rose 0.9% in June from May and by 5.4% from June 2020, according to the Labor Department today. Excluding more volatile food and energy components, core CPI inflation rose by 4.5% from June 2020. That’s the biggest jump in core inflation since November 1991.
How about this for an explanation for the weakness in stocks over the past few days: The computers are messing with us
I’ve read all the headlines explaining today’s drop in stocks, and yesterday’s and the day before. The chaos at OPEC and in oil prices. Fears that the economic recovery is slowing. Thoughts that inflation isn’t a worry and that instead we should fret about deflation. There is some truth to all these explanations. But I don’t see much of the way in news to support a major change in market trend and sentiment. And when I see a big, fast move like that of the last three days or so without much in the way of news to change investors’ view of the world, my thoughts turn to computers and program trades
I think the market reaction to this news is actually more important than the news itself. Today, June 23, we’re looking at yet another example of stocks shaking off bad economic news. Sales of new U.S. homes dropped unexpectedly in May with purchases of new single-family homes dropping 5.9% to an annualized 769,000 rate. In addition revisions lowered the annualized rate for April to 817,000. Economists surveyed by Bloomberghad expected an increase t a 865,000 annualized rate in May.
Special Report: 5 Picks and 5 Hedges for a Falling Market–my last installment on hedging (at least for now)
After Wednesday’s news from the Federal Reserve, we all know that an interest rate increase is coming–even if we don’t know when. Could be 2022. Could be 2023. And even if we don’t know how many increases we’re looking for in that time period. Could be one. Could be two. The need to revise your portfolio to take that change in monetary policy is obvious. But figuring out how and when isn’t by any means straightforward. What gives? And how should be navigate a period that is almost certainly going to end with a reversal of the lower for longer interest rates that have dominated asset prices for decades? Today, for the last installment in my Special Report: “5 Picks and 5 Hedges for a Falling Market” I’m going to take one last run at how to hedge this market and how to position your portfolio for the developing trends. (I don’t have much hope that this will be the last time I’m visiting this topic, of course.)
As of the close on Monday, June 4, the major stock indexes were treading water waiting to here what, if anything, the Federal Reserve might say after the Wednesday meeting of its interest-rate-setting body, the Open Market Committee. (No one really expects the Fed to actually do anything about the monthly schedule for bond purchases or about changing the benchmark interest rate now set at 0% to 0.25%.) The Standard & Poor’s 500 was up 0.18% but the Dow Jones Industrial Average was off 0.25%. The NASDAQ Composite was up 0.74% but the small cap Russell 2000 was lower by 0.54%.
Employment numbers today suggest that we could get a Goldilocks May job report tomorrow. The ADP Research employment survey said U.S. private employers added 742,000 jobs in May. That’s the most in seven months. But it is slightly below the 850,000 projected by economists surveyed by Bloomberg.
The last time the government reported monthly jobs numbers, investors and traders faced a big surprise. In April the U.S. economy added only 266,000 jobs. That was well below expectations for the addition of 1 million jobs in the month. Waiting for the May jobs report before the open on Friday Wall Street is hoping for a return to something like the run of months before April of 900,000+ plus. I suspect that Wall Street economists would be happy with any number strong enough to suggest that the April plunge was a fluke. Economists surveyed by Bloomberg are projecting that the economy added 650,000 jobs in May. But after last month’s failure to predict the drop fresh in investors’ minds, no one is rushing to stake out a position either long or short ahead of the data. Which is one reason why the Standard & Poor’s 500 fell by all of 0.05% today