Stock Market Overview – August 1, 2022

Following Thursday’s GDP print of -0.9%, US GDP has been in recession by the standard definition for two consecutive quarters of contraction. The stock market, however, is unsatisfied, rising on the news.

“Official” forecasts for Q2 GDP were -0.5%, while it came in at -0.9%. The market rallied on this telling me it was expecting a worse GDP print and some money came out serving as a relief rally.

Technical view

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

Price action in the S&P 500 has broken a months-long downtrend that began in March. After a few weeks of consolidation, the market made up its mind to rally decisively upwards.

We are starting to see the skeleton of an uptrend form, as you can see by the higher lows and higher highs established over the past few weeks marked on the chart:

It is worth mentioning that investors have a risk appetite this week. Even when the market rallied aggressively, defensive stocks outperformed riskier 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 strongly this week, up 9.7% after a few months:

The most inflationary equity sector is rallying hard this week, which may not make the Fed feel good about their 75bps hike.

While the downtrend in crude oil appears to be losing steam, it remains vulnerable to significant volatility if it breaks below a well-respected multi-month range:

Federal Reserve Watch

The Fed raised rates by 75 basis points on Wednesday, in line with market expectations.

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

Because there is no Fed meeting in August, the Fed will have extra time to gauge how their rate hikes are playing out in the economy and if inflation shows any signs of cooling.

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

Some interesting inflation data followed the Fed meeting, such as the employment cost index for Q2 coming in hot at 1.3%, and many are now observing that the Fed would have raised 100 basis points had the meeting been just a few days in the future. .

But in the same breath, many expect a return to accommodative policy as the pain of the recession kicks in and the economy slows. And the Eurodollar market, a proxy for Fed funds, is pricing in this pivot:

Weekly chart

Everyone loves a nice zoomed out parabolic chart. Today is German food.

Last week’s news

  • US GDP fell 0.9% vs 0.5% expected. Following this news, there was a boom in the stock market
  • US enters recession after two consecutive quarters of GDP contraction
  • The Federal Reserve raised rates by 75 basis points in line with market expectations
  • July was the best month in nearly two years for the stock market
  • Charles Schwab (SCHW) will list a crypto ETF on the NYSE next week
  • SEC adds Alibaba (BABA) to list of US-listed Chinese companies facing delisting
  • Amazon ( AMZN ) led earnings, with AWS serving as a highlight
  • Chipotle (CMG) stock rockets on earnings as the company demonstrates its pricing power
  • Alphabet ( GOOG ) slightly misses estimates and warns investors of tougher comps, but stock still rises
  • Meta (META) misses earnings, drops first YoY revenue. The price of their Meta Quest VR headset has also increased by $100
  • Walmart ( WMT ) cut profit estimates and shares fell about 8%
  • The SEC is still investigating Tesla ( TSLA ) over Elon Musk’s “going private” tweets.
  • Elon Musk believes inflation has peaked
  • US Senators Pat Toomey and Kirsten Sinema Introduce Bill to Exempt Small Crypto Transactions (<$50) from Capital Gains Tax

The next catalyst

General/No Specific Date:

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

Monday, August 1:

  • Activision ( ATVI ) is reporting earnings amid being acquired by Microsoft ( MSFT ).

Tuesday, August 2:

  • PayPal (PYPL) reports earnings. The stock has been decimated in 2022, down more than 70% from highs. The options market prices double-digit moves on earnings.

Thursday, August 4:

  • Tesla (TSLA) shareholder meeting

Next earnings

We’re about halfway through earnings season and 74% of S&P 500 constituents who reported earnings have already beaten 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)
  • 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 (continued)

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
  • JetBlue (JBLU)
  • Uber
  • Molson Course (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)
  • Amerisourceburgen (ABC)
  • Allstate (All)
  • Dish Network (DISH)
  • Sunoco (SUN)
  • Moderna (MRNA)
  • DXC Technology (DXC)
  • Train Technologies (TT)
  • Brookfield Infrastructure (BIP)
  • Altice USA (ATUS)
  • MGM Resorts (MGM)
  • Yum Brands (YUM)
  • Under Armor (UAA)
  • Western Union (WU)
  • 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
  • Caravan (CVNA)
  • Rocket (RKT)
  • Intercontinental Exchange (ICE)
  • Expedia (EXPE)
  • PENN National Gaming (PENN)
  • Parker Hanniphan (PH)
  • Wayfair (W)
  • ConocoPhillips (COP)
  • Nutrion (NTR)
  • Arrow Electronics (ARW)
  • Eli Lilly (LLY)
  • Amgen (AMGN)
  • CBRE
  • Duke Energy (DUK)
  • NRG Energy (NRG)
  • XPO Logistics (XPO)

Friday, August 5:

  • Western Digital (WDC)
  • EOG Resources (EOG)
  • Kurate Retail (QRTEA)
  • Telus (TU)
  • Global Partners (GLP)
  • Assistant (ANDT)
  • Floor (FLR)
  • Goodyear Tire (GT)
  • AMC Networks (AMCX)
  • Draft Kings (DKNG)

Upcoming economic data

Between last week’s GDP and the Fed meeting, expect next week to be less volatile and action-packed, although we hear from the ISM with their report on business as well as nonfarm payrolls on Friday.

Monday, August 1:

  • ISM Manufacturing Index
  • S&P US Manufacturing PMI

Tuesday, August 2:

Wednesday, August 3:

  • S&P US Services PMI
  • ISM Services Index

Thursday, August 4:

  • Initial and continuing unemployment claims
  • Loss in business

Friday, August 5:

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