Stocks rallied yesterday after investors increased their bets that the Fed would capitulate…maybe… eventually. Jobless claims are climbing slowly, maybe too slowly to be noticeable by most.
Across the pond. Yesterday was an interesting news day. It went beyond the typical “this number affects interest rates, that number may hint about a recession” kind-of stuff. For good measure, however, let’s cover those first, because they were there, to be sure. First, we heard from the Federal Reserve Bank of Philadelphia. The Philly Fed released its Business Outlook Survey, which came in at -12.3, far lower than the expected 0.8. The survey captures sentiment from manufacturers across the Fed region, which includes parts of Philadelphia, Delaware, and New Jersey. I can get into exactly how that number is derived, but the actual number is less important than the fact that yesterday’s print was its lowest in a decade…if you exclude April and May of 2020. In fact, if you look back to the beginning of when the number first made its debut in the late 1960s, the number rarely fell to those depths. What’s more is that such falls have accompanied every recession since…including 2020’s. Noted?
The Conference Board’s Leading Index has been around for a long time. Since 1958, to be exact. It has been a trusted index by industry insiders ever since as an attempt to indicate oncoming recession and is considered a leading (as its name implies) indicator. The index came in with a -08% drop for June, which was below economists’ estimates. Furthermore, the prior month’s number was revised downward to -0.6%. Want to give a guess at how often the index falls so precipitously? There have been 9 recessions in the US since the index was first compiled, and it plumbed into similar (sometimes lower) depths in each of them. That is 9 for 9, or 100%, in case math is not your thing.
Yes, this was negative news for the economy, which is one of the primary reasons that longer maturity bond yields fell in yesterday’s session. The negative news also gave stock investors hope that the Fed would call it quits on rates hikes early. Lower long-term yields and a less-angry Fed caused stocks to rally, most notable interest rate sensitive growth stocks. But there was more.
The European Central Bank, AKA the ECB, raised its key lending rate by +50 basis points yesterday. Most were expecting a +25 basis-point hike. It marks the end of an era of negative interest rates for the EU, which skipped the Fed’s 2015 – 2019 rate-hiking cycle. Apparently, the ECB is concerned about inflation, so it decided to join this hiking cycle. But what does that have to do with the US economy, or stocks, for that matter? I have written about how the US Dollar has been on a steady climb since the Fed first announced intentions to raise rates. It hit a multi-decade high earlier in the month. A strong dollar has a negative impact on companies who sell goods in foreign countries. Dollar denominated purchases are more expensive and could reduce demand, while foreign currency-denominated goods are worth less to US companies who report in US Dollars. The ECB decision strengthened the Euro, which means the US Dollar weakened, which, if you have been following along could be a positive for US companies, their stocks, and the US Economy. Just this morning WHILE YOU SLEPT, the S&P Global Flash Eurozone PMI Composite PMI came in at 49.4, worse than expected. Recall that a PMI less than 50 indicates economic contraction. The flash PMI for the US is due to be released later this morning at 9:45 AM Wall Street time. I suggest you pay attention.
WHAT’S SHAKIN’
Schlumberger NV (SLB) shares are higher by +2.44% in the premarket after it announced that it beat EPS and Revenue estimates by +25.00% and +7.81% respectively. The company further increased its full year earnings and revenue guidance. Dividend yield: 2.08%. Potential average analyst target upside potential: +46.8%.
Snap Inc (SNAP) shares are lower by -29.05% in the premarket after its announced that it missed Revenue estimates by -2.81%. The company cited a slowdown in advertising spending as the cause for the miss, causing analysts to downgrade the stock and lower targets. Shares of Alphabet (GOOGL) and Meta (META) are also down in the premarket. Potential average analyst target upside potential: +7.2%.
ALSO, THIS MORNING: HCA Healthcare Inc (HCA), Roper Technologies Inc (ROP), and American Express (AXP) all beat on EPS and Revenue, while Cleveland-Cliffs Inc (CLF) missed on EPS. Still up before the opening bell is NextEra Energy Inc (NEE), Verizon Communications Inc (VZ), and Twitter (TWTR).
YESTERDAY’S MARKETS
Stocks climbed yesterday after weak economic news sparked hopes that the Fed would slow down on its rate hiking. The S&P500 Index rose by +0.99%, the Dow Jones Industrial Average traded higher by +0.51%, the Nasdaq Composite Index jumped by +1.36%, and the Russell 2000 Index advanced by +0.48%. Bonds rose and 10-year Treasury Note yields fell by -13 basis points to 2.87%. Cryptos slipped by -0.1% and Bitcoin declined by -0.58%.
NXT UP