Google’s sordid business affairs

Stocks traded lower on Friday, led by tech shares, after disappointing results from Snap. The US economy may be faltering according to purchase managers – they should know because they sit where the action happens.

Do’s and don’ts for the upcoming week. The week ahead will surely provide lots of opportunities to get distracted. While some things may warrant immediate reaction, others may be simply nice to know, though they may not make you feel so nice. So, here is your quick guide.

DO pay attention to earnings. We have a lot of big names expected to release in the week ahead. Of course, it is important to see if companies beat or miss estimates, but it is even more important to see if companies change their forward guidance based on an expected economic slowdown. Also, listen for mentions of inflation price pressure and the strong US Dollar affecting sales numbers.

DO pay close attention to tomorrow’s Conference Board Consumer Confidence number. Confident consumers…um, consume a lot. Consumption makes up roughly 2/3 of the US GDP. Should consumers lose confidence and stop purchasing, an economic slowdown is all but guaranteed. Given the recently increased talk of recession along with higher interest rates and inflation, there are many signs that consumers are shifting demand to needs (food/fuel) from wants (toys/new dishwashers). If price pain persists and confidence wanes, the next move may be a pullback of all purchases.

DO pay close attention to the FOMC meeting which will wrap up on Wednesday at 2:00 PM Wall Street time. At this very moment, based on Fed Funds futures, there is a 100% chance of a +75 basis-point hike and only an 11% chance that the FOMC will bump up an additional +25 basis points for a full +100 basis-point rise. That is a low probability, and it has been getting lower since peaking at a 63% earlier in the month. You can blame the increased talk of recession and decaying corporate guidance. Possibly more important than the expected rate hike is Chairman Powell’s discussion, post announcement. Many economists believe that Powell will guide investors to a +50 basis-point hike in September. Investors would be happy to hear that and possibly even be happy to hear that the Fed recognizes a slowdown in economic momentum. Lower than expected rates in the future will be applauded by growth stocks which have recently outperformed on speculation that the Fed will slow down its hiking endeavors. Fed Funds futures put a +50 basis-point hike in September at 100% with a 43% probability of an additional +25 basis points. I won’t bore you with the details, but the probabilities for yet bigger hikes were quite a bit higher just a few weeks back. Looking to the end of the year, futures are predicting that Fed Funds will be somewhere around 3.5%, but those predictions have been bouncing between 3.75% and 3.35% since early mid-June.

DO pay attention to Thursday’s Q2 Annualized Quarterly GDP release. This will be the Bureau of Economic Analysis’ first estimate of GDP in the second quarter. Economists are expecting that GDP rose by +0.5% annualized. Remember that GDP contracted by -1.6% in Q1, so a second consecutive pullback would technically put us in a recession. Yes, folks there is always the possibility of the fact that the US is technically in a recession already. There are many models that predict that the economy is already shrinking and there has certainly been lots of anecdotal data that suggests that businesses and consumers are already tightening their purse strings. Those two groups alone make up almost 90% of GDP. According to Wall Street economists, they believe on median, that there is still just a 40% chance of recession in the near term. Take that with a grain of salt because economists have a bad track record of predicting recessions in advance.

DO pay attention to Friday’s PCE Deflator. The deflator is another method of tracking inflation, and it is the method that the Fed relies on to make policy decisions. Despite the widely popular CPI, this is the one that policy makers care about, so we should do the same. The Core number excludes food and energy, and it is expected to have remained constant at +4.7%. Big misses above or below can be market movers, given the Fed’s reliance on it.

DON’T get hung up on the word recession.It is only a word! In fact, if we hear that the economy pulled back in Q2, we would be in a technical recession…um we were already in a recession at the end of last quarter…which ended almost a month ago. Now, I don’t mean to downplay a recession completely. It is important to recognize that recessions come in all shapes and sizes. Currently, unemployment is low, but if that changes, it will certainly have a large negative impact on consumption and corporate profits. It will be crucial to monitor employment levels over the next several months to monitor early signs of decay.

DON’T panic over market volatility. DO stay focused on your long-term plan. The numbers show us, with high probability, that time is on our side.

WHAT’S SHAKIN’

Alphabet Inc (GOOGL) shares are higher by +0.6% this morning. The weekend was full of speculation and gossip around an alleged affair between Elon Musk and Google founder Sergey Brin. That is just a bunch of noise. The real story is around analysts’ lowering expectations precipitously over the past several weeks as they expect weakening ad revenues to be central to tomorrow’s earnings release. DO pay attention to those. Potential average analyst target upside: 39.6%.

Newmont Corp (NEM) shares are lower by -1.34% in the premarket after the company announced that it missed EPS and Revenue estimates by -28.96% and -1.26% respectively. The company lowered its full year guidance. Dividend yield: 4.28%. Potential average analyst target upside: 39.2%.

FRIDAY’S MARKETS

Stocks fell on Friday, led by tech stocks which followed earnings loser Snap into loss territory. The S&P500 traded lower by -0.93%, the Dow Jones Industrial Average fell by -0.43%, the Nasdaq Composite Index dropped by -1.87%, and the Russell 2000 Index gave up -1.62%. Bonds gained and 10-year Treasury Note yields fell by -12 basis points to 2.75%. Cryptos fell by -3.12% and Bitcoin retreated by -2.24%.

NXT UP

• Chicago Fed National Activity Index (June) is expected to have climbed to -0.03 from the prior month’s -0.19.
• Dallas Fed Manufacturing Activity (July) may have slipped to -22.0 from -17.7.
• After the closing bell earnings: Whirlpool, Range Resources, F5 Inc, Cadence Design Systems, and Universal Health Services.
• The week ahead: Earnings and more earnings! Additionally, we will get more housing numbers, regional Fed reports, GDP, PCE Deflator, Durable Goods Orders, Consumer Confidence, University of Michigan Sentiment, FOMC POLICY MEETING. Please refer to the attached earnings and economic calendars for details.