Market clicks “like” on Meta’s earnings

Stocks had a mixed close yesterday after the US Central Bank served up a “nothing burger.” Stocks say “meh,” and the Dow continued its epic streak.

Hop, skip, and a jump. That’s exactly what the Fed did by ratcheting up rates at a breakneck pace last year, keeping rates steady last month, and then piling on yet another hike yesterday. “And now what,” asks Wall Street collectively? Well, Chairman Powell did acknowledge that inflation has moderated and that the likely underpaid junior economists that inhabit the basement level of the Fed’s headquarters are no longer expecting a recession. SO, CAN WE FINALLY ENJOY SUMMER?

“Not so fast,” said the Fed Head in his post-announcement presser. Powell said that the Central Bank may still raise rates at its September 20th meeting… but then again, it may NOT raise rates. It all depends on the numbers. For the record, yesterday’s rate hike was the result of a unanimous vote by FOMC members. That should not be surprising. If you were on the FOMC and were weighing the downside of hiking rates again, the decision would be clear. The economy is in good form (as aforementioned), unemployment is low, and the stock market is feeling rather euphoric, even expecting a quarter-point hike. Really no downside, right? May as well throw in the hike for good measure. And that is exactly what we got yesterday. Powell, while admitting that inflation was lower, also made it clear that there was still much work to be done to get it back to the now-hard +2% target, and that rates were not sufficiently restrictive for a long enough period of time to effect the necessary changes. Don’t re-read that last sentence, I will interpret it. Rates need to stay here for a longer period of time to take full effect. I wrote about the reason for that in yesterday's note, here, in case you missed it .

None of this should be surprising at all, but in fairness to the oft maligned Fed, inflation is still with us, and it is not unreasonable to assume that inflation can experience an uptick in the months ahead. It is summer in the US and folks like to travel, which requires gasoline (if by car) or airline tickets (if by jet)… maybe even some new clothes . Consumer confidence remains healthy (according to this week’s numbers) and the stock market has gifted us some gains (if by only a few stocks). These conditions seem to be fertile for a surge in consumer demand which could bring a final surge in inflation. The Fed must therefore keep its saber in hand, but with the pointy end lowered. That is why Powell did his level best to put on a “poker face,” which he will continue to wear up until the very last minute before he must first admit that the rate hikes are done, which will be followed by a hint of cuts (“whatever is necessary”), and finally rate cuts to back out of the restrictive zone into the neutral zone. What is the timeframe for all this? Well, the market is now expecting the hiking to be over, with only a 40% chance of another hike. By next March, swaps traders place a 64% probability on a quarter-point cut. By next June rates are expected to be a half percentage point lower using the same metric. But as we have learned, with much discomfort, that can, and likely, will change in the months, if not the days ahead.

WHAT IS ON THE MOVE THIS MORNING?

Meta Platforms (META) shares are higher by +8.67% in the premarket after it announced that it beat EPS and Revenues by +3.92% and +3.01% respectively. The company also provided bullish guidance for the current quarter, and it upped its full year guidance. Potential average analyst target upside: +14.2%.

Textron Inc (TXT) shares are higher by +8.89% in the premarket after it announced a solid EPS and Revenue beat. The company also raised its full year guidance above average analyst estimates. Dividend yield: 0.11%. Potential average analyst target upside: +18.5%.

Chipotle Mexican Grill Inc (CMG) shares are lower by -8.69% in the premarket after it missed Revenue targets. The company also provided softer forward guidance prompting some analysts to lower their targets on weaker sales growth expectations. Potential average analyst target upside: +4.3%.

Also, on the move: Overstock, Carrier Global, Boston Scientific, Northrop Grumman, Lennox International, McDonalds, Tradeweb, and Comcast all beat on EPS and Sales while Honeywell, Brunswick, Valero Energy, Hershey, Tractor Supply, Bristol-Myers Squibb, Keurig De Pepper, Martin Marietta Materials, Harley-Davidson, and PG&E came up short.

YESTERDAY’S MARKETS

Stocks had a mixed close yesterday held back by Microsoft’s disappointing release after Tuesday’s close. The S&P500 slipped by -0.02%, The Dow Jones Industrial Average climbed by +0.23%, the Nasdaq Composite Index declined by -0.12%, and the Russell 2000 Index climbed by +0.72%. Bonds gained and 10-year Treasury Note yields gave up -1 basis point to 3.86%. Cryptos added +1.35% and Bitcoin advanced by +1.23%. The S&P ESG Index declined by -0.06%.

NEXT UP

• Annualized Quarterly GDP (Q2 1^st estimate) may show a gain of +1.8% after growing by +2.0% in Q1.
• Durable Goods Orders (June) are expected to have increased by +1.3%, slower than the prior month’s +1.8% climb.
• Initial Jobless Claims (July 22) are expected to come in at 235k, slightly higher than last week’s 228k claims.
• Pending Home Sales (June) may have declined by +0.5% after slipping by -2.7% in the prior month.
• After the closing bell earnings: T-Mobile, Ford, Mondelez, Juniper Networks, Weyerhaeuser, Sketchers, Intel, Digital Realty Trust, First Solar, US Steel, Live Nation, Sweetgreen, and Enphase Energy.