Batteries cost more juice, boosting lithium miners

Stocks dropped yesterday in the wake of Fitch Rating’s surprise US downgrade. Higher bond yields put pressure on growth shares.

And nothing else matters. Jamie Dimon hit the nail on the head when he said in an interview that the Fitch’s rating didn’t matter, but that it was the market that was important. My regular readers know that I have said time and again that the market is the ultimate arbiter in all disagreements. More than likely, you have bought a stock after a great deal of research thinking that you had found the ONE, only to realize that the stock, though financially solid and undervalued, was not on the Market’s buy list. Now, I want to be clear that this reality in no way excuses you from doing your homework. A solid fundamental stock is just the prerequisite for success and the market’s reaction becomes secondary. Um, you need both to ultimately win .

Getting back to the market. Yesterday’s news about Fitch Ratings’ surprise downgrade of US credit was all the rage. I mean, who would dare to downgrade ‘Merica ⭐⭐? All bravado aside, Fitch has been warning of that moment for months and the downgrade was not its first. Standard & Poor’s knocked the US down to the second team back in 2011. Further, it’s not like we didn’t see this coming after the dangerous brinksmanship that occurred between the administration and House Republicans over the debt ceiling. That row was not the first either, but that one came close to causing some damage.

There was another bit of news that hit the tape on Monday but received very little fanfare. You might have to dig deep on the US Treasury’s website to find it. Don’t worry, put down your iPad, I dug it up for you. I am referring to the Treasury’s quarterly Refunding release. In it, the Treasury disclosed what it expects to borrow in the quarter ahead. The Treasury announced that it expects to borrow $1.007 trillion in July through September . Kind of makes you feel better about borrowing that $5 from your kid to give the parking attendant a tip. Anyway, we know that countries require debt in order to conduct the business of the state, so no harm in that… AS LONG AS IT IS KEPT IN CHECK and managed responsibly. We won’t get into that today, but what is important is the size of the borrowing, which eclipsed the prior quarter’s $658 million in borrowing. Exactly what that means is MORE SUPPLY of treasury bonds, notes, and bills. You see where this is going? Basic economics: more supply means lower price. And for bonds lower prices means… you guessed it, higher yields. Incidentally, the Treasury also estimated that it would need another $852 billion in the final quarter, yet more supply. This would, indeed put pressure on treasury prices, and is likely a significant factor in yields rising yesterday and overnight. Of course, the rise in yields also plays into the Fitch news, which, in theory could cause yields to rise.

Going back to the top, it doesn’t really matter why yields are rising, but the market has made it so. If you are speculating on rising prices of treasuries, you are not happy. If you are looking to buy bonds and hold them to maturity, the higher yields should be a welcomed sight. If you are a big growth stock investor, you are probably concerned, because you remember that every time 10-year yields have approached these levels, stocks have come under pressure… especially ones that are interest rate sensitive… like growth stocks. Growth stocks are theoretically sensitive to higher interest rates because those higher yields diminish the present value of a stock’s future cash flows. I could show you the math on that, but do you really need to know it? No, because you know that the MARKET will ultimately decide if stocks are too expensive or not, regardless of the math, Fitch, or the Government’s hearty appetite for debt.

WHAT IS GOING ON IN THE STOCK MARKET THIS MORNING

Albemarle Corp (ALB) Shares are higher by +4.98% in the premarket after the company announced that it beat EPS estimates by +63.48%. The company increased its full-year guidance beyond analysts’ targets. The company attributes the positive guidance and past quarter beat to rising energy storage prices. Dividend yield: 0.78%. Potential average analyst target upside: +30.6%.

QUALCOMM Inc (QCOM) shares are lower by -8.33% in the premarket after it missed Revenue estimates last quarter. The company’s current quarter guidance was soft leaving analysts concerned that mobile handset recovery is slow as demand remains tepid. The news prompted some downgrades and downward target adjustments. Dividend yield: 2.47%. Potential average analyst target upside: +7.5%.

Also, this morning: Entegris, Cigna Group, Planet Fitness, Becton Dickinson, Regeneron, First Citizens BancShares, Lantheus, Apollo Global Management, Tempur Sealy, and Cheniere Energy all beat on EPS and Revenues while Spirit Airlines, Air Products, Ball Corp Hasbro, ConoccoPhillips, and The Southern Co came up short.

YESTERDAY’S MARKETS

Stocks fell yesterday under the weight of a strong employment report, a Fitch Ratings downgrade, and rising bond yields. The S&P500 Index slid by -1.28%, the Dow Jones Industrial Average fell by -0.98%, the Nasdaq Composite Index dropped by -2.17%, and the Russell 2000 Index declined by -1.37%. Bonds fell and 10-year Treasury Note yields gained +5 basis points to 4.07%. Cryptos gave up -1.03% and Bitcoin lost -0.32%. The S&P ESG Index lost -1.46%.

NEXT UP

• Initial Jobless Claims (July 29) is expected to come in at 225k after 221k new claims were filed in the prior week.
• S&P Global US Services PMI (July) is expected to come in at 52.4 in line with flash estimates.
• Factory Orders (June) are expected to have risen by +2.3% after climbing by +0.3% in May.
• ISM Services Index (July) may have slipped to 53.0 from 53.9.
• After the closing bell earnings: Stryker, Block, EOG Resources, Coteva, Bio-Rad, Fortinet, DraftKings, Coinbase, Gilead Sciences, Extra Space Storage, Cloudflare, ResMed, Apple, Amgen, Microchip Technology, Amazon, Redfin, Airbnb, and Motorola Solutions.