Disney puts its chips on the table

Stocks slumped yesterday, weighted down by Moody’s downgraded bank stocks. Moody’s highlighted something that most investors already knew… but perhaps chose to ignore.

Runway: clear. I am fascinated by airplanes, flying airplanes that is. I don’t have a pilot’s license, and my wife has made it pretty clear that reserving a spot for one on my bucket list is simply wasting a slot. Still, watching people flying all sorts of airplanes has become one of my favorite ways to tune out and relax. Have no fear, I am not rushing the cockpit on any commercial flights, I simply watch them on YouTube. Most people would likely find the long videos, punctuated by lots of radio chatter like “alpha bravo four niner two two three 15000 over,” boring, but I find it satisfying to watch a 1000-pound hunk of aluminum fly over mountains, piloted by an average guy or gal, land casually on a runway in the middle of some town I never heard of. Never mind my weird relaxation techniques, I am sure that you have pondered how difficult it must be to land an airplane.

The pilots who ply the yoke of the US economy certainly do. I am referring to Fed policy makers who are flying the largest economy in the world. In case you haven’t heard that massive airplane has flown to the edge of the stratosphere and flew there for a long time. It hit some major turbulence in 2020 and just when everyone on board was sure that the aircraft would crash, it began another epic climb to heights not achieved in nearly 4 decades! In fact, the plane flew so high that the pilots were concerned that the passengers would be unable to breathe the thin air and that the aircraft could run out of fuel. The pilots decided to attempt a dangerous landing on a really small landing strip which was coming up fast. The pilots had to put the aircraft into a steep dive ! As the landing strip approached on the horizon, the pilots would have to slow the aircraft down significantly to avoid overshooting the airport. The challenge with slowing down airplanes, especially with really large ones, is that one can only slow them down so much, or the plane will stall and fall to the ground like a 300-ton lump of aluminum that it really is. So, what are pilots to do? Risk running off the back of the runway which would surely end up in a fiery disaster, or intentionally stall the aircraft at just the right moment… um, second, so that the massive aircraft slams down on the tarmac minimizing the damage?

I am, of course, metaphorically referring to that soft landing of the US economy that everyone has been talking about for the past 2 years. Economically speaking, a recession would be the equivalent of a crash, which, for obvious reasons, we would like to avoid. Ok, crash seems like an extreme word, so let’s just say rough landing. These past few months of economic releases have been somewhat positive. Inflation is coming down, employment remains solid, companies are rightsizing and chugging along, and finally, economic growth continues. That got me thinking. What if the Fed was able to avoid a rough landing by abandoning its quest for a soft landing, or any landing at all? What if we end up with a no landing? One in which inflation comes down to tolerable levels, we avoid mass layoffs, the economy begins to thrive again (but at a lower altitude), and we all start buying iPhones again . That COULD happen, although achieving that is even more difficult than a soft landing.

Tomorrow, we will get Consumer Price Index / CPI which will detail the state of US inflation. It is expected to come in at +3.3%, slightly higher than last month’s +3.0%. If it does, one may wonder if +3.3% inflation is acceptable in an economy which is growing at +2.4% with a 3.5% unemployment rate. It may not be optimal, but it may be tolerable… for now. Maybe a landing is not even necessary. Our airspeed has slowed without a stall, and we are at a far lower and comfortable altitude. Maybe we could just keep flying. There will be other landing strips… if we need them.

PREMARKET AIR TRAFFIC

Akamai Technologies (AKAM) shares are higher by +6.37% in the premarket after the company announced that it beat EPS and Revenue estimates by +5.95% and +0.81% respectively. The company raised its current quarter and full-year guidance beyond average analyst targets. Some may view this as a positive sign for an IT infrastructure 2H recovery. Potential average analyst target upside: +6.9%.

The Walt Disney Company (DIS) shares are higher by +0.70% after it announced that it signed a long-term contract with sports betting company Penn Entertainment (PENN) which is higher by +14.13% in the premarket on the news and its announcing an EPS and Revenue beat. Disney will deliver its earnings results after the closing bell today. Potential average analyst target upside: +29.4%.

YESTERDAY’S MARKETS

WHAT’S ON THE RADAR

• MBA Mortgage Applications (Aug 4) decreased by -3.1% for the week, slightly more than the prior week’s -3.0% decline.
• The Treasury will auction $38 Billion in 10-year notes as part of a massive fund-raising this week.
• After the closing bell earnings: Illumina, Disney, AppLovin, Fluence Energy, Plug Power, Ginko Bioworks, and Wynn Resorts.