Macrosynthesis
Money Talks
The dollar index fell to below 102.2 on Friday, marking a decline for the second consecutive session, after US economic data showed signs of cooling. Though nonfarm payrolls in July were lower than expected at 187K against the predicted 200K, the unemployment rate surprisingly dropped to 3.5%, and wage growth didn't slow as much as anticipated.
In related news, the US Treasury increased the size of its quarterly bond sales for the first time in 2.5 years, to finance growing budget deficits—a situation so concerning it led Fitch Ratings to lower the government's AAA credit rating to AA+.
While Fitch says that AA ratings denote “expectations of very low default risk,” that’s a a little less certain than “the lowest expectation of default risk” as is the case for AAA borrowers.
The Treasury plans to sell $103 billion in longer-term securities next week, more than most dealers expected, and also intends larger debt sales across various maturities. This announcement contributed to a selloff in Treasuries, pushing 10-year yields to their highest levels since November and driving down the price of the TLT (20-year Treasury ETF).
Gassing Up
WTI crude futures are nearing $82 per barrel and are set for a sixth consecutive week of gains, the longest streak this year. This increase is supported by Saudi Arabia and Russia's decision to continue voluntary supply cuts through the next month. Saudi Arabia will extend its 1 million barrels per day cut, while Russia will reduce its exports by 300,000 bpd in September. OPEC+ left its oil output policy unchanged.
In the US, crude inventories saw a record drop of 17 million barrels last week due to increased refinery activity and robust exports; however, inventories remain only 1% below the five-year average for this period. Persistent concerns about a slow recovery in demand from China and most European countries are also affecting market sentiment.
Last Week's Recap
On Friday, all three major U.S. indexes closed lower, influenced by corporate results and job reports. The Dow ended 148 points down, and the S&P 500 and Nasdaq 100 fell 0.5% and 0.3%. The decline was exacerbated by a 4.8% drop in Apple's shares after disappointing quarterly figures. Bond yields also fell, reflecting mixed reactions to the Federal Reserve policy's outlook, as the economy added 187K jobs in June—below expectations—but saw a fall in unemployment to 3.5% and a 4.4% annual growth in hourly earnings. Positive earnings from Amazon, Booking, DraftKings, and Dropbox brought light into the market. For the week, the Dow, S&P 500, and Nasdaq 100 fell 1.1%, 2.3%, and 2.8%, respectively.
The Week Ahead
In the coming week, earnings releases in the US are winding down, but significant reports from major companies such as Disney, AMC Entertainment, Novo Nordisk, and others are expected.
Investor attention is particularly focused on Thursday's CPI report, with anticipation that the inflation rate may rise to 3.3% from 3% in June - the first such increase since June 2022, largely due to energy costs. The core inflation rate is predicted to remain at 4.8%, well over the Federal Reserve's target. Although investors were wooed with lower CPI prints in earlier months– the revival of increased ones may be soon to come.
Last Week's Top Events
Noteworthy Events
Apple Falls Far from the Tree
The big tech stock fell by 4.8%. Apple announced earnings per share of $1.26 for the fiscal third quarter. Although the revenue surpassed Wall Street's forecast, it declined 1.4% on a year-over-year basis. Sales of Macs and ipads slumped and are projected to decrease further, while services revenue grew 8%.
Tupperware Brands
During midday trading Friday, the container maker, Tupperware, surged 35.5% following the announcement of a finalized debt restructuring deal. The company expects the deal to help cut or reallocate roughly $150 million in cash interest and fees. Tupperware also revealed that the agreement would grant immediate access to about $21 million in revolving borrowing capacity.
Booking a Win
The online travel company's shares (BKNG) rose 7.9% Friday, reaching a new 52-week high following the announcement of its quarterly results on Thursday after hours. The company reported adjusted earnings of $37.62 per share with a revenue of $5.46 billion for the second quarter.
Block Gets Blocked
Despite posting a strong quarterly report with earnings of 39 cents per share and revenue of $5.53 billion (higher than the expected $5.10 billion), Block (Square) shares declined by 13.6%. Block Chairman Jack Dorsey mentioned that the company is concentrating on cost reduction, including slowing down the rate of hiring.
Coinbase
The crypto exchange's stock declined by 3.8% even after reporting a robust second-quarter performance. The company revealed a loss of 42 cents per share on $708 million in revenue for the quarter, surpassing analysts' expectations who had anticipated a loss of 77 cents per share.
Generac Loses Power
Backup power system provider, Generac, announced softening sales as customers opt out of larger ticket items like their 5-20K power systems. A sign of a cooling economy, the stock sold off -24% on the news.
CASE STUDY: PHM Up +90%
Consistent dividend growers can be used to flag longer term investments. Such is the case with homebuilder, Pultegroup, which has been raising its dividend by 7% at a time while also doing stock buybacks.
In 2021, they raised their dividend twice, and did a stock buyback. At the end of 2022, they increased their dividend again and in 2023 they did a stock buyback. This pattern of rewarding shareholders again and again with cash back drives stock price action up while also signaling confidence in the company's future.
Using multiple events to mark longer term investment opportunities can identify amazing under the radar companies.
Upcoming Catalysts:
Notable Earnings
Monday
- Palantir (PLTR)
- Beyond Meat (BYND)
- Chegg (CHGG)
- KKR (KKR)
Tuesday
- United Parcel Service (UPS)
- ADT (ADT)
- Blink Charging (BLNK)
- BUMBLE (BMBL)
- Celsius (CELH)
Wednesday
- Disney (DIS)
- 3D Systems (DDD)
- GoodRx (GDRX)
- Wynn Resorts (WYNN)
Thursday
- Alibaba Group (BABA)
- Ralph Lauren (RL)
This is not financial advice. All information represent opinions only for informational purposes.
The LevelFields Team