Macrosynthesis
TLDR
- Hedge funds sell off winners, causing market anxiety
- U.S. economy grows more than expected
- Defensive sectors outperform
- Inflation Moderates While Income Growth Slows
- Trump tell Fed not to cut rates before election
- Tesla suit against Rivian gets real
- Dell is having a very bad month due to insider selling
- Ford earnings disapoints
- Risk of Middle East war rises over weekend following airstrikes in Israel, Lebanon
- New feature: Level 2 dashboards
- New YouTube Channel: Subscribe for free stock tips and market insights not available in this newsletter
What's Going on with the Stock Market?
It's been a great bull run since the end of 2023, with the S&P 500 posting huge gains. Until recently, there's been little fear of a major stock pullback. The last two weeks, volatility crept back into the market, causing huge swings in popular stocks. So here's what's happened behind the scenes: Computer-driven macro hedge funds sold $20 billion in equities and are set to shed at least more $25 billion over the next week, Morgan Stanley said to institutional clients on Thursday. This is a major selloff and it coincided with other wealth managers trimming positions in stocks like Nvidia and Microsoft that have done really well. Many firms have internal rules preventing them from owning over a certain percentage of their portfolio in any one stock, causing selloffs that can cause market panic from retail investors.
Further contributing to the selloff in Tech were earnings misses by Tesla and a weaker than desired earnings report by Google indicating it was spending at a massive pace to build up AI capabilities.
Ultimately, this "broadening" of investments out of tech and into other stock sectors is healthy and will give rise to opportunities to buy back into these stocks at much lower prices. But if the market is not able to absorb these sales and pulls back further, the selloff will turn into an sizeable correction. Being patient, calm, and data-driven is key.
U.S Economy Grows More than Expected
U.S. GDP grew 2.8% in Q2, beating forecasts. Inflation remained stable, with core PCE rising 2.6% annually. A rotation saw small-cap stocks outperform large caps, and value equities outpaced growth stocks.
The S&P 500 and NASDAQ experienced their second consecutive weekly decline, while the Dow recorded a fourth straight weekly gain.
Utilities and Healthcare Sectors Rise, Tech Stocks Fall
Among the S&P 500 sectors, Utilities led the top performers for the week with a 1.5% increase, followed by Healthcare and Materials, both gaining 1.4%. Financials also performed well with a 1.3% rise, and Industrials saw a 1.1% increase. In contrast, Telecom was the worst performer, dropping 3.8%, followed by Information Technology and Consumer Discretionary, which fell by 2.4% and 2.3%, respectively. Energy experienced a slight decline of 0.2%.
Nvidia Executives Accelerate Stock Sales Amid Market Uncertainty
Nvidia saw significant insider trading, with insiders selling 77% of the total shares sold in the last 12 months. NVDA is down nearly 25% from its peak in June.
No landing Scenario? Inflation Moderates While Income Growth Slows
In June 2024, the US personal consumption expenditure (PCE) price index rose 0.1% month-over-month, while core PCE increased 0.2%, both slightly above May’s figures. Annual PCE inflation dropped to 2.5%, but core PCE remained steady at 2.6%. US personal income grew by 0.2% to $23.948 trillion, a slowdown from the previous month's revised 0.4% increase.
Fed Rate Cuts Get Politicized
Markets now predict an 89% probability of a Fed rate cut at the Fed's September meeting. However, ex-President Donald Trump recently warned Federal Reserve Chair Jay Powell not to cut interest rates before the November presidential election. However, if re-elected, Trump said he would allow Powell to complete his term, contingent on Powell “doing the right thing.”
Next Week
In the U.S., key highlights include the Fed's interest rate decision, nonfarm payrolls, JOLTs job openings, CB Consumer Confidence, ISM Manufacturing PMI, factory orders, S&P Case-Shiller House Price Index, pending home sales, and the employment cost index. Earnings season will feature megacaps Microsoft, Meta, Apple, and Amazon.
Commodity Movers
Natural Gas
-5.73% (1W Chg)
-25.29% (1M Chg)
Steel
-4.93% (1W Chg)
-8.35% (1M Chg)
Cocoa
+3.94% (1W Chg)
+11.09% (1M Chg)
Coal
+3.07% (1W Chg)
+5.02% (1M Chg)
Noteworthy Events
DELL stock had a rough July - Will Dell stock recover?
Shares of Dell stock sold off over -18% in July. Much of the selloff was catalyzed by Silver Lake Technologies - a private equity firm and early investor in Dell that sold 2.5M shares this month very quickly, driving down the price. Momentum traders and the pull back in AI-centric stocks as asset managers reallocated capital to less known parts of the market further catalyzed the selloff.
The good news is the selloff seems to have subsided, and Dell is still at the center of a major global investment in data centers that is very much still developing. Recently, Elon Musk announced his AI chatbot, Grok, would be leveraging Dell servers for their data centers. Dell is also building an AI factory with Nvidia, which integrates hardware and software from both Dell and Nvidia to help enterprises with generative AI programs. Dell reports earnings on August 29th and has beaten expectations the last 4 earnings reports.
3M Stock Soars 23% on Strong Q2 Earnings
3M's stock surged 23% to a 52-week high following better-than-expected quarterly results. The company reported second-quarter adjusted earnings of $1.93 per share, surpassing estimates of $1.68 per share. Additionally, 3M's revenue exceeded analysts' expectations.
Deckers Outdoor Shares Surge 8% on Strong Q1 Earnings and Revenue Beat
Deckers Outdoor's stock surged 8% on July 25th after surpassing fiscal first-quarter expectations with earnings of $4.52 per share on $825 million in revenue, compared to analysts' forecasts of $3.48 per share and $808 million in revenue.
Competitor Crocs shares also got a +5% bounce from the report. CROX is set to report earnings this week and will likely follow in their footsteps (pun intended).
Coursera Shares Soar 16% on Q2 Revenue Beat Despite Earnings Miss
Coursera shares soared 16% July 25th after the company reported second-quarter revenue of $170 million, beating analysts' estimates of $164 million despite posting a loss of 15 cents per share. Analysts had expected earnings of 1 cent per share.
Ford Stock Falls 18% on Q2 Earnings Miss Despite Revenue Beat
Ford Motor's stock dropped over 18% July 25th after missing second-quarter earnings expectations. The company reported adjusted earnings per share of 47 cents, below the forecasted 68 cents. However, automotive revenue of $44.81 billion (nearly double Tesla revenues) exceeded the consensus estimate of $44.02 billion and they reported $1 Billion in revenues from software sales, a recurring revenue line the CEO indicated would be a game changer. Investors were disappointed by the CEO's comments they would not be using their $27 billion in cash for stock buybacks, but instead invest the money into growing the company's rapidly expanding Ford Pro program, which includes a B2B sales and repairs segment that is growing rapidly.
Tesla Stock Drops 12% on Q2 Earnings Miss; Rivian and Lucid Also Decline
Tesla's stock fell over 12% July 24th after second-quarter earnings missed expectations, despite beating revenue forecasts with $25.5 billion compared to the estimated $24.77 billion. Shares of EV rivals Rivian Automotive and Lucid also declined, dropping around 7% and over 5%, respectively.
RIVN stock pulled back after a judge failed to dismiss a lawsuit brought by Tesla against Rivian for intellectual property theft. The case is now headed to trial after the judge ruled there was sufficient evidence to warrant a trial.
GM Shares Drop 6% Amid Delays in Electric Vehicle Production Plans
On July 23rd, General Motors shares fell over 6% after announcing delays in its all-electric vehicle plans, including postponing a second U.S. electric truck plant and the Buick brand’s first EV. The six-month delay in retooling the Michigan electric truck plant means GM will miss its target of one million North American EVs by 2025.
NexStar Authorizes Huge Stock Buyback, Shares Rise +3.5%
The local TV station provider benefits from increased political ad spend, and this Presidential race between Trump and now Harris is going to be an expensive one. Shares rose 3.5% Friday, taking the stock over 183/share, following the company's $1.5 Billion stock buyback announcement.
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CASE STUDY: FCFS
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EARNINGS
Monday
- McDonalds (MCD)
- ON Semiconductor (ON)
- Symbotic (SYM)
Tuesday
- Proctor & Gamble (PG)
- American Electric Power (AEP)
- American Tower (AMT)
- PayPal (PYPL)
- Pfizer (PFE)
- Microsoft (MSFT)
Wednesday
- Boeing (BA)
- Generac (GNRC)
- Humana (HUM)
- Marriot (MAR)
- Carvana (CVNA)
Thursday
- Ametek (AME)
- Biogen (BIIB)
- ConocoPhillips (COP)
- Hershey Foods (HSY)
Friday
- Chevron (CVX)
- Exxon Mobile (XOM)
- RBC Bearings (RBC)