Market turbulence: Earnings concerns and Fed speculation rock stocks

• TSLA and TXN FAIL to continue the rally.

• META sends stocks reeling in the afterhours. The QQQ’s fall 1%,

• US futures pointed lower this morning.

• OIL and Gold hold steady.

• Bond market prepares for the 7 yr. auction.

• GOOG & MSFT After the bell tonight.

• Try the Zucchini/Potato Croccante.

Stocks didn’t’ roar higher on Wednesday….as earnings concerns and massive treasury supply once again start to cause outlook concerns for investors/traders and algo’s.  TSLA’s 12% rally or TXN’s 5.5% rally did little to ignite a substantial move up in tech stocks or in stocks in general while the $70 billion 5 yr. note auction sent yields higher (and prices lower). While demand for the notes was ‘ok’ – there is still a lot of concern that the new supply coming will rattle markets.  Today brings the 7 yr. note sale and next month brings an additional $386 billion to the bond market with auctions in the 10, 20 and 30 yr. markets.

Stocks ended the day mixed to flat…. The Dow down 43 pts, the S&P up 2 pts, the Nasdaq rallied by 16 pts, the Russell lost 8 pts, the Transports gave up 390 pts or 2.2% while the Equal Weight S&P added 10 pts. 

Treasure yields rose – the 2 yr. closed yielding 4.92%, the 10 yr. closed yielding 4.65%.  Shorter duration 3 month and 6-month bills are yielding 5.44% and 5.37% respectively.   The rise in yields (or better yet the volatility in yields) has been one of the driving factors of the turbulence in the stock market and will most likely remain a key driver.

Stocks – which attempted to start the day strong on what many hoped would have been a ‘TSLA’ rally – got hit early on…. failing to push higher by about 10 am…and then it was a struggle for the balance of the day. Talk of what Zucky (META)would say on the earnings call after the bell, along with key economic data points today and tomorrow that will surely help to keep the focus on the FED’s next move - began to cause concern – and then stocks couldn’t get out of their own way….

Of the 26 companies that reported prior to the opening – 6 missed while 20 beat….and so we remain in the 77% beat camp…..but it’s the forward guidance that is causing the concerns now…because remember – earnings are history, they are done, it’s about what the C-suite says about the future…and the future at META is what caused some of the angst during the day and IT IS what caused the angst after the bell and this morning.   You see – META crushed the earnings…. $4.71/sh vs. the expected $4.30/sh…. but his plans to spend $40 billion on capital expenditures (up $3 billion over prior guidance) all on AI was the issue…… – as he plans on becoming the ‘leading AI company in the world’.  He tried to calm nervous algo’s by saying that …

’we’ve historically seen a lot of volatility in our stock during the phase of our product playbook – where we are investing in scaling a new product but aren’t yet monetizing it.’

He went onto say that he is not guiding beyond 2024 and expects to see capex increase in 2025 as they invest aggressively to support their efforts…..and that apparently was enough to send the stock careening in the afterhours….– falling 16% before his comments were even completed (that’s about $200 billion) ….but let’s be honest – the stock was up 45% going into the print….it’s up 313% since January 2023….Ok – so it gave up 16% on the back of what I think is actually fairly positive news (and if you play in this space – this reaction should not really be that big of a surprise – algo’s are non-emotional – if they don’t hear exactly what they want – they ‘shoot first and ask questions later’ – they don’t get married to positions or prices – which is why they can create longer term opportunities)….the AI market is expected to be worth more than $1 trillion in the coming years….so you have to decide – are you in it for a trade or are you in it for the investment?

Now in Lonnie’s case – he missed on earnings but was more upbeat about future plans…. i.e. layoffs, (while tough on the worker is good for the company/cut costs), less expensive car models (build demand), new technologies (robo taxi’s and ride hailing apps) and all that is expected to increase margins and create new excitement and so the stock which has been absolutely crushed – rallied!

And today – we have more earnings to deal with before the bell rings…..and while they are not the ‘sexy’ tech names – they are significant US economy names….think CAT, HON, NOC, AAL, CMCSA, MRK and BMY….and then after the bell we’re gonna get those ‘sexy’ tech names …think GOOG & MSFT and right now – the mood is to sell….both are quoted lower in the pre-mkt down 3% and 1.7% respectively…. My sense is that all of the hype going into this earnings season can NOT be satisfied….that any iota of a ‘miss’ or concern is going to give the algo’s a reason to hit the SELL button…..OK – but remember – on the other side of the SELLER is a BUYER – just sayin’.

Eco data today includes 1Q GDP – and that is expected to be +2.5% - which is down from the 4th Q’s 3.4%, Personal Consumption of +3%, Retail Inventories m/m of +0.5%, Initial Jobless Claims of 215k, Cont. Claims of 1.81 mil, Pending Home Sales of +0.4% m/m but -3% y/y and the Kansas City Fed Manf survey of -5.

US futures are down – and that should be NO surprise at all…. Dow futures – 115, S&P’s -30, the Nasdaq down 152 while the Russell is + 10.  And that does make some sense as investors look for opportunities outside of ‘tech’.  SMIDS (small and mid-caps) have gone under some repricing…so expect long term investors to go looking for bargains….my sense is that tech will continue to be under pressure until we sort through all of the earnings and guidance.  The market will move away from focusing on tech to focusing on monetary policy again…. The odds are now for a rate cut come in September!  Can you believe that?  September? Really?  I still say – Not Happening…..if the FED focuses on the data – as they have told us time and again – then the data does NOT support a rate cut at all….And before you go and say that ‘the FED needs to move ahead of any downturn – be proactive’ – you have to have some indication that a downturn is coming – and so far that is NOT the case…Which doesn’t mean they don’t want to cut, they just need a good solid reason to cut (at this point) and that just isn’t happening..

Oil remains tight at $82.85/barrel, while Gold continues to hold the $2330 level.  Recall – on Tuesday morning – I said I expected Gold to potentially test $2300 – well on Tuesday ‘day’ – it did…and it held – as I suggested it might and should.  The pullback in gold can be tied to the easing tensions in the mid-east – which on one hand is a positive (the easing tensions) – but remember – any change in that tone will send gold higher….no matter what the FED does to rates.  We remain in the $2300/$2400 trading range.

European markets are mixed…. France down 0.5% while the FTSE is making NEW highs…up 0.5% - trading up and thru 8k. The story across the zone is the same – the busiest day of earnings along with some economic caution…. 

The S&P closed at 5071 – up 2 pts. This after testing a high of 5089.   Remember – 5120 is trendline resistance. And my sense was that we were gonna test it……– but not pierce it (yet).  I do not think that test will come today….in fact – I would argue that there is a possibility that we test trendline support at 4950 before we test resistance at 5120.  The market needs to regroup a bit, churn in the 4950/5120 range before breaking out – which doesn’t mean there isn’t any opportunity. It just means be strategic and stick to your plan.  Recall – I said that if earnings are what they are expected to be – then I think we push up, but if there is any sense of weakness (and there is in the tech sector) – then it turns it on its head again and I would expect us to test 4950 fairly quickly.  If we test support – we must hold support in order to stop the bleed – any failure to hold will see the ‘smart logic algo’s’ light up to the sell side – cancelling in line bids – leaving a void in prices that could easily take us to 4800…..which would be a 5% move lower from here and a 9% move off the all-time high….but remember – anything within a 9.9% move is ‘within’ the normal trading range….as uncomfortable as that feels, it is within the normal trading range and something I have been saying for a while. 

Keep your powder dry for now…. unless you have an overwhelming desire to put money to work in specific stocks…. remembering that your gov’t money mkt fund is paying you 5.25%....so you’re not wasting your time, your money is working for you.

As a long-term investor – you need to eliminate the noise and focus on the plan.  As a short-term trader – all you want is the noise – you need to decide who you are.  Call me to discuss.

Zucchini/potato croccante

I made this yesterday. It is a simple dish and can be eaten as a side dish or with a big green salad. 

You need – 2 large zucchini’s which you will grate.  2 large baking potatoes – peeled and sliced into rounds, 2 eggs, 1 c of flour (you can use GF) s&p, grated cheddar cheese (you can use any cheese of your choice) & Olive oil.

Begin by heating up the oven to 400 degrees.  Peel and slice the potatoes (I used a mandolin so that they were all the same thickness).  Toss the potatoes in a bit of olive oil, and season with s&p.  Place them on a baking sheet and put in the oven and roast for 15 or 20 mins…. Do not burn – Remove. 

Turn the oven down to 350 degrees now.

While that is happening. Grate the zucchini and then add to a large mixing bowl, the eggs, flour, cheese and s&p.  Mix well.

Grease a 9x12 Pyrex baking dish – put a layer of the sliced potatoes on the bottom of the dish.  Now add in the grated zucchini mix…spread it out over the potatoes.  Place another layer of potatoes on the top.  You can add more grated cheese to the top if you want.  Now place in the oven and bake at 350 degrees for 20 – 25 mins. 

You will know that it’s done when the zucchini firms up and the potatoes on top are golden brown.  Remove and let sit for 5 mins.  Slice and serve.

*You can also add sliced onions (red or yellow) to this dish and if you really want to make it more substantial - - add in sweet sausage – out of the casing that you browned on the stove first and then mixed with the zucchini.  So many ways to make this dish your own.