Markets eye big-tech earnings amid rising Oil and bond yields

Stocks surged yesterday – The Dow up 380 pts, the S&P gained 66 pts, the Nasdaq rose 330 pts, the Russell added 45, the Transports up 210 pts, the Equal Weight S&P rose 16 pts (a bit of a disappointment for me) while the Mag 7 added 43 pts.

8 of the 11 S&P sectors ended the day higher…Tech – the XLK up 2.9%, by far the leader of the pack – the next best performer was Energy up ‘just’ 1%. Healthcare rose by 0.7% while Industrials, Consumer Discretionary, Financials, and Basic Materials all added less than 0.3%.

Consumer Staples gave back 1%, Communications lost 0.7% while Utilities ended the day flat.

Semi’s which have been under pressure from the onslaught of aggressive selling by the Momo guys -down 25% off the June 8^th high, found a reprieve and rallied by a whopping 5.25%! So, let’s visit that – because it tells an important story.

Yesterday I told you that Goldman said the Hedge Fund community (Momo Guys) – who were mostly responsible for taking the sector up 110% ytd into June 8^th – suddenly decided that the move was ‘overdone’ – talk of stocks being priced to perfection were the headlines as we headed into earnings season, causing the unrest. And so, they started taking money off the table, ‘locking in profits’ before the earnings actually hit the tape!

For 5 weeks now – they hammered it, day after day, refusing to let up, every bounce met with another wave of selling……and as individual names broke technical levels the algo’s jumped on forcing even more selling – and selling begets more selling…. causing an uncomfortable dislocation in the sector, pushing individual names deeper into ‘bear market territory’ and while that sounds ominous – keep in mind – the sector is still UP 80% ytd…hardly a reason to ‘light your hair on fire’.

UBS – not to be outdone by Goldy wasted no time joining the conversation – telling us that THEIR data showed that the hedge fund ‘community’ cut their long positions by a whopping 5% of gross market value (on their books) – one of the largest reductions on record…. Translation – the ‘hedgies’ had finally exhausted themselves and it was the exhaustion that we saw yesterday – the Momo guys ran out of stock to sell, so the pressure was off!

And here is the KEY - when the sellers finally exhaust themselves, and the pressure is off - something interesting happens. Prices move sharply higher and that is what we saw yesterday…. The absence’ of aggressive sellers left the buyers scrambling to buy stock and UP we go! And sometimes...that’s exactly how important market bottoms begin. In this case – some of the buying was ‘short covering’ which is a more aggressive buyer than just a regular buyer….and that only amplifies the move higher….as they trip over each other to ‘cover their positions’.

Now Adam Turnquist of LPL telling Bloomberg what I have been saying for weeks.

“The recent correction appears more consistent with a healthy reset following a parabolic advance rather than a fundamental breakdown in the AI investment theme,”

And here is the next lesson for you.

Seller-exhaustion rallies and conviction Buyer rallies don’t behave the same way.

A conviction rally builds on itself... new longs, new money, breadth expanding day after day. A seller-exhaustion rally can run hard and fast right out of the gate; the buying focused on the beaten-up names - which is exactly what we saw yesterday.

A conviction BUY rally needs to be RE-CONFIRMED by actual new demand in the days that follow, otherwise it fades. The bounce tells you the selling pressure is spent. It doesn’t tell you buyers are back in size.

That’s why TSLA, GOOG, NOW, TXN & even IBM - that report AFTER the closing bell tonight matter more than usual. If mega cap tech earnings back up the exhaustion-driven bounce with real guidance and real AI capex commentary, and proof that the latest Chinese open weight model is not the threat the media made it out to be, then yesterday’s rally becomes more durable. If they don’t, then the selling will resume. So, grab the popcorn and take a front row seat.

Now while that is all very exciting – the Bond market is much more cautious…. bond prices fell, causing yields to rise……as investors weigh the possibility that higher energy prices could eventually find their way into inflation data and complicate the Fed’s path.

The 2 yr now yielding 4.25%, the 10-year ending the day at 4.62%, while the 30 yr is now yielding 5.13%, reminding investors that while stocks were celebrating AI yesterday, the bond market remains focused on inflation. Watch out – if the 10 yr pierces 4.75% - the momentum will take it even higher and that will prove to be a bigger problem for Kevy and for stocks.

The odds of a September rate HIKE have now gone from 40% to 58% over the past week… suggesting that trouble is brewing.

Oil won’t help this narrative…. Brent is now trading at $94 while WTI is trading at $87 as fighting in the Middle East intensifies – with the Houthi’s now joining the fight and closing the Red Sea forcing the Saudi’s to get involved. 10 straight days of U.S. strikes and continued attacks on military targets, have kept a geopolitical premium firmly embedded in oil prices and that will become more an issue next month and the months after.

Gold has now found its footing and is advancing after doing nothing for 3 weeks…Yesterday it was up $68 and this morning – it is up $45 at $4,125 – still in the trading range that we have been discussing - $4,000/$4,200 – but inching closer to breaking out and if the middle east conflict drags on, expect oil to advance.

There is no real eco data today to drive the action….so all eyes will be focused on the announcements AFTER the bell today…. Just fyi – TSLA & TXN are down in the pre-mkt, while GOOG, IBM and NOW are all higher.

SPCX announced that it will report its first earnings as a public company on Tuesday, August 4th after the closing bell. Then, on August 6^th - 911 million insider shares become eligible for sale. It doesn’t mean they will, it just means they can.

That represents a 145% increase in the number of shares available to the market. That’s a massive increase in potential supply, and it’s one of the reasons investors are paying close attention.

SPCX closed yesterday at $123.54 and is indicated about $1 higher this morning. The stock now faces two significant catalysts back-to-back: its first earnings report and the lock-up expiration. That’s a combination that could create plenty of volatility.

In fact, some analysts on Wall Street believe the stock could ultimately trade down into the mid-$80s before this process runs its course, particularly if insider selling is heavier than expected and/or the earnings report fails to impress. Others will argue that strong results and solid guidance will suck up much of that additional supply.

Remember, this is Econ 101 - when supply suddenly increases, demand has to increase just as fast—or prices will adjust LOWER until buyers are willing to step in. That’s the risk investors will be weighing over the next couple of weeks. Just something to think about.

European markets are all up between 0.5% and 1%.

US futures are cautious this morning…. ahead of these reports…. Dow futures are down 10 pts, S&P’s down 15 pts, Nasdaq is down 175 pts while the Russel is down 5 pts.

The S&P closed at 7509 up 66 pts or 0.9%…. dragged higher by a handful of tech names – note the Equal Weight S&P was only up 0.2% - confirming the fact that all the excitement was focused on tech and the semis. We are just north of trendline support at 7469. Any disappointment today will raise the temperature again and cause stocks to move lower…. Any further increase in the price of oil will continue to unsettle markets.

Don’t let the headlines force you into emotional decisions. Focus on your plan, your timeline and your long-term objectives—not the noise of the day.

Porcini rubbed rib-eye – Tagliata style

For this you need: Dried porcini mushrooms, sugar, s&p, garlic, olive oil and balsamic vinegar, boneless rib-eye, arugula, red onion, shaved parmesan cheese and one lemon.

Grind 1 oz of dried mushrooms until fine...you can use a mortar and pestle or a food processor.

Next combine the mushroom powder with 2 tbsps. of sugar, 1 tbsp. of s&p, 4 garlic cloves (chopped) and about 1/4 cup of olive oil. Set it aside. You can make a container of this rub up to this point and store it in the fridge in a sealed jar. When you get ready to use it - take it out of the fridge. Mix and then massage it into your meat of choice.

Season the meat with salt and the porcini rub – massage well.

Preheat your oven to 400 degrees.

In a large cast iron skillet – add about 1 tbsp. of olive oil and heat it up. Add the steak and listen to it sizzle, brown on both sides. Now, place the skillet into the oven and let it cook for about 5-8 mins – depending on its thickness. If you have an instant read thermometer it should read 135 degrees when inserted in the center. Remove and let stand for 10 mins – tent it to keep it warm.

Now slice the steak at an angle so that you can fan it out on the plate. Lay down some arugula and red onion, place the steak on top and then drizzle with a bit more of the olive oil and a squirt of fresh lemon juice. Then top with the shaved cheese.