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TDR’s U.S. Stock Market Preview For The Week Of July 18, 2022

A weekly stock market preview and the data that will impact the tape. Sunday Evening Futures Open – Stock Market Preview Weekend News And Developments…

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A weekly stock market preview and the data that will impact the tape.

Sunday Evening Futures Open – Stock Market Preview

Weekend News And Developments

Bank of Canada expects inflation to go “a little over” 8%, as soon as next week when June’s data is released, and stay in that range for a few more months, Governor Tiff Macklem told a business group in a webcast transcript released late Friday.

Boeing trimmed its projected industrywide demand for airplanes over the next 20 years, but said it expects deliveries to be stable excluding the Russian market. Boeing projects airlines worldwide will need 41,170 new airplanes over 20 years with half of the deliveries for replacement aircraft, and with single-aisle aircraft accounting for about 75% of planes.

Boeing on Saturday said it is “disappointed” that the union representing nearly 2,500 employees at the U.S. planemaker’s facilities in the St. Louis area has recommended rejection of management’s contract offer.

Celsius is down to $167 million “in cash on hand,” which they say will provide “ample liquidity” to support crypto operations during the restructuring process.

President Joe Biden said that the U.S. “will not walk away” from the Middle East as he tries to ensure stability in a volatile corner of the globe.

Russia says it will ramp up operations as rockets pound Ukrainian cities. The defense ministry in Moscow said its forces had been ordered to step up operations.

Starbucks Corp. is exploring a sale of its UK operations as it faces competition from newer operators, The Times reported here on Saturday citing sources.

TT Electronics, a global provider of engineered technologies for performance critical applications, announced the company’s Kansas City facility has been awarded a Letter of Authority from long-term partner Honeywell Aerospace to proceed with the design of a new power supply for next-generation inertial navigation units.

Twitter’s board of directors told shareholders on Friday that their vote to approve the $44 billion sale to Elon Musk is the last step to satisfying the merger agreement.

U.S. risks talking itself into a recession, Moody’s economist says.

White House economic adviser Jared Bernstein told CNN on Sunday that President Joe Biden will pursue his climate agenda “with or without Congress,” following the news Thursday that West Virginia Democratic Sen. Joe Manchin wouldn’t back climate or tax provisions in his party’s budget reconciliation package.

What The Analysts Are Saying…

“It is unlikely the market sells off further on weaker earnings or guidance cuts alone, as those are now widely expected. We think it will take signs of corporate risk aversion beyond just weaker numbers, in particular large cost-cutting measures or changes in capital-spending plans.”— Binky Chadha, Chief US Equity & Global Strategist, Deutsche Bank

“Similar setups to what we’re seeing now have preceded falling stock prices across short and medium-term time frames. [We] need to remember that the trend is not our friend.”— Dean Christians, Senior Research Analyst, SentimenTrader.

“Prime Day results make us incrementally more confident in the strength of the consumer, their willingness to spend post pull forward in COVID demand, and as a result AMZN’s forward topline growth.”—Morgan Stanley, following word that Amazon said 300 million items were sold during its annual Prime Day Sales event.

What We’re Watching

CAOA Finally Scheduled To Be Introduced

• The Cannabis Administration and Opportunity Act is finally scheduled to be introduced by Senate Majority Leader Chuck Schumer and other co-sponsors. We don’t expect the legislation to be—or even get a floor vote. But what comes after in the lame duck period of Congress after the midterms could move the needle. MSOS rallied ~8% Thursday on the news, but saw no follow-through bullish price action on Friday in a strong market.

Natural Gas Supply To Europe Could Cease On July 22

• Russia’s state owned natural gas distributor Gazprom warned on July 13 that finagling by the government of Canada has made the prospect of what some analysts have called a “doomsday scenario” lying ahead for Europe all the more likely to manifest. If natural gas delivered by Russia’s Nord Stream 1 pipeline is not restored by July 22, Europe could face an acute energy crisis, analysts warn.

Revive Therapeutics (RVV:CSE, RVVTF:OTC)

• The company is currently reviewing part of the unblinded data for its Phase 3 clinical trial to evaluate the safety and efficacy of Bucillamine to treat COVID-19. A move to proceed forward and/or approval by the FDA would mark a watershed moment in the trial and potential DSMB review to unblind full trial data. A material and market-moving event awaits. News could break anytime. Check TDR Psychedelic and Trend categories for more background info.

U.S. Earnings Calendar Picks Up

• A plethora of major Fortune 500 companies report, starting Monday. Investment banks stocks and old tech bellweather IBM will set the tone of trade early in the week. See earnings calendar below.

U.S. Economic Calendar

TIME (ET)REPORTPERIODMEDIAN FORECASTPREVIOUS
Monday, July 18
10:00 AMNAHB home builders’ indexJuly6667
Tuesday, July 19
8:30 AMBuilding permits (SAAR)June1.68 million1.70 million
8:30 AMHousing starts (SAAR)June1.59 million1.55 million
Wednesday, July 20
10:00 AMExisting home sales (SAAR)June5.38 million5.41 million
Thursday, July 21
8:30 AMInitial jobless claimsJuly 16237,000244,000
8:30 AMContinuing jobless claimsJuly 91.33 million
8:30 AMPhiladelphia Fed manufacturing indexJuly1.9-3.3
10:00 AMLeading economic indicatorsJune-0.50%-0.40%
Friday, July 22
9:45 AMS&P Global U.S. manufacturing PMI (flash)July5352.7
9:45 AMS&P Global U.S. services PMI (flash)July5352.7

Meme Of The Week

Key Earnings (US Markets)

DateCompanySymbolEPS Estimate
Monday, July 18Bank of AmericaBAC$0.76 per share
Charles SchwabSCHW$0.92
Goldman Sachs GroupGS$6.64
International Business MachinesIBM$2.27
PrologisPLD$0.65
Synchrony FinancialSYF$1.43
Tuesday, July 19NetflixNFLX$2.96
Ally FinancialALLY$1.88
Cal-Maine FoodsCALM$1.76
Citizens Financial GroupCFG$0.83
HalliburtonHAL$0.45
HasbroHAS$0.95
Interactive Brokers GroupIBKR$0.91
J.B. Hunt Transport ServicesJBHT$2.33
Lockheed MartinLMT$6.36
ManpowerGroupMAN$2.34
NovartisNVS$1.52
Truist FinancialTFC$1.08
United Community BanksUCBI$0.68
VolvoVLVLY$0.45
Wednesday, July 20Abbott LaboratoriesABT$1.13
ASML HoldingASML$3.81
Baker HughesBKR$0.22
BiogenBIIB$4.13
ComericaCMA$1.77
Crown Castle InternationalCCI$0.96
CSXCSX$0.47
Kinder MorganKMI$0.27
NasdaqNDAQ$1.92
Northern TrustNTRS$1.93
PacWest BancorpPACW$1.07
United Airlines HoldingsUAL$1.82
Thursday, July 21ABBABB$0.35
Alaska Air GroupALK$1.81
American Airlines GroupAAL$0.76
AT&TT$0.61
AutoNationAN$6.14
D.R. HortonDHI$4.50
DanaherDHR$2.36
Domino’s PizzaDPZ$2.90
DoverDOV$1.25
DowDOW$2.14
Fifth Third BancorpFITB$0.87
Intuitive SurgicalISRG$1.20
KB Financial GroupKB$2.67
NokiaNOK$0.09
NucorNUE$8.26
Philip Morris InternationalPM$1.25
Roche HoldingRHBBY$1.49
SAPSAP$1.12
Travelers Cos.TRV$1.81
Friday, July 22TwitterTWTR$0.15
American ExpressAXP$2.41
AutolivALV$0.39
Cleveland-CliffsCLF$1.31
GentexGNTX$0.38
HCA HealthcareHCA$3.74
NextEra EnergyNEE$0.75
NextEra Energy PartnersNEP$0.49
Regions FinancialRF$0.53
SchlumbergerSLB$0.40
Verizon CommunicationsVZ$1.33

FDA Calendar

Incyte Corporation (NASDAQ: INCY) — The Prescription Drug User Fee Act (PDUFA) action date has been extended by three months to July 18, 2022

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Source: CNN Business

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Past Week What’s Hot… and What’s Not

Source: TradingView

Top 12 Short Interest Stocks

TickerCompanyExchangeShortIntFloatS/OIndustry
REVRevlon IncNYSE72.47%7.75M54.54MPersonal Products
BYNDBeyond MeatNasdaq42.36%56.79M63.54MFood Processing
MVISMicrovision, Inc.Nasdaq41.67%100.19M165.21MElectronic Equipment & Parts
ICPTIntercept PharmaceuticalsNasdaq37.77%23.62M29.71MBiotechnology & Medical Research
MSTRMicroStrategy IncNasdaq37.69%9.32M9.33MSoftware & Programming
FUVArcimoto IncNasdaq36.11%29.97M38.78MAuto & Truck Manufacturers
SWTXSpringWorks TherapeuticsNasdaq36.11%31.64M49.41MBiotechnology & Medical Research
UPSTUpstart HoldingsNasdaq34.33%66.63M84.77MConsumer Lending
BGFVBig 5 Sporting GoodsNasdaq34.13%20.85M22.33MRetailers – Miscellaneous Specialty
SRGSeritage Growth PropertiesNYSE33.83%23.58M43.68MReal Estate Operations
EVGOEvgo IncNasdaq32.90%67.76M69.00MUtilities – Electric
NKLANikola CorporationNasdaq32.72%265.95M421.14MAuto & Truck Manufacture
Source: highshortinterest.com

Tags: stock market preview, stock market preview July 18, 2022.

The post TDR’s U.S. Stock Market Preview For The Week Of July 18, 2022 appeared first on The Dales Report.

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Spread & Containment

Will Powell Pivot? Don’t Count On It

Stocks are rallying on hopes that Jerome Powell and the Fed will stop increasing interest rates this fall, pivot, and start reducing them next year. For…

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Stocks are rallying on hopes that Jerome Powell and the Fed will stop increasing interest rates this fall, pivot, and start reducing them next year. For fear of missing out on the next great bull run, many investors are blindly buying into this new Powell pivot narrative.

What these investors fail to realize is the Fed has a problem. Inflation is raging, the likes of which the Fed hasn’t dealt with since Jerome Powell earned his law degree from Georgetown University in 1979.  

Despite inflation, markets seem to assume that today’s Fed has the same mindset as the 1990-2021 Fed. The old Fed would have stopped raising rates when stocks fell 20% and certainly on the second consecutive negative GDP print. The current Fed seems to want to keep raising rates and reducing its balance sheet (QT).

The market-friendly Fed we grew accustomed to over the last few decades may not be driving the ship anymore. Yesterday’s investment strategies may prove flawed if a new inflation-minded Fed is at the wheel.

Of course, you can ignore the realities of today’s high inflation and take Jim Cramer’s ever-bullish advice.

When the Fed gets out of the way, you have a real window and you’ve got to jump through it. … When a recession comes, the Fed has the good sense to stop raising rates,” the “Mad Money” host said. “And that pause means you’ve got to buy stocks.

Shifting Market Expectations

On June 10, 2022, the Fed Funds Futures markets implied the Fed would raise the Fed Funds rate to 3.20% in January 2023 and to 3.65% by July 2023. Such suggests the Fed would raise rates by almost 50bps between January and July.

Now the market implies Fed Funds will be 3.59% in January, up .40% in the last two months. However, the market implies July Fed Funds will be 3.52%, or .13% less than its January expectations. The market is pricing in a rate reduction between January and July.

The graph below highlights the recent shift in market expectations over the last two months.

The graph below from the Daily Shot shows compares the market’s implied expectations for Fed Funds (black) versus the Fed’s expectations. Each blue dot represents where each Fed member thinks Fed Funds will be at each year-end. The market underestimates the Fed’s resolve to increase interest rates by about 1%.

Short Term Inflation Projections

The biggest flaw with pricing in predicting a stall and Powell pivot in the near term is the possible trajectory of inflation. The graph below shows annual CPI rates based on three conservative monthly inflation data assumptions.

If monthly inflation is zero for the remainder of 2022, which is highly unlikely, CPI will only fall to 5.43%. Yes, that is much better than today’s 9.1%, but it is still well above the Fed’s 2.0% target. The other more likely scenarios are too high to allow the Fed to halt its fight against inflation.

cpi inflation

Inflation on its own, even in a rosy scenario, is not likely to get Powell to pivot. However, economic weakness, deteriorating labor markets, or financial instability could change his mind.

Recession, Labor, and Financial Instability

GDP just printed two negative quarters in a row. Some economists call that a recession. The NBER, the official determiner of recessions, also considers the health of the labor markets in their recession decision-making. 

The graph below shows the unemployment rate (blue), recessions (gray), and the number of months the unemployment rate troughed (red) before each recession. Since 1950 there have been eleven recessions. On average, the unemployment rate bottoms 2.5 months before an official recession declaration by the NBER. In seven of the eleven instances, the unemployment rate started rising one or two months before a recession.

unemployment and recession

The unemployment rate may start ticking up shortly, but consider it is presently at a historically low level. At 3.5%, it is well below the 6.2% average of the last 50 years. Of the 630 monthly jobs reports since 1970, there are only three other instances where the unemployment rate dipped to 3.5%. There are zero instances since 1970 below 3.5%!

Despite some recent signs of weakness, the labor market is historically tight. For example, job openings slipped from 11.85 million in March to 10.70 in June. However, as we show below, it remains well above historical norms.

jobs employment recession

A tight labor market that can lead to higher inflation via a price-wage spiral is of concern for the Fed. Such fear gives the Fed ample reason to keep tightening rates even if the labor markets weaken. For more on price-wage spirals, please read our article Persistent Inflation Scares the Fed.

Financial Stability

Besides economic deterioration or labor market troubles, financial instability might cause Jerome Powell to pivot. While there were some growing signs of financial instability in the spring, those warnings have dissipated.  

For example, the Fed pays close attention to the yield spread between corporate bonds and Treasury bonds (OAS) for signs of instability. They pay particular attention to yield spreads of junk-rated corporate debt as they are more volatile than investment-grade paper and often are the first assets to show signs of problems.

The graph below plots the daily intersections of investment grade (BBB) OAS and junk (BB) OAS since 1996. As shown, the OAS on junk-rated debt is almost 3% below what should be expected based on the robust correlation between the two yield spreads. Corporate debt markets are showing no signs of instability!

corporate bonds financial stability

Stocks, on the other hand, are lower this year. The S&P 500 is down about 15% year to date. However, it is still up about 25% since the pandemic started. More importantly, valuations have fallen but are still well above historical averages. So, while stock prices are down, there are few signs of equity market instability. In fact, the recent rally is starting to elicit FOMO behaviors so often seen in speculative bullish runs.

Declining yields, tightening yield spreads, and rising asset prices are inflationary. If anything, recent market stability gives the Fed a reason to keep raising rates. Ex-New York Fed President Bill Dudley recently commented that market speculation about a Fed pivot is overdone and counterproductive to the Fed’s efforts to bring down inflation.

What Does the Fed Think?

The following quotes and headlines have all come out since the late July 2022 Fed meeting. They all point to a Fed with no intent to stall or pivot despite its effect on jobs and the economy.

  • *KASHKARI: 2023 RATE CUTS SEEM LIKE `VERY UNLIKELY SCENARIO’
  • Fed’s Kashkari: concerning inflation is spreading; we need to act with urgency
  • *BOWMAN: SEES RISK FOMC ACTIONS TO SLOW JOB GAINS, EVEN CUT JOBS
  • *DALY: MARKETS ARE AHEAD OF THEMSELVES ON FED CUTTING RATES
  • St. Louis Fed President James Bullard says he favors a strategy of “front-loading” big interest-rate hikes, repeating that he wants to end the year at 3.75% to 4% – Bloomberg
  • FED’S BULLARD: TO GET INFLATION COMING DOWN IN A CONVINCING WAY, WE’LL HAVE TO BE HIGHER FOR LONGER.
  • “If you have to cut off the tail of a dog, don’t do it one inch at a time.”- Fed President Bullard
  • “There is a path to getting inflation under control,” Barkin said, “but a recession could happen in the process” – MarketWatch
  • The Fed is “nowhere near” being done in its fight against inflation, said Mary Daly, the San Francisco Federal Reserve Bank president, in a CNBC interview Tuesday.  –MarketWatch
  • “We think it’s necessary to have growth slow down,” Powell said last week. “We actually think we need a period of growth below potential, to create some slack so that the supply side can catch up. We also think that there will be, in all likelihood, some softening in labor market conditions. And those are things that we expect…to get inflation back down on the path to 2 percent.”

Summary

We are highly doubtful that Powell will pivot anytime soon. Supporting our view is the recent action of the Bank of England. On August 4th they raised interest rates by 50bps despite forecasting a recession starting this year and lasting through 2023. Central bankers understand this inflation outbreak is unique and are caught off guard by its persistence.

The economy and markets may test their resolve, but the threat of a long-lasting price-wage spiral will keep the Fed and other banks from taking their foot off the brakes too soon.

We close by reminding you that inflation will start falling in the months ahead, but it hasn’t even officially peaked yet.

The post Will Powell Pivot? Don’t Count On It appeared first on RIA.

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Spread & Containment

Why You Should Not Worry About Disney and Netflix Stock

The two streaming giants have struggled but investors should not be too concerned.

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The two streaming giants have struggled but investors should not be too concerned.

During the lockdown/quarantine days of the pandemic, we all apparently rode our Peloton (PTON) - Get Peloton Interactive Inc. Report bikes while binge-watching streaming videos. As soon as we finished that, we headed onto a Zoom Video  (ZM) - Get Zoom Video Communications Inc. Report call, presumably before ordering food delivery and later having a Teladoc (TDOC) - Get Teladoc Health Inc. Report appointment

That may not have actually been your direct experience, but it's how the stock market performed. People bought so-called "stay-at-home" stocks because we all were, well, stuck at home. Of course, at some point we weren't stuck at home, and sentiment on those stocks changed.

The challenge for investors is sorting out the real narrative from the false one. 

At-home-exercise bikes were never going to replace gyms once people could go out again, and the audience for a premium-priced product was limited when gym memberships can cost as little as $10 a month.

Telemedicine has a bright future, but it has limits and it may prove an area where the brand name does not matter.

Streaming video is different, however, and while Netflix (NFLX) - Get Netflix Inc. Report and Walt Disney (DIS) - Get The Walt Disney Company Report stock are down roughly 40% and 55% respectively over the past 12 months, there are a lot of reasons shareholders need not be concerned.

Netflix/TS

Netflix Has a Correctible Problem  

While Netflix grew steadily for a long time, no product has an endless upward trajectory. The company lost subscribers in its most recent quarter, but that comes after it added more than 36 million customers in 2020 and another 18 million in 2021. Even with its Q2 2022 drop of about a million subscribers, the company still has 220 million paying customers.

That's a huge number and it's not likely to get all that much bigger or all that much smaller over the next few years. The reality is that Netflix has left its growth phase and has moved into its fiscal responsibility phase.

Now, instead of producing $200 million movies and throwing them at the wall, the company has to be smarter about its content investments.

"So our content expense will continue to grow, but it's more moderated as we adjusted for the growth in our revenue," Chief Financial Officer Spence Neumann said during the company's second-quarter-earnings call.

"And we think we've gotten a lot smarter over the last decade or so being in the originals business as to where we can direct our spend for most impact, highest impact, and highest satisfaction for our members." 

Nobody at Netflix wants to say "we're going to make fewer shows and focus on having hits," but Netflix has reached the retention stage of its business. It needs to have enough content its customers want to see coming up to keep people from quitting.

That may not be an easy transition, but it's one the company is likely to make, where it can be comfortably profitable around its current customer base. 

Disney Has Nothing to Worry About     

Disney is obviously much more than a streaming company, but Disney+ has been a massive driver for the company. Its growth was accelerated by the pandemic, but every family and any adults who like Marvel and Star Wars were always going to subscribe.

Fans of the company's huge franchises are simply not going to skip the biggest shows coming out of those universes. 

Disney, unlike Netflix, does not have a too-much-content problem. It knows its customer base and understands that while "Falcon and the Winter Soldier" might draw a bigger audience than "Ms. Marvel," both drive audience to the service.

Disney may struggle with what's a theatrical release and what goes to streaming, but it has hit franchises that have stood the test of time. That's not going to change just because lockdowns have ended and we have other entertainment choices.

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Stocks

Bed Bath & Beyond stock should be worth $4 only: Baird

Bed Bath & Beyond Inc (NASDAQ: BBBY) has been on fire over the past couple of weeks, but that “frenzy” is unlikely to last for very long, says…

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Bed Bath & Beyond Inc (NASDAQ: BBBY) has been on fire over the past couple of weeks, but that “frenzy” is unlikely to last for very long, says Justin Kleber. He’s a Senior Equity Research Analyst at Baird.

Bed Bath & Beyond stock could tank 55% from here

On Tuesday, he downgraded the Bed Bath & Beyond stock to “underperform” and reiterated his price target of $4.0 a share that represents about a 55% downside from here. In a note to clients, Kleber said:

This frenzied move has been driven by non-fundamentally focused market participants. With market share losses accelerating and BBBY burning cash, fundamental risk/reward looks unattractive.

The meme stock, he added, has to sharply improve its EBITDA to justify its current $2.30 billion enterprise value – but that’s unlikely to happen in this macroeconomic environment.

Versus its year-to-date low, Bed bath & Beyond stock is currently up more than 100%.

Why else does he dislike Bed Bath & Beyond Inc?

In its latest reported quarter, the American chain of domestic merchandise retail stores lost $2.83 a share (adjusted) – more than double the $1.39 that analysts had expected. Kleber is also bearish on the Bed Bath & Beyond stock because:

Supply chain disruptions have exposed BBBY’s antiquated infrastructure and wreaked havoc on the business at the same time the company’s pivot toward owned brands has not resonated with customers.

The retailer will likely remain challenged as demand for home goods continues to normalise following two years of pandemic-driven boost, he concluded.

In June, the Union-headquartered company named Sue Gove its new CEO (interim) tasked with fixing the liquidity concerns. Most recently, Bed Bath & Beyond was reported considering private loans to optimise its balance sheet.

The post Bed Bath & Beyond stock should be worth $4 only: Baird appeared first on Invezz.

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