Neflix and Tesla, who reported yesterday, both delivered good results across most areas. Netflix did miss on revenues but profits were higher than expected and subscriber growth was more than double what Wall Street was penciling. Tesla topped across the board, though some analysts are concerned about a continued decline in margins.
Tech earnings really kick into high-gear next week with results from Google-parent Alphabet and Microsoft on Tuesday, Facebook-parent Meta on Wednesday, and Amazon on Thursday.
The last of the behemoths, chipmaker NVIDIA, doesn't report until August 23. Tech stocks and the hype around AI have been a major catalyst behind the stock market rally this year and there are some questions as to whether they have already gone too far.
The tech-heavy Nasdaq is up close to 40% this year, while the S&P 500 has gained nearly 19% and the Dow trails with a gain of just under 6%. Some Wall Street insiders are worried that much of the upward momentum is now being fueled by reluctant investors and fund managers that don't feel like they can sit on the sidelines any longer. Meaning even investors that might have a bearish outlook now find themselves chasing the rally as they try to play catch-up and develop serious FOMO (fear of missing out).
This kind of momentum can often result in stocks climbing to uncomfortably high levels and longer-term investors looking to book profits, in turn killing or even reversing the rally. Some bears are also pointing to increasing inflows from retail investors, which tend to get in at or near market peaks.
On a more bullish note, it's worth mentioning that Barclay's analysts recently said that retail demand for equities is still running behind that of bonds or money markets, which means there is still a lot of money out there that could return to stocks later this year.
In addition, US stocks are again shaping up to be one of the best places in the world to park money as some equity gains are now far outpacing investments like bonds, while other global economies appear headed toward much slower growth than the US. Key earnings today include Abbott Labs, The Blackstone Group, Capital One Financial, CSX, D.R. Horton, FreeportMcMoRan, Johnson & Johnson, Taiwan Semiconductor, and The Travelers Companies.
Today also brings more housing data with Existing Home Sales expected to slip again amid low inventories and high mortgage rates. The Philadelphia Fed Manufacturing Index is also due out today.
Canadian Port Strikes Back On: The strike at 30 Canadian West Coast ports is back on. Just five days after 7,400 union dockworkers and their maritime employers agreed to a tentative four-year deal that presumably ended 13 days of work stoppages, the International Longshore and Warehouse Union (ILWU) Canada voted down the recommended settlement terms offered by Canada’s federal mediator. A port shutdown calculator published by a group of Canadian trade associations the day the strike was called off said an estimated $9.9 billion in trade had been disrupted since the stoppage began July 1. The Royal Bank of Canada estimated that 63,000 shipping containers were still waiting to be unloaded at the B.C. ports. The Railway Association of Canada has estimated that it would take three to five days for every day the strike lasted for networks and supply chains to recover. When the first strike ended on its thirteenth day, delays for rail containers were estimated at 39 to 66 days. That does not include the delays in vessels waiting to get processed. The Ports of Vancouver and Prince Rupert are critical ports for U.S. trade, with 15% of U.S. trade coming into the Port of Vancouver, and 60% of all the containers bound for rail destined for the U.S. Source CNBC
Office Buildings" Largest Share of Distressed Commercial Property: The total value of offices that were financially troubled or already repossessed by lenders shot up to $24.8 billion, or about +36% from the first quarter, MSCI Real Assets reported Wednesday. At the end of June, $22.7 billion of retail properties — including malls — and $13.5 billion of hotels were in distress. The total for all troubled commercial properties was almost $72 billion, up 13% from the first quarter. “The office sector was responsible for the largest share of marketwide distress,” according to the report, based on filings for bankruptcies, defaults and other publicly reported property issues. “It’s the first time since 2018 that neither the retail nor hotel sector was the biggest contributor.” MSCI identified an additional $162 billion of properties in potential distress, with problems such as delinquent loan payments, high vacancies or maturing debt. Office use in 10 major US cities is at about half of its pre-pandemic rate on average, and , brokerage Jones Lang LaSalle Inc. reported. Prices for office buildings fell 27% in the year through June, compared with a 12% decline for all commercial-property types, according to real estate analytics firm Green Street. Corporate landlords such as Blackstone Inc., Brookfield Asset Management Ltd. and Starwood Capital Group have stopped payments on office buildings they’ve deemed to be money losers. Source Fortune
Investors Are the Least Fearful They've Been Since COVID Hit: Retail traders are all-in. Bullish sentiment—represented as the expectation that stocks will rise in the next six months—this month hit its highest level since 2021, according to surveys by the American Association of Individual Investors. The bull-bear spread, the difference between investors who see the stock market trotting higher versus those expecting a rout, has been positive for six consecutive weeks. That is the longest stretch since November 2021. Investors in June said they expected U.S. stocks to return +5.5% in the next 12 months, their most bullish forecast since the 2022 bear market, according to a Vanguard survey. That is up from a +3.7% expected yearly increase for stocks as of April. Market contrarians say it is the perfect setup for a crash. Retail investors were similarly euphoric in late 2021. They showed few signs of unnerve: The put-call ratio was low, as was the VIX. But by early January 2022, all three major stock indexes had peaked, and the S&P 500 went on to lose -19% that year. “The FOMO [fear of missing out] becomes so great that retail investors come clamoring in at the end, the last hurrah, just in time for the market bottom to fall out,” said Amanda Agati, chief investment officer of PNC Asset Management Group. Source WSJ
Russian Attacks on Ukraine Ports Continue: Wheat futures soared as much as +9% yesterday, the biggest jump since 2012, as Russia threatened ships sailing to Ukrainian ports, escalating a conflict over exports from the key Black Sea region. Russia’s defense ministry said that all ships headed to the ports from Thursday will be considered as potentially carrying military cargo. It also said flag countries of vessels sailing to Ukraine will be considered as on Kyiv’s side in the conflict. The move comes just days after Russia ended the Black Sea grain deal that had kept cargoes of staple crops flowing through the corridor. While Ukraine can still ship grain by river, road and rail, it’s much more cumbersome and expensive than via its deep-sea ports. The corridor’s closure could slow the movement of crops from the upcoming harvest. Some sea areas in the northwestern and southeastern parts of the international waters of the Black Sea have been declared temporarily dangerous for navigation, the defense ministry said on Telegram. It would mark a dramatic escalation of Russia’s confrontation with Ukraine’s international allies if Moscow was to fire on any vessel that was carrying one of their flags. Russia’s defense ministry didn’t specify what it would do to any ships that try to enter the ports. Shelling on Tuesday and Wednesday hit agriculture terminals in the ports of Odesa and Chornomorsk, two of the three that were operating under the grain deal, according to the Ukraine’s agriculture ministry. The damage knocked out a “significant part” of Chornomorsk’s grain-export infrastructure and destroyed 60,000 tons of grain there. Source Bloomberg
Netflix Scraps Cheapest Ad-Free Plan: Streaming giant Netflix quietly eliminated its cheapest advertisement-free plan for new U.S. and U.K. customers this month, pushing new users toward either a more expensive monthly plan or a cheaper offer with ads, the latest streaming platform to adjust its pricing. Netflix’s changes, which do not affect existing customers, leave new customers with the choice of a $6.99 per month “Standard with Ads” plan—the cheapest Netflix offers—as well as a $15.49 “Standard” plan, which allows for two simultaneous streams and 1080p full HD video quality, or a $19.99 “Premium” plan, with up to four simultaneous streams and 4K Ultra HD video. The change puts Netflix, a stalwart in the decade-long streaming wars, roughly on par with competitors. Netflix added 5.89 million customers in the second quarter of the year, more than doubling Wall Street estimates after cracking down on people who share passwords. The results announced during its earnings call Wednesday mark the company’s best second quarter since the depths of the pandemic three years ago and far surpass Wall Street forecasts of 2.07 million new subscribers Source Forbes
AI’s Latest Casualties: Web3 and Crypto: A year ago, analysts at J.P. Morgan observed that venture capital was pouring into crypto at a breakneck pace. Now, the sector has seen a precipitous drop in investment. Why? The hot money is in artificial intelligence. Almost 20% of global venture funding—worth some $28 billion—in 2023 has come from AI, Crunchbase reported earlier this month. Flows into AI in the wake of OpenAI’s high-profile launch of ChatGPT last year have been one of the few brights spots in venture capital. In the U.S., venture investment fell 48% year over year in the second quarter, with fundraising plunging 55%, analysts led by Steven Alexopoulos at J.P. Morgan wrote in a July 10 note. Meanwhile, third-quarter U.S. venture investment in crypto is down 83% year over year, with crypto and blockchain companies seeing a 94% year-over-year fall. The shift is a sign of how investors have quickly moved on from lofty ambitions linked to Web3—a vision of the internet based on decentralized blockchain networks and virtual experiences in the “metaverse.” Even Meta Platforms, Facebook and Instagram parent company that changed its name in late 2021 to reflect a focus on the metaverse, is now an AI play. Source Barrons
Goldman's Profit Slump is Worst Among Big Wall Street Banks: Goldman Sachs Group’s profit plunged as the Wall Street giant notched one of its weakest quarters under Chief Executive Officer David Solomon. Second-quarter earnings fell a whopping -58% on an investment-banking slump, real estate markdowns and a goodwill writedown in its consumer business. The firm had been actively tamping down expectations heading into the report, prompting analysts to slash their estimates for quarterly profit by almost half since mid-June. Equity-trading revenue was one bright spot, coming in ahead of the firm’s major rivals at $3 billion, compared with estimates for $2.47 billion. Goldman has now clinched the top rank in that business in three of the past four quarters. Notably, total trading revenue was down just 14% when compared to restated numbers from last year. That’s a much smaller drop than the 25% decline Goldman President John Waldron had warned of in early June. The asset-and wealth-management business posted revenue of $3.05 billion, down 4% from a year earlier and below analysts’ estimates for $3.5 billion. The unit was buffeted by the bank’s exposure to the real estate sector, with writedowns both on its lending portfolio and its equity investments contributing to a $1.15 billion pretax earnings hit tied to principal investments. Unlike most of its major competitors, Goldman has aggressively used its own balance sheet to make investments, a strategy that can lead to big swings in results. The firm has been looking to rely more on fees from investing money for other institutions and cut back its own wagers. Source Bloomberg
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