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Stock bulls are hoping to regain control this week amid a stepped-up Q2 2024 earnings schedule. Heading into the quarter, Wall Street was by far the most bullish on big tech stocks with ties to AI over any other sector. While that sentiment has not necessarily changed - earnings expectations remain very high - the concern is that stock prices have gotten too far ahead of earnings.
Another major hurdle for tech bulls could be investor expectations, which are even higher than Wall Street analysts, especially since many have also gotten used to tech companies delivering big earnings beats. Meaning that meeting earnings expectations may not be enough to reinvigorate sentiment and draw skittish money back to big tech.
Companies in the “Communication Services” sector, which includes Google-parent Alphabet and Facebook-parent Meta, are expected to report the highest year-over-year earnings growth rate of all eleven sectors at +18.4%, according to FactSet. Alphabet and Meta are also expected to be the biggest contributors to that growth, with projected Q2 2024 earnings gains of +27% and nearly +59%, respectively.
The “Information Technology” sector, which includes chipmaker Nvidia, is forecast to be the second-best performing sector with growth of over +16%. The largest contributor, Nvidia, is projected to post earnings growth of more than +130%. Tech bulls think the recent selloff has created a buying opportunity that could help boost the market this week.
Bulls are also hoping results from Alphabet and Tesla on Tuesday can generate some excitement about other upcoming tech earnings, a big portion of which will come next week.
On the economic data front, the top draw this week comes on Friday with the PCE Prices Index. The “core” PCE Prices, which strips out food and energy, is one of the Federal Reserve’s favorite inflation gauges and delivered a pretty sizable drop in May to +2.6% from +2.8% previously.
Based on the June Consumer Price Index released earlier this month, Wall Street expects the June PCE “core” to dip below +2.5%. Remember, the Fed’s target inflation rate is +2.0% but the central bank has said it wants to start cutting interest rates before inflation gets that low. Depending on how close the June read is to +2%, it could shift Wall Street’s targets for both when and by how much the Fed will trim interest rates this year.
While most expect the Fed will make the first cut at its September policy meeting, there is a slim minority that thinks they could make the move at the upcoming July 30-31 meeting.
As for how many cuts, traders are pretty evenly divided between a total of 50 and 75 basis points (two to three cuts of 25 basis points each). There is no economic data of note today.
What's Happening in Washington? I hate leading with politics but it seems to be all the current buzz, with current President Joe Biden taking himself out of the 2024 Presidential race. The president said he was ending his bid for re-election and he backed Vice President Kamala Harris to replace him as the Democratic nominee. It's not yet clear who Harris's VP will be bust most talk includes Arizona Senator, Mark Kelly; Kentucky Governor, Andy Beshear; North Carolina Governor, Roy Cooper; Maryland Governor, Wes Moore; Secretary of Transportation, Pete Buttigieg. While California Governor, Gavin Newsome and Michigan Governor, Gretchen Whitmer recently made comments that they had no interest, but who knows. There's now a lot of talk that a ton of money has started pouring in for the Democrats and that former President Trump now becomes the "old guy" in the race and may have a much tougher road back to the White House than recently forecast. This might make cause a lot of funds and investors to backpedal on the "Trump Trades". There's simply a lot of talk this morning that a younger female might bring out a lot more Democratic voters than President Biden would have gotten to the poles. Many political experts argue this massive shift in age and gender by the Democrats might be just enough to make this a race to the finish line, whereas last week it looked like the Republicans had a clear path to sweeping the elections. This is certainly a big game-changer for the "popular vote", as a lot more voters say they would like to be part of electing our first female president. Remember, President Trump lost the popular vote in 2016 to Hillary Clinton (Hillary Clinton 65,844,969 vs. Donald Trump 62,979,984) and arguably lost the popular vote to Joe Biden in 2020 (Joe Biden 81.2 million vs. Donald Trump 74.2 million votes). Bottom line, the players on the field just changed and we are already starting to see the betting lines change... expect more market volatility from the ever changing political headlines. It will be interesting to see who Harris selects as her running mate.
Massive Software Glitch Takes Down World’s Computers: Late Thursday into Friday, reports began to emerge of IT problems wherein Windows computers were getting stuck with the infamous “blue screen of death” — a bright blue error screen with a message that displays when Windows encounters a critical failure, crashes, or cannot load. The outages were first noticed in Australia early on Friday, and reports quickly came in from the rest of Asia and Europe as the regions began their day, as well as the United States. Within a short time, CrowdStrike confirmed that a software update had malfunctioned and was causing Windows computers that had the software installed to crash. CrowdStrike, founded in 2011, has quickly grown into a cybersecurity giant. Today the company provides software and services to 29,000 corporate customers, including around half of Fortune 500 companies, 43 out of 50 U.S. states and eight out of the top 10 tech firms. Practically anyone who during their everyday life interacts with a computer system running software from CrowdStrike was affected, even if the computer isn’t theirs. A single affected Windows computer in a fleet of systems could be enough to disrupt the network. Early on Friday, the Federal Aviation Administration put in effect a ground stop, effectively grounding flights across the United States, citing the disruption. Several federal agencies were also affected by the incident, including the Department of Education, and Social Security Administration, which said Friday that it closed its offices as a result of the outage. Source TechCrunch
The Most Highly Anticipated Video Game in Years: EA Sports College Football 25 is one of the most highly anticipated video games to come out in years, and is the first college sports game to be released in a decade. The new videogame has already seen massive interest in the gaming community, and the game’s maker, Electronic Arts Inc. announced Friday that EA Sports College Football 25 had 2.2 million unique players during its exclusive four-day preorder period. That equates to an estimated $165 million to $220 million in game sales. Unlike in previous versions of the videogame, the real athletes portrayed in the latest version are being paid for rights to their name, image and likeness, or NIL. The compensation is $600 per athlete. A total of 11,390 college football players from 134 schools were eligible to receive the $600 from EA. That amount is the same whether they are a starting quarterback or a backup offensive tackle. College players had to opt into being featured in the game and to receive payment, and more than 11,000 players accepted the offer. Source MarketWatch
American Borrowers Are on Shakier Ground: The American economy has held up well against higher inflation and interest rates. Many individual borrowers haven’t. The costs to borrow for a home, a car or on a credit card are at the highest levels in decades, after the Fed raised rates nearly a dozen times in the past two years. The total amount of interest consumers paid on mortgages in 2023 rose 14% from a year earlier, according to Bureau of Economic Analysis data. It jumped 50% for other types of consumer debt, such as credit cards and auto loans. Inflation has eased significantly since the pandemic, but years of faster-than-usual price increases have added up. Many households have spent down the glut of cash they saved in the pandemic. The top 10% of households by income, or those earning $245,000 or more a year, hold more than three-quarters of excess savings, according to Moody’s Analytics. Source WSJ
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US Prepares Jamming Devices Targeting Russia, China Satellites: The US is about to deploy a new ground-based jammer designed to blunt Chinese or Russian satellites from transmitting information about US forces during a conflict, the Space Force disclosed. The Pentagon’s space service branch tested the system for the first time earlier this year at two different locations, with control of the system at a third. The devices aren’t meant to protect US satellites from Chinese or Russian jamming but “to responsibly counter adversary satellite communications capabilities that enable attacks,” the Space Force said in a statement to Bloomberg News. The Pentagon strives — on the rare occasions when it discusses such space capabilities — to distinguish its emerging satellite-jamming technology as purely defensive and narrowly focused. That’s as opposed to a nuclear weapon the US says Russia is developing that could create high-altitude electromagnetic pulses that would take out satellites and disrupt entire communications networks. Source Bloomberg
Don’t Be Fooled By the Hurricane Lull: Across the so-called "Main Development Region" of the tropical Atlantic Ocean, the ocean waters contain record-high amounts of heat — and it's increasing. Typically, these waters don't fully heat up until October. Such ocean conditions could give rise to additional fierce hurricanes like Hurricane Beryl, which set records for how strong it got so early in the season. Currently, a thick layer of dust from the Sahara Desert is sweeping across the Main Development Region from east-to-west, and will soon reach Florida. The dusty air layer stifles thunderstorms and is keeping a lid on any possible tropical storms or hurricanes... for now. Climatologically, it isn't unusual for hurricane season to take a break during the latter half of July, only to pick up in earnest in early to mid-August. The African dust outbreaks tend to peak during July and decline into August, allowing groupings of thunderstorms, known as tropical waves, to emerge off the continent's west coast and go on to serve as seedlings of hurricanes. Computer models show about another one to two weeks of quiet time in the tropical Atlantic. After that, all bets are off in what is predicted to be a hyperactive season. Source Axios
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