Tuesday, July 23, 2024

Pricing a New Election

  • The old rules still apply.
  • The Return of the Magnificent Seven.
  • What the bond market is saying.
Senior Editor, StockPick Daily
MARKETS

Earnings > Politics

And that’s a good thing.

So much for summer doldrums.
Anomalies abound this July: a six-sigma price-action event, an assassination attempt on one presidential candidate, the biggest IT outage ever, and the withdrawal of the incumbent from his reelection campaign.
All that’s in the last two weeks, during which time the S&P 500 lost 1.23 and the tech-heavy Nasdaq Composite shed 3.43 percent but the Russell 2000 gained 8.23 percent.
That includes Monday’s gains of 1.08 percent, 1.58 percent, and 1.66 percent, respectively, as Big Tech got some juice and small-caps continue to benefit from expanding breadth.
And now investors, traders, and speculators are figuring out how to price in Kamala Harris, including her prospects for victory in November and her policy priorities.

The yield curve is getting less steep after a spike following the June 28, 2024, US presidential debate.
The gaps between the yields on the 10-year US Treasury note and the 30-year US Treasury bond versus the two-year US Treasury bill are closing, an indication the so-called “Trump Trade” is fading.
Mish Schneider takes a closer and actionable look at recent price action through the lens of her Economic Modern Family – with an emphasis on the iShares 20+ Year Treasury Bond ETF $TLT – in her Weekly Market Outlook.
Mish also previews Tesla $TSLA ahead of its after-the-bell earnings report today, identifying key levels and catalysts for Elon Musk’s stock.
Google parent Alphabet $GOOGL also reports after the bell.
As for incoming data, at 10:00 a.m. ET we’ll get existing home sales figures for June from the National Association of Realtors.
On Wednesday – same time but from the US Census Bureau – we’ll get new home sales figures for June.
Thursday includes second-quarter GDP as well as jobless claims plus durable goods, trade balance, and retail and wholesale inventory data.
And on Friday it’s the Personal Consumption Expenditure Price Index data for July.
The core PCE figure could seal the deal on a rate cut. But it might not: There are a lot of signs the economy is re-heating.
That includes the recent move in the Russell 2000.
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July 23, 2024
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DEEP DIVE

The Best Action Is After the Bell

Two Big Tech behemoths report earnings later today.

As freighted is the contest for command of the US ship of state right now, what will ultimately drive markets are earnings and companies’ ability to grow them on a consistent basis.
And, given the role the technology sector has played in this continuing bull market, this is a pretty big day on the second-quarter earnings reporting calendar.
Alphabet $GOOGL and Tesla $TSLA, co-stars of The Magnificent Seven, will post operating and financial results after the closing bell.
Alphabet continues to benefit from demand for its AI-powered cloud services and is expected to report double-digit year-over-year revenue growth for the fourth consecutive quarter.

Alphabet $GOOGL, which reports earnings on July 23, 2024, is up more than 50 percent over the trailing 12 months.
Management trained its attention on the ever-intensifying competition for AI dominance, introducing a more sophisticated version of its Gemini AI model and adding AI-powered summaries to search results.
And it’s rolling out new AI-enabled Pixel products in August, ahead of Alphabet’s usual fall launch window.
The ad business continues to provide healthy ballast, as does YouTube amid a favorable and apparently improving macro environment.
Investors, traders, and speculators will be looking closely at capex spending, which jumped 91 percent to $12 billion during the first quarter on heavy AI investment.

Tesla $TSLA, which reports earnings on July 23, 2024, is down more than 3 percent over the trailing 12 months.
Tesla is expected to report that second-quarter margin will mark a five-year low, as price cuts and incentives have taken substantial bites at the top line.
Sales of its aging fleet of EVs are declining, though second-quarter deliveries did exceed reduced expectations.
And management has promised new models in 2025 based on existing production lines, as it’s abandoned plans for a totally new EV.
The story here, though, is Elon Musk’s dreams of robotaxis and robots, which we’ll learn more about in October as opposed to an originally planned event in August.
WEEKLY MARKET OUTLOOK

It’s All Happening

But it’s still all about earnings.

But it’s still all about earnings.“It seems like we can’t get through a week without some major occurrence,” Mish Schneider observes at the top of her Weekly Market Outlook.
The current event is a big one: Joe Biden has withdrawn from the 2024 US presidential election.
Only three times has a President of the United States of America willingly abdicated.
George Washington in 1797 established what was then an informal two-term limit on the executive. 
Lyndon Johnson in 1968 opted not to stand for reelection amid widespread social and political upheaval.
And Richard Nixon in 1974 resigned to avoid an impeachment trial in the US Senate.
As rich as that history is, investors, traders, and speculators will reduce the situation to two questions.
According to Mish, “There will be a lot of jockeying for what the market perceives as who will win and what policy will be like. But I think that’s only to a small degree.
“My sense is the market will go back to doing what it needs to do to determine its next direction,” Mish explains. “And it'll be a matter of seasonality, which is a little bit weak right now, and obviously earnings, and monetary policy.”

The iShares 20+ Year Treasury Bond ETF $TLT has been making higher lows since making a near-term bottom last fall.
The latter factor looms as probably the biggest, in Mish’s estimation, with the potential for the Federal Reserve to cut its benchmark interest rate in the very near future.
“So I think for today, what I wanna do is I wanna kinda get rid of all the noise and just go back to the basics.”
That means Grandma and Grandpa, the iShares Russell 2000 ETF $IWM and the SPDR S&P Retail ETF $XRT.
It also means “that kingpin of a daughter,” the Van Eck Semiconductor ETF $SMH, with earnings for the group on the horizon, and Tesla $TSLA, because it’s reporting this week.
Mish also takes a close look at the iShares 20+ Year Treasury Bond ETF $TLT.
“I think that might help us tell a story going forward.”

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