Is It Really All Good?

MARKETS

This Is How Markets Roll

Earnings have been good so far, so there’s that too.

The CBOE Volatility Index $VIX was up nearly 5 percent at its peak on Monday, which probably qualifies as a “spike.” Of course that’s off what remains a historically low base.
The VIX measures implied volatility over the next 30 days through changes in the prices of options on the S&P 500.
It’s been tame for months. They call it the “fear gauge,” but I think that’s just a marketing thing, for drama.
What we know is all of the major equity indexes are trading at or near all-time highs in the immediate aftermath of the attempted assassination of Donald J. Trump.
Price action in the bond market, with US Treasury yields lower at the short end and higher at the long end, also reflects raised expectations of a Trump restoration.
No. 45 cum No. 47 means lower interest rates and more deficit spending. That’s traditionally a good combination for equities.
We’ll see how another four years of favors-based Trumponomics, rule-of-law mockery, and further institutional erosion impacts the US dollar.
That’s for later.
For now, let’s take a look at Ryan Detrick’s updated list of major geopolitical events from September 1, 1940, through July 13, 2024.
Note that the S&P 500 was up 21 percent in the six months after Hamas attacked Israel, the most recent event prior to last Saturday.
And here’s some more substance to consider.
According to FundStrat, of the 28 S&P 500 companies that have reported so far, 82 percent have exceeded estimates by a median of 3 percent.
That’s only 6 percent of the S&P 500, so it’s not quite a trend.
But it bears close scrutiny given the way the index has run this year, setting 39 new all-time closing highs and counting.

The S&P 500 closed up 0.28 percent on Monday, July 15, 2024, the first trading session following the July 13, 2024, attempted assassination of Donald J. Trump.

Goldman Sachs $GS made a constructive contribution, reporting strong top- and bottom-line growth on robust results for its asset and wealth management and investment banking businesses.
Goldman reported a $282 million provision for credit losses, 54 percent lower than the provision for the second quarter of 2023.
CEO David Solomon said the prevailing economic environment “remains relatively constructive” despite inflation being “stickier than many had anticipated.”
“Markets continue to forecast a strong landing as the expected economic growth trajectory improves and equity markets remain near all-time highs,” Solomon said.
We’ll hear what Bank of America $BAC and Morgan Stanley $MS have to say before the opening bell rings today.
A bellwether of another sort will draw the curtain on second-quarter tech reporting on Thursday, with Netflix $NFLX revealing numbers in a post on its website at 4:00 p.m. ET.
Maybe it’s not magnificent, but the streaming giant posted solid first-quarter results.
NFLX beat analysts’ expectations for revenue and earnings per share and reported better-than-forecast subscriber growth.
Wall Street expects a similar result this time around: EPS growth of more than 33 percent on revenue growth of nearly 8 percent.
NFLX closed up 1.37 percent on Monday, running ahead of the Nasdaq Composite, and setting the stage for its at-the-close announcement later this week.

DEEP DIVE

Trump Goes Full Crypto

The ex-president is headlining Bitcoin 2024.

Even before the event of July 13, 2024, outside Pittsburgh, Bitcoin $BTC was showing signs of technical strength.
According to my main crypto man Louis Sykes of All Star Charts Crypto, “Bulls are once again asserting control of the tape.”
“The price action in crypto markets over the last week has been incredibly productive,” Louis writes in his July 15 note. “Bitcoin has now officially put in a failed breakdown below 57,000 and the bias is higher toward 72,000.”
Louis notes potential for near-term chop as BTC retests the 60,000 resistance level, “but the trend looking out into the next few months has returned back to bullish.”
And now there’s even more narrative to float it higher from here.

Bitcoin $BTC has recovered after nearly breaking down below a key level of support and looks headed higher from here.

Donald J. Trump, the former and perhaps future President of the United States, is scheduled to speak at Bitcoin 2024 in Nashville on July 27, the closing day of the conference.
While he was in office No. 45 was decidedly anti-crypto.
The current presumptive No. 47 has seen the digital light, and investors, traders, and speculators in the crypto space expect a restored Trump to look at their industry with laser eyes.
Crypto-related stocks such as Coinbase Global $COIN and Riot Platforms $RIOT are enjoying the glow as well, rising 11.39 percent and 17.08 percent, respectively, on Monday.
Zach Pandl, the head of research at Grayscale Investments, said recent price action “could signal that investors expect that a Trump presidency would create a more favorable regulatory climate for the crypto industry.”
Standard Chartered, meanwhile, says BTC could reach $150,000 by the end of the year if Trump wins in November.

FROM THE RESEARCH DESK

How ‘Bout Them Small-Caps!

They’re enjoying a historic rally.

They’re enjoying a historic rally.A small-cap stock is one with a market capitalization of between $250 million and $2 billion.
We’ve witnessed extraordinary things in the small-cap space in recent days, literally a six-standard-deviation event last Thursday and a total revision of market-leadership narratives.
The outperformance for the Russell 2000 continued on Monday, with the small-cap index rising 1.80 percent versus gains of 0.28 percent for the S&P 500, 0.40 percent for the Nasdaq Composite, and 0.53 percent for the Dow Jones Industrial Average.
Small-caps had lagged the big names during this leg of the bull market. The Invesco S&P SmallCap Information Technology ETF $PSCT reflected the broader trend.
Small-caps’ participation in the rally signals expanding breadth and further gains to come up and down the cap scale.
Small-cap tech could represent even more explosive upside, and Rosenblatt Securities has three names particularly well placed for the second half.
Harmonic $HLIT is a $1.44 billion company that specialises in broadband and video delivery solutions for media giants including CNN and Comcast as well as other digital firms.
A top-line miss in the first quarter sent HLIT down by about 10 percent. Rosenblatt analyst Steve Frankel sees opportunity.
"Harmonic continues to dominate the march to next generation broadband,” Rosenblatt writes in a July 15 note to clients, “setting the stage for a multi-year product cycle that should deliver accelerating revenue growth and expanding margins."
Frankel rates HLIT a “buy” with a 12-month price target of $18. Wall Street is totally bullish: All six analysts who follow the stock rate it a “buy,” and the consensus sees upside of 34 percent from here.

The Invesco S&P SmallCap Information Technology ETF $PSCT has begun to close its performance gap with the Invesco QQQ Trust $QQQ.

Applied Optoelectronics $AAOI makes things like semiconductor lasers and other chip components.
AAOI surged more than 8 percent on Monday, its market cap rising to nearly $400 million.
This one – truly a small-cap stock – is still down more than 47 percent year to date, most of the damage coming after management missed first-quarter expectations.
Frankel says the company’s data-center services are in high demand amid this AI boom, and he rates the stock a “buy” with a 12-month price target implying upside of nearly 60 percent from Monday’s close.
Two analysts rate AAOI a “buy” and two rate it a “hold.”
Five9 $FIVN creates cloud platforms for contact centers, serving multiple sectors. Clients include Alaska Airlines, among other name-brands.
FIVN is just outside the top end of the range for a small-cap, broadly defined as a stock with a market capitalization of between $250 million and $2 billion.
The stock is down more than 40 percent this year after management guided to softer numbers following a blowout first quarter.
Frankel thinks the market has been a little too harsh, rating FIVN a “buy” with a 12-month price target of $80. That’s more than 80 percent higher than its $44.07 closing price on Monday.
Wall Street is bullish too: 19 analysts rate FIVN a “buy,” three rate it a “hold,” and just one rates it a “sell.”