This Is a Big Week

MARKETS

Most Stocks Are Going Up

It’s all about earnings right now.

If Bill Dudley thought now is the time to cut rates somebody on the Federal Open Market Committee probably did too.

But recent growth, employment, and inflation data suggest officials still have time to wait.

Was that a relief rally on Friday?

Nobody knows for sure; investors, traders, and speculators make buy-hold-sell decisions based on an inestimable number of general and specific factors.

It does make a good narrative and even a little bit of sense too: Rates will ease, and soon, but the underlying economy is also basically healthy.

Tech continues to take it on the chin, but the Russell 2000 continues to outperform.

Index-level price action is creating some concern, and some market participants have questions about leadership.

But it’s notable that the New York Stock Exchange Advance-Decline Line just hit a new all-time high.

Here’s why, courtesy of my friend J.C. Parets of All Star Charts: “An advance-decline line is calculated by taking the difference between advancing stocks and declining stocks on a given day, and then adding that result to the prior day's already existing A-D line.”

It’s a good and useful measure of market breadth.

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The number of new 52-week highs on the NYSE just reached a new near-term high, as did the percentage of stocks on that exchange above their 200-day-moving average.

And the NYSE A-D line closed out last week at its highest levels in history.

It is a market of stocks; the indexes are nothing without them.

And, ultimately, as David Baskin notes in a recent edition of The StockPick Interview, “As we see second quarter earnings come in, we'll get a better idea of who's making money and who's not.

“In our view, markets are always driven in the end by corporate earnings.”

There’s nothing on the economic calendar today, though McDonald’s $MCD and ON Semiconductor $ON will get a crucial earnings reporting week started before the opening bell.

And the FOMC will meet Tuesday and Wednesday, with Federal Reserve Chair Jerome Powell hosting a press conference at 2:30 p.m. on July 31.

The consensus expectation is that the Fed will hold steady this week and set the stage for a September cut – subject, of course and as ever, to incoming data.

What will really drive markets are earnings results and guidance from four of The Magnificent Seven.

Microsoft $MSFT will report fiscal fourth-quarter numbers after Tuesday’s closing bell.

Meta Platforms $META and Amazon.com $AMZN will release second quarter results after the close on Wednesday.

And Apple $AAPL will deliver its fiscal first-quarter report after the close on Thursday.

Forty-one percent of the companies in the S&P 500 had reported through July 26.

Seventy-eight percent have exceeded earnings per share estimates, better than the five-year average of 77 percent.

Companies are beating estimates by an average of 4.4 percent, below five- and 10-year averages of 8.6 percent and 6.8 percent, respectively, but those rates are based on actual results from all companies in the index.

So let’s stay tuned for earnings and guidance this week.

DEEP DIVE

Open AI’s Answer to Google

OpenAI has launched a revolutionary AI-powered search engine, as it seeks to edge out Google’s dominant position.

There was a time when the expression “JFGI” meant something. Admonition or advice, it was backed by reliable results.
 

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OpenAI’s artificial intelligence-informed search engine is the latest challenger to Google’s throne.

Perhaps SearchGPT is the greatest, though.

In addition to enabling natural language queries, its main differentiating feature seems to be the way it organizes results and the quality of its summaries.

“We think there is room to make search much better than it is today,” OpenAI CEO Sam Altman tweeted.

Microsoft $MSFT has already adapted OpenAI’s tech for its Bing product. And Google has integrated AI Overviews in an effort to compete, to mixed reviews.

SearchGPT aspires to be sui generis, something new, something different.

Built from the ground up with generative AI, it uses the industry-standard retrieval-augmented generation approach to reference trusted sources and reduce errors.

One risk it’ll have to manage is intellectual property.

To that end OpenAI has established partnerships with multiple old-school publishers, including The Wall Street Journal and The Associated Press, as well as new content producers such as Vox Media.

Now let’s see if OpenAI can start making some money.

DIVIDENDS

They Grow Big Dividends Up North

These Canadian stocks will do well as interest rates decline.

Some overenthusiasm for Big Tech stocks and The Magnificent Seven during the first half is being undone right now, according to David Baskin, the founder and chairman of Baskin Wealth Management.

And that’s fine, because what really matters is earnings.

“We're stock pickers and we're numbers people and we do our investing based on company performance and company balance sheets and income statements,” Baskin emphasizes.

It’s important to understand, as Baskin explains, that you can have companies making a lot of money in a bad economy and you can have companies losing a lot of money in a good economy.

“Our job is to sort them out.”

  

Baskin identifies three high-yielding Canadian stocks that look particularly attractive as central bankers accelerate their monetary policy easing efforts.

The wealth manager thinks the Bank of Canada, which announced its second consecutive interest rate cut last week, will ease aggressively as the Canadian economy cools.

The basic hypothesis here is that “as interest rates come down, income-producing stocks – that is, stocks that pay a high dividend – will become more attractive.”

“Everything is variable and depends so much on what happens in the world,” Baskin concludes. “But we think interest rates will continue to go down based on the fact that inflation is coming down.”

The three names Baskin talks about are all high-yield, high-quality stocks well suited for safe income seekers.