Today’s Big Picture
Asia-Pacific equity markets finished the day lower except for India’s SENSEX which gained 0.53% and Australia’s ASX All Ordinaries rose 0.84% after speculation that CPI results would lower the chances of another rate hike. Japan’s Nikkei ended the day essentially flat, down a mere 0.04%, Taiwan’s TAIEX fell 0.21%, China’s Shanghai Composite was 0.26% lower, Hong Kong’s Hang Seng gave back 0.36%, and South Korea’s KOSPI shed 1.67% in a broad decline led by Producer Manufacturing names. European markets are lower in midday trading and U.S. futures point to a lower open.
Following high-profile earnings last night from Microsoft (MSFT), Alphabet (GOOGL), and Visa (V), investors are digesting the latest learnings on AI, cloud, search, and advertising as well as consumer spending. As they factor that into their investment outlook, they will receive another full plate of quarterly earnings reports this morning. Just as they are finishing absorbing those results, we will have the Fed’s July monetary policy decision at 2 PM and Fed Chair Powell’s press conference starting around 2:30 PM ET.
Earlier this week, we shared that the CME FedWatch Tool showed a 99% probability the Fed will hike the fed funds rate by another 25-basis point, and coming into today’s trading expectation is little changed. Where things could get interesting is the Fed’s outlook for monetary policy and Powell’s post-announcement comments. Fed futures markets have currently priced in the Fed ending its rate hiking cycle with today’s policy meeting. The driver behind that is recent inflation data that shows a resumption in progress; however, data earlier in the year showed some progress, but also head faked at times, showing little to no progress. In other words, it might be too soon to say that inflation is licked.
As we see it, the Fed will acknowledge the recent progress but will say it needs to see further and sustained progress in the inflation data before throwing in the towel. The stock market may not like this, even as the Fed likely trots out its “data dependent” phrasing. With almost two months until the Fed concludes its September policy meeting, we will have a number of updates on inflation in the meantime, and what it shows will tell us if the Fed will be ready to signal an end to its rate hiking cycle.
Data Download
International Economy
Last night saw the second quarter update for Australian CPI, which came in at a 0.80% QoQ rate, lower than both the estimated 1.0% and the previous quarter’s 1.4% result.
Bank lending to households in the Eurozone increased by 1.7% YoY to EUR 6.87 trillion in June, the lowest growth rate since May 2016, due to the continued slowdown in the demand for credit. While lending to companies grew by 3.0%, it still marked the slowest rate of growth since November 2021.
Domestic Economy
In addition to it being Fed Wednesday, we will also see the latest weekly data for the MBA Mortgage Applications Index and crude oil inventories from the Energy Information Administration. Also at 10 AM ET, June New Home Sales figures will be released and the consensus forecast sees a downtick to 725,000 homes from May’s 763,000 figure.
Markets
Yesterday was another relatively quiet day in advance of today’s rate announcement as major equity indexes had positive but muted results. The Russell 2000 (0.02%) and the Dow (0.08%) both closed close to flat, the S&P 500 gained 0.28% and the Nasdaq Composite ended the day up 0.61%. Sectors told a similar story, although we did see Financials (-0.65%) and Real Estate (-0.74%) give back most of their previous day's gains. Materials (1.80%) and Technology (1.14%) led yesterday followed by Energy (0.53%) while the rest of the sectors were mixed. In individual names, despite beating on both top and bottom line results, Lamb Weston (LW) was bid down 6.82% yesterday after the company CFO stated they are “taking a cautious approach to the consumer.”
Here’s how the major market indicators stack up year-to-date:
- Dow Jones Industrial Average: 6.91%
- S&P 500: 18.86%
- Nasdaq Composite: 35.14%
- Russell 2000: 11.63%
- Bitcoin (BTC-USD): 76.10%
- Ether (ETH-USD): 55.03%
Stocks to Watch
Before U.S. equity markets begin trading today, Boeing (BA), Check Point Software (CHKP), Coca-Cola (KO), General Dynamics (GD), Hilton (HLT), Quest Diagnostics (DGX), and Union Pacific (UNP) are expected to report their quarterly results.
Microsoft (MSFT) shares traded off following June quarter results that bested Wall Street expectations, but the company laid out an aggressive spending plan to meet demand for its new artificial intelligence services. Its Azure and other cloud services posted revenue growth of 26% in the June quarter coming in at $24.0 billion, and revenue at its Productivity and Business Processes segment (Office 365, LinkedIn, Dynamics 365) came in at $18.3 billion, topping guidance for $17.9-18.2 billion. The company’s More Personal Computing segment (Windows, Surface, Xbox) generated revenue of $13.9 billion in the quarter, surpassing the expected $13.35-13.75 billion. While Microsoft sees continued cloud and AI growth ahead, it also expects its capital spending to increase sequentially each quarter through the year as it scales to meet demand. That increased capital spending will drive costs higher, restraining margin improvement, and potentially keeping the company’s operating margin flat on a year over year basis. Parsing Microsoft’s guidance implies September quarter revenue of $53.8-$54.8 billion versus the $55.04 billion consensus.
June quarter results at Alphabet (GOOGL) also topped consensus expectations with EPS of $1.44 per share on revenue that rose 7.1% YoY to $74.6 billion, well ahead of the $72.85 billion consensus. Advertising revenue increased 3.2% to $58.1 billion with Google Search & Other revenue up 4.7% YoY to $42.6 billion and YouTube Ads revenue up 4.4% to $7.66 billion. Google Cloud revenue increased 27% to $8.0 billion and posted $395 million in operating income vs. the $590 million loss in the year ago quarter. Per the company, its "…results reflect continued resilience in Search, with an acceleration of revenue growth in both Search and YouTube, as well as momentum in Cloud. We continue investing for growth, while prioritizing our efforts to durably reengineer our cost base company-wide and create capacity to deliver sustainable value for the long term." With that in mind, the company reiterated it will continue to slow expense growth and pace of hiring while ensuring teams are aligned to the highest priorities.
Visa (V) reported better than expected top and bottom line results for its June quarter. Payments volume in the quarter rose 9% YoY in constant dollars with cross-border volume up 17% and processed transactions up 10%. Management shared "Consumer spending remained resilient, driving growth in payments volume and processed transactions. Cross-border volume continued to be a tailwind, fueled by travel growth from the ongoing recovery and summer tourism." For the current quarter, Visa sees net revenue growth of around 10% in nominal dollars with minimal impact from exchange rate shifts due in part to slower cross-border growth and moderating currency volatility.
Snap (SNAP) reported a far smaller bottom-line loss compared to the Wall Street consensus forecast. Revenue for the quarter fell 3.9% YoY to $1.07 billion, a hair better than the $1.05 billion consensus. During the quarter, the company’s Daily Active Users (DAUs) increased 14% Yoy to 397 million. Total time spent watching Spotlight content more than tripled vs. year-ago levels with Spotlight reaching more than 400 million monthly active users on average in the quarter, up 51% YoY. Management shared that since launching My AI, over 150 million people have sent over 10 billion messages, which arguably makes My AI among the largest consumer chatbots available. For the current quarter, Snap guided revenue to $1.07-$1.13 billion versus the $1.13 billion consensus and heavier losses compared to the June quarter.
Shares of Dish Network (DISH) rose in extended-hours trading last night following reports that the company will sell its premium Boost Infinite mobile services on Amazon (AMZN).
PacWest (PACW) and Bank of California (BANC) announced the signing of a definitive agreement pursuant to which the companies will combine in an all-stock merger transaction.
IPOs
Near-term the calendar for such activity looks rather thin. Readers looking to dig deeper into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.
After Today’s Market Close
American Water Works (AWK), Chipotle Mexican Grill (CMG), Flex (FLEX), Idex Corp. (IDEX), Lam Research (LRCX), Meta Platforms (META), Pilgrim's Pride (PPC), and United Rentals (URI) are slated to report their quarterly results after equities stop trading. Those looking for more on upcoming quarterly earnings reports should head on over to Nasdaq’s Earnings Calendar.
On the Horizon
Thursday, July 27
- China: Industrial Profits YTD 2023 – June
- Germany: GfK Consumer Climate – August
- European Central Bank Interest Rate Decision
- US: Weekly Initial & Continuing Jobless Claims
- US: 2Q GDP
- US: Durable Orders – June
- US: Pending Home Sales – June
- US: Weekly EIA Natural Gas Inventories
Friday, July 28
- Japan: Consumer Price Index – July
- Eurozone: Business and Consumer Survey – July
- Germany: Consumer Price Index - July
- US: Personal Income & Spending, PCE Price Index – June
- US: Employment Cost Index – 2Q 2023
- US: The University of Michigan Consumer Sentiment Index – July
Thought for the Day
“More regulation is not the best answer to every problem.” ~ Jerome Powell
Disclosures
- Lamb Weston (LW) is a constituent of the Foxberry Tematica Research Sustainable Future of Food Index
- Microsoft (MSFT) is a constituent of the Tematica Research Thematic Dividend All-Stars Index
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Chris Versace
Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.
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Mark Abssy
Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.
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