Winners & Losers Post Big Tech Earnings

What did we learn from big-tech earnings this week? In short, their earnings were "better than feared". However, they were far from stellar. The 'best of the best' could only muster single digit growth (Google was negative). The Search giant also disappointed on expense management. Amazon offered very soft guidance - with AWS growth expected to fall to deliver only 11% growth next quarter. That's a long way from its 40% growth a year ago. In summary, the challenges are not over for the sector - however investors are paying lofty premiums.

Big Tech on Deck

More than 25% of the total S&P 500 market capitalization rests with just 5 companies. And those 5 stocks are all in tech. This week we hear from 4 of those 5. The bar has been set extremely low - therefore it won't be too hard for these companies to exceed expectations. But don't expect earnings and revenues to be stellar. If anything - expect single digit growth from these names. However, the market will take that.

Banks Surge on Earnings…

JP Morgan kicked off Q1 '23 earnings season with a record beat. The US' largest bank by assets saw strong deposit inflows as it raised its guidance for net interest income. The question is how will regional banks report? It's likely to be a different story. Meanwhile we had a host of important economic data this week - showing inflation is cooling (albeit very slowly) and the economy is stalling. But there was little which will stop the Fed raising rates by 25 bps May 2nd...

Pop then Drop! Green Light for Fed Hike

Investors cheered the news of a slightly lower than expected CPI print from March. However, Core Inflation exceeded expectations and actually increased. That's important - as that's what the Fed are focused on. Here's the thing: with Core inflation running at 5.6% YoY - don't expect cuts anytime soon. It's almost 3x the Fed's target. Yes inflation is cooling - slowly - but not where the Fed need it to be. From mine, you can lock in another 25 bps for May 2nd. Bond markets see that. Equities are yet to get the memo

What Don’t We Know?

There are some things we know to be (mostly) true. Inflation is coming down. The Fed is closer to the end of its aggressive rate hikes. Growth is slowing. And earnings are likely to decline in Q1 (after a decline in Q4). But what don't we know? What are the potential unknowns that could trip the market up? Three things to consider.

Yields Plunge – The Signal It’s Sending

Bond yields are falling. And fast. The question is why? In short, the bond market is now pricing in a recession. It sees growth stalling... and believes the Fed will embark on rate cuts in the second half. But have equities got the memo? Not yet. They are trading at close to 19x forward earnings... as big tech drags it higher. From mine, I think the market feels vulnerable here.

Oil: Headed Back to $100?

November last year I felt there could be an oil supply shock in 2023 - sending the price back over $100. This week OPEC+ surprised the market by announcing cuts of 3.7M barrels of oil per day - around 4% of global supply. The price of WTI surged back above $80. I think we go higher from here... which won't help Jay Powell's fight with inflation.

A Great Quarter… Can it Continue?

The S&P 500 recorded an impressive gain of ~7% for the first quarter. Optimistic on the resolution of the banking crisis - and prospects of Fed rate cuts in the second half - the bulls have regained their mojo. But this raises a question: why would the Fed cut rates? It's not because inflation is under control. For example, could it be because the economy needs assistance? Stress in the financial system? A credit event? If so, is that a good thing? Here I also look at the monthly chart - it deserves our attention.

Market Has Bad Breadth Market Has Bad Breadth

Market Has Bad Breadth

The S&P 500 is up about 3% to start the first quarter of 2023. On the surface things look good. But what if we look 'under the hood'. Most sectors are lower - especially those which are economically sensitive (like banks, energy, small caps and materials). However, big tech is carrying the market higher. That's not necessarily a good sign.

Yield Curve: Recession Dead Ahead

2-year bond yields are cratering. Rarely - if ever - have we seen them fall 150 basis points in just three weeks. This signals the bond market sees aggressively rate cuts from the Fed this year. But what would cause this? A recession? Some kind of credit crisis? I can tell you it won't be because inflation is back to the Fed's target of 2%. What's more, the yield curve has steepened sharply. This isn't good... and if history is any guide... a recession is likely within 12 months.

Market vs The Fed

There is strongly divided opinion on whether the Fed's decision to raise 25 bps this week was the right thing to do. What should the Fed prioritize? Financial stability or prices of goods and services? The Fed chose the latter. However, Powell added he does not see rate cuts in his base case for 2023. However, that's not what bonds are pricing in. They see the Fed cutting rates by a further 100 bps this year. A reckoning is coming... one of them has it wrong.

Why I Bought BAC

Stocks are always climbing the "wall of worry". And there is no end of "worries" today. Perhaps front of mind is the current lack of confidence in the US banking sector. However, I think it represents a great long-term risk reward opportunity in quality large cap banks. Buy when others are fearful and sell when they are greedy. This post looks at why Bank of America could be a good bet... investors have rarely been this fearful.