Stocks continue to rise
The market rose another leg in afternoon trading, with the Dow climbing more than 300 points. Top performers in the 30-stock average include Disney, Merck and Apple.
The S&P 500 is now up nearly 3% for the week.
— Jesse Pound
Michael Burry warns of ‘addictive’ consumer behaviour: ‘Winter is coming’
“The Big Short” investor Michael Burry, famous for calling the subprime crisis, warned that “addictive” consumer spending signals new problems.
“Net consumer credit balances are growing at a record pace as consumers choose violence over cutting spending in the face of inflation,” Bury said in a Friday tweet. “Remember the savings glut problem? Enough more. The anti-covid helicopter money has taught people to spend again and it’s addictive. Winter is coming.”
Bury suggested that consumers are still spending money on goods and services at a time when inflation has remained high for several decades.
The investor, who now runs hedge fund Scion Asset Management, is bearish on markets and the economy. In May, he drew parallels between today’s market environment and that of 2008, saying it was like “watching a plane crash.”
— Yun Li
The chips are back after struggles earlier in the week
A tough start to the week for semiconductors has turned into a small moment for the stock market, Bespoke Investment Group said on Twitter.
After earnings warnings from Nvidia and Micron, the VanEck Semiconductor ETF fell sharply on Monday and Tuesday. But the ETF is now up slightly for the week.
Meanwhile, Nvidia was down just 2.6% for the week after falling 10% on Monday and Tuesday. Micron is up 4% for the week.
— Jesse Pound
Stocks increase earnings
Stocks rose as the afternoon began. The Dow is now up about 250 points, while the S&P 500 and Nasdaq Composite are up 1% and 1.4%, respectively.
— Jesse Pound
The S&P 500 may be close to signaling whether the market has already bottomed
The S&P 500 rose above a key technical level for a second day, and if it closes there, it could historically be a signal that stocks have already bottomed.
For a second day on Friday, the S&P 500 traded above the 4,231 level, a 50% retracement from its high to low. It has not closed above this level.
Strategists who watch the charts say that if this level is cleared, then it will usually signal that the market has already seen its bottom and will not return to the bottom.
“It does mean we’re not going to bottom, but it doesn’t mean we’re going straight up from here,” said BTIG’s Jonathan Krinsky. He said the big question is whether it will hold the level and close there, or just touch it on an intraday basis.
According to Krinsky, in the 1950 data, the S&P never returned to its bottom after closing above a 50% correction.
He noted that in May 2001, the S&P 500 rallied above a 50% retracement, but only on an intraday basis, and the bear market lasted another 18 months.
But even if it closes above the level, the S&P 500 could still be in for a tough stretch.
“Previous 50% corrections in 1974, 2004 and 2009 saw decent shakeouts shortly after clearing that threshold,” Krinsky noted.
— Patty Dom
Wells Fargo cuts price target on Petco but still says buy
Pedestrians cross a street in front of a Petco Animal Supplies Inc. store. in New York, USA, on Wednesday, September 9, 2020.
Angus Mordant | Bloomberg | Getty Images
There is an improving risk-to-reward outlook for Petco, but estimates for its second-half performance should be lowered, according to Wells Fargo.
The firm cut its price target for the retailer to $22 from $27, citing a difficult second quarter and a need for the company to manage its expectations in the second half of the year. Petco is expected to report earnings on August 24th.
However, the firm maintained its buy rating on the company, and its new price target represents more than a 40% upside to shares currently trading.
In the long term, “the growth story remains attractive, the business is still gaining share and the category is more defensive than getting credit. Adding it all up, we see a solid entry point for LT,” analyst Zachary Fadem wrote in a Friday Note.
— Carmen Reinicke
Lumber prices on track for best week of 2022
This week’s sequential inflation reports showed an easing of price pressures, but not everything is going in the right direction. Case in point: Lumber futures jumped 22% this week alone, for their first positive week in five and their best week since mid-November. Of course, lumber prices are still down more than 40% this year.
Enlarge the icon Arrows pointing out
— Yun Li, Gina Francola
Cryptocurrencies are on pace for another weekly gain
Cryptocurrencies are about to extend their gains.
Bitcoin gained 3.9%, according to Coin Metrics. Earlier in the week, it rose to its highest level since June 13 before falling to its lowest level as investors digested two better-than-expected inflation reports. The cryptocurrency is currently on pace for its third week up in the past four.
The enthusiasm surrounding the merger continues to help the price of Ether, which has led the crypto market recently. Ether is up 12.2% for the week and is on track for its fifth positive week in the last six.
— Tanaya Machil
A decline in profits seems less likely, Stoltzfus says
Over the summer, Wall Street fretted about the impending decline in corporate earnings.
But the second-quarter reporting season showed decent earnings, and recent economic data eased fears of an impending recession.
That could mean earnings in the coming quarters could be a positive surprise, according to Oppenheimer’s John Stoltzfus.
“Based on what the jobs numbers have shown us this week and what the CPI and PPI in particular have shown us this week, this overall could work out pretty well for earnings… The fundamentals are indeed improving, although many challenges remain in the landscape,” Stolzfuss said on “Squawk on the Street.”
— Jesse Pound
Top economists lower GDP forecast, raise inflation expectations
Economic growth will be slower going forward and inflation will be higher than expected, according to a closely watched survey of economists released on Friday.
The survey of professional forecasters, compiled every three months by the Philadelphia Federal Reserve, resulted in a sharp downgrade in the outlook for GDP and a significant increase in the outlook for inflation.
Growth in the third quarter is now expected to be just 1.4%, down from the previous forecast of 2.5%. For the full year, GDP is expected to grow by 1.6% (vs. 2.5% previously) and by 1.3% in 2023, a full point less than the previous forecast.
The forecast for 12-month inflation for the third quarter, as measured by the consumer price index, was raised to 6.7% (vs. 4.5%), while the full-year forecast, expressed on a four-quarter Q4-to-Q4 basis, is now set at 7.5% (against 6.1%). Core PCE inflation, the Fed’s preferred measure, is set at 4.5% in 2022, up from 4.1% previously.
Fed officials watch the survey closely and use it to help make decisions about monetary policy. Some of the 35 participants included Jan Hatzius of Goldman Sachs, Mark Zandi of Moody’s and Ellen Zentner of Morgan Stanley.
— Jeff Cox
Consumer sentiment exceeds expectations
A preliminary reading of the University of Michigan consumer index for August came in at 55.1, beating expectations of 52.5, according to Dow Jones.
One-year inflation expectations fell to 5.0% from 5.2%, although 5-year expectations rose slightly to 3.0% from 2.9%.
The survey has gained increasing importance in recent months after Fed Chairman Jerome Powell pointed to the component of inflation expectations as motivation for the Fed to move to higher rate hikes.
— Jesse Pound
Stocks open higher
Stocks opened higher on Friday, putting the S&P 500 and Nasdaq Composite on track for their fourth consecutive positive week. The Dow gained more than 100 points, led by Disney up nearly 2%.
— Jesse Pound
Walmart’s concerns may be overblown, Morgan Stanley says
Concerns about Walmart’s upcoming earnings release may be overblown, even after the company lowered its quarterly and full-year profit forecasts, according to Morgan Stanley. The firm has a buy rating and a $145 price target on the retailer.
The firm sees several reasons why Walmart may be in better shape than feared after analyzing the numerator data.
1. Walmart sees big declines in discretionary categories like tools and home improvement, home and garden, electronics and sporting goods. But they are consistent with what the industry is seeing and the shift in consumer spending the company has noted. On the other hand, Walmart’s apparel sales looked solid in the second quarter, suggesting its discount strategy is working, Simeon Gutman wrote in a note Thursday.
2. The gross margin contraction in the second quarter is likely mostly due to markdowns that may carry over into the second quarter and second half of the year, but should not carry over into 2023.
3. There are signs of higher income households trading down to shop at Walmart. This is positive for the retailer, although inflation remains high.
Walmart will report its latest quarterly earnings on August 16. Shares closed around $129 in late Thursday’s session.
— Carmen Reinicke
Too early to look for Fed fulcrum, Citi says
Signs of peak inflation and negative GDP growth have some on Wall Street speculating that the Fed may change course on raising interest rates, but investors shouldn’t bet on that, according to Citi.
Strategist Jamie Fahey said in a note to clients Thursday night that the Fed is likely to continue to step on the gas pedal in the coming months.
“Inflation levels are still troubling and the labor market is still too tight, so the Fed will want to continue until inflation returns to target or the labor market breaks.” Therefore, the upcoming labor market data should be very weak and the CPI should see another big miss for the Fed to start its victory lap,”…
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