July 22nd Market Overview

July 22nd Market Overview (no fluff)

Author

J.L. Bernstein
July 22, 2024

Happy Monday everyone, a freakish amount of news played out over the weekend…so this will be quite long and detailed to fit.

Lets dig in…

Executive Summary

  • U.S. stock indices are trading higher in premarket, with SPX and Nasdaq leading gains.

  • VIX spike attributed to technical factors; not indicative of a deep market correction.

  • Key earnings: Verizon reports weak Q2 results; bullish sentiment surrounds NVIDIA and Apple.

  • China unexpectedly cuts prime loan rates, boosting global market sentiment.

  • Biden drops out of 2024 presidential race, endorsing Kamala Harris as Democratic nominee.

Market Overview (Pre-MKT levels)

  • S&P 500 (SPX): Trading up 0.7% at 5539, above the 5500 level tested on Friday.

  • Nasdaq: Outperforming with a 0.9% increase, trading at 19,700. Closed above 50-day moving average on Friday.

  • Dow Jones: Flatter compared to other indices, with focus on semiconductor stocks.

  • German DAX (Ger40): Up 1.5%, trading at 18,430, above the 18,350 support level.

  • Hong Kong (HKG50): Trading higher following China’s unexpected rate cut.

  • Gold: Slightly lower, trading below $2400. Positioning shows hedging but potential for recovery.

  • Oil: Marginally down due to weakening positioning and excess supply.

Key Market Drivers

  1. VIX Movement:

    • Recent spike attributed to OPEX and VIX expiration.

    • Removed put delta that was suppressing VIX.

    • Expected to decrease but no immediate catalyst for significant drop.

    • Term structure in backwardation; positioning skewed to OTM calls.

  2. China’s Rate Cut:

    • 1-year loan prime rate cut to 3.35% (vs. expected 3.45%)

    • 5-year loan prime rate cut to 3.85% (vs. expected 3.95%)

    • 10bps cuts against market expectations, boosting sentiment.

  3. U.S. Presidential Race:

    • Joe Biden drops out of 2024 race, endorsing Kamala Harris.

    • House Speaker Johnson calls for Biden’s immediate resignation.

    • Manchin announces he won’t run for president or consider VP role.

  4. Geopolitical Context:

    • Credit default swaps continue to decline, suggesting minimal market concern.

    • Current pullback not expected to be sustained based on macro risk gauges. Technicals sure look ugly though…

Stock Spotlight

  1. NVIDIA (NVDA):

    • Recent weak price action attributed to broader semi and mega-cap sell-off.

    • Bullish catalyst expected: New updates and AI chip profitability explanations in upcoming earnings.

    • Citi opens 30-day upside catalyst watch, citing AI discussions with Meta CEO and positive demand trends.

    • Piper Sandler raises PT to $140 from $120, anticipating strong business trends and Blackwell launch.

    • Developing China-compatible AI chips to comply with U.S. export controls.

  2. Verizon (VZ):

    • Q2 Earnings: ADJ EPS $1.15 (in-line), Operating revenue $32.8B (miss)

    • Consumer revenue $24.9B and Business revenue $7.3B (both miss)

    • Wireless Service revenue $19.8B (in-line)

    • ADJ EBITDA $12.3B (beat)

    • Maintains full-year guidance: ADJ EPS $4.50-$4.70, wireless service revenue growth 2-3.5%

  3. Apple (AAPL):

    • Wells Fargo raises price target to $275 from $225.

    • Bullish outlook ahead of earnings, citing potential AI features driving significant upgrade cycle.

  4. Micron (MU):

    • Citi initiates 30-day downside catalyst watch.

    • Expects poor trading due to Samsung’s potential HBM qualification with NVIDIA.

    • Maintains Buy rating with $175 PT despite near-term concerns.

  5. Boeing (BA):

    • Luxair orders up to four 737-10 jets.

    • Significant improvement reported in 737 MAX factory.

    • Design settled for 737 MAX 7 icing issue.

    • Expects 787 suppliers to catch up by year-end.

Other Magnificent 7 Updates

  • Tesla (TSLA): Musk projects useful humanoid robots by end of 2025, high production by 2026.

  • Microsoft (MSFT): LinkedIn deploys AI for career advice, introduces platform games.

Other Notable Company News

  • Goodyear (GT): Selling off-road tire business to Yokohama for $905M, retaining U.S. military/defense tire business.

  • Bank of America (BAC): Trading lower as Buffett sells 33.9M shares, remains top shareholder.

  • Ryanair: Q1 profits halve YoY, downgraded summer pricing outlook affecting entire airline sector.

  • CrowdStrike (CRWD): Guggenheim downgrades to neutral, citing near-term deal resistance and high valuation.

  • Texas Instruments (TXN): Price target raised to $250, expected to confirm bottoming cyclical analog dynamic.

Sector Watch

  • Semiconductors: Citi “wildly bullish,” favoring NVIDIA and Broadcom. AMD and Microchip less popular.

  • Airlines: Sector-wide concerns following Ryanair’s weak results and pricing outlook.

  • Memory Industry: TrendForce projects record revenues for 2024-2025, with DRAM revenue expected to surge 75% in 2024.

Bond Market

  • Credit default swaps continue to decline, indicating the market is not super concerned over geopolitical risks.

Policy Watch

  • Federal Reserve: Rate cuts anticipated, supportive for gold positioning despite current hedging.

  • ECB: Kazmir emphasizes data-driven decisions, open to additional easing. Market bets on two more rate cuts by year-end “not misplaced, but not guaranteed.”

  • Bank of Japan: Conflicting views on rate hikes, with some officials seeing risks in failing to hike, while others want to review more data.

    Have a great week everyone, stay diligent!


    - JB

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Note: This newsletter is intended for informational purposes only.