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Wall Street Breakfast: Too Far, Too Fast?

Wall Street Breakfast profile picture
Wall Street Breakfast

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U.S. stock index futures, along with global stocks, are taking another turn for the worse as investors cash out of an extraordinary rally following the latest comments from Fed Chair Jerome Powell. While he vowed to continue aggressive stimulus "and keep interest rates near zero for years," he struck a cautious note on jobs, undercutting the hopes for a V-shaped recovery. "My assumption is that there will be a significant chunk, well, well into the millions of people who don’t get to go back to their old jobs and there may not be a job in that industry for them for some time. It could be some years before we get back to those people finding jobs."

On the economy

The Fed sees GDP plunging 6.5% in 2020 (before bouncing back to a 5% gain in 2021) and the unemployment rate to be 9.3% at year's end. A clearer picture may arise today as the Labor Department reports weekly jobless claims following last Friday's surprise of a 2.5M increase in nonfarm payrolls for May. Meanwhile, a resurgence in COVID-19 infection rates is also hitting states that have recently reopened, prompting concern about a potential second wave as the total number of U.S. cases topped 2M.

Big Tech gets even bigger

While the broader market sold off yesterday, a surge into tech stocks ensued in the face of economic uncertainty and social unrest. The market caps of both Apple (AAPL) and Microsoft (MSFT) crossed $1.5T for the first time ever, while Amazon (AMZN) reached a market valuation of $1.3T and Alphabet (GOOG, GOOGL) topped the $1T level for the first time since February. Driving the excitement has been an acceleration in the adoption of e-commerce, a shift to cloud computing and remote work, as well as the companies' rock-solid balance sheets and global user bases.

Getting hungry

Grubhub (GRUB) plans to merge with Just Eat Takeaway.com after talks with Uber (UBER) fell through amid antitrust scrutiny. The deal would combine two of the top food delivery services in the U.S. and Europe and create the world's biggest food delivery company outside of China. Grubhub shareholders would receive 30% of the combined company via an all-stock transaction worth $7.3B. GRUB +7.6% premarket.

Over $1,000

Elon Musk could've been popping champagne bottles yesterday as Tesla (TSLA) shares topped $1,000 for the first time ever, though instead he wrote to employees that it was "time to go all out" and put its Semi into volume production. It seems timely, given the hype surrounding newly listed Nikola (NKLA), an EV truck maker that has seen its shares take off to dizzying levels. A rally of about another 11% in Tesla shares could see it become the world's most valuable carmaker, taking the crown currently worn by Toyota (TM).
Go deeper: China Model 3s approved with LFP batteries.

Facial recognition

A day after IBM (IBM) said it would exit the facial recognition business, Amazon (AMZN) announced it would ban the use of its facial recognition software by police for one year. "We hope this one-year moratorium might give Congress enough time to implement appropriate rules, and we stand ready to help if requested," the company said in a statement. Organizations focused on stopping human trafficking will still be permitted to use Rekognition, a product AWS launched in 2016.

Other controversy

Zoom's (ZM) ties to China are under the microscope after it banned a group of prominent U.S.-based Chinese activists following a videoconference on the 1989 Tiananmen Square massacre. "When a meeting is held across different countries, the participants within those countries are required to comply with their respective local laws," the company told various media outlets. While it has since reactivated the account, Zoom has previously acknowledged that much of its product development has been based in China, and that some Zoom calls were mistakenly routed through Chinese servers.

5G fortunes at stake

Suffering from product design delays and higher costs to supply equipment, Nokia (NOK) is continuing a C-suite overhaul to catch up with rivals Ericsson (ERIC) and Huawei in the 5G race. Marco Wiren will join the company as CFO on Sept. 1, the same day Pekka Lundmark starts as chief executive. Sari Baldauf took over as chairwoman last month, succeeding Risto Siilasmaa who chaired the Finnish firm for eight years. NOK -1.8% premarket.

Unilever makes second attempt at unification

"After a comprehensive review over the last 18 months, the board continues to believe that moving from the current dual-headed legal structure to a single parent company will bring significant benefits," Unilever (UN, UL) said in a statement. The move, which would combine its U.K. and Dutch arms in a single British parent company, would result in one class of shares and a single pool of liquidity. A previous attempt to consolidate in the Netherlands drew fierce opposition from U.K. shareholders. UN +3.6% premarket.

Boost for Hong Kong

The city's status as a destination for major Chinese technology companies got a lift overnight amid recent tensions over U.S. listing requirements. Shares of mobile games group NetEase (NTES) jumped nearly 10%, with the retail portion of the stock sale more than 130 times oversubscribed, while e-commerce company JD.com (JD) fixed a price for its own $3.9B offering. The moves are likely to increase inflows and strengthen the local dollar at a time when China's national security law has raised concerns about Hong Kong's future as a financial hub.

What else is happening...

U.S. government deficit YTD exceeds full year FY2019.

Three key studies of COVID-19 vaccines to launch in summer.

Goldman Sachs (GS) releases plan to return to the office.

Disneyland (DIS) plans for phased reopening on July 17.

Boeing (BA) may soon conduct 737 MAX recertification flight.

Tailored Brands (TLRD) soars on update amid bankruptcy rumors.

Today's Markets

In Asia, Japan -2.8%. Hong Kong -2.3%. China -0.8%. India -2.1%.
In Europe, at midday, London -2%. Paris -2.1%. Frankfurt -2.3%.
Futures at 6:20, Dow -2.5%. S&P -2.1%. Nasdaq -1.5%. Crude -3.2% to $38.33. Gold +1.1% to $1739.40. Bitcoin +0.6% to $9809.
Ten-year Treasury Yield -4 bps to 0.71%

Today's Economic Calendar

8:30 Initial Jobless Claims
8:30 Producer Price Index
10:00 Quarterly Services Report
10:30 EIA Natural Gas Inventory
1:00 PM Results of $19B, 30-Year Note Auction
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Companies reporting earnings today »

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Comments (108)

georgefelix75 profile picture
Went to mostly cash on Tuesday and bought a little NG yesterday. I'm becoming convinced earnings will be disappointing in Q3 and Q4. And yes there is no doubt CV -19 will be in the news on a regular basis after reopening. Pretty much a disaster all the way around. Our company is so slow its not funny. The backlog is almost done and no one is spending money. Consumers are but not corporate. Consumers will run out of PPP soon. Our supplies and others say the same thing. Its not just us and this is our busy season. Its slower than the slow season. We manufacture equipment for hauling bleach so summer is high demand and they are just cobbling together what they can so they can get by not buying new as they normally would. Add to that I'm running into people I know who have family with covid and my parents had two housekeepers in a senior facility with covid one died. Its starting to hit close to home. My grandson had a minor surgery cancelled due to one of the med staff testing positive. I can see the pattern.
Bubba365 profile picture
@georgefelix75 Thank you for your observations at your company. It amazes me that so many people who should know better are getting sucked into individual headlines and not putting the pieces of the puzzle they reveal and place them into a larger picture.

As an example, in Q1 the BLS reported a 0.9% decrease in productivity and a 5.1% increase in unit labor costs. Yet at the same time they have reported a declining CPI for two consecutive months. There is only one universe which these numbers can coexist and that is one in which profit margins are declining at a very significant rate. So either it is time to drop the L from the BLS and just call their reports total BS or we are likely to have a bleak earnings season.
Thanks for the first hand comments.
A voice of reason in a tornado of euphoric irrational exuberance.
Bubba365 profile picture
I noticed the deficit barely rated a line under the what else is happening. US debt to GDP is over 130% which is higher than anytime in history including WWII. Even if we returned to the deficit spending rates we saw for the 3 years before the virus we would be closing in on 200% debt to GDP in about a decade. Now we are looking at even another huge stimulus bill.

It is insane that S&P has not downgraded the treasury. Other countries that have seen debt to GDP go over 125% have historically been downgraded to junk as there is simply not enough GDP at "any" tax rate to service the debt. Additionally anybody that is foolish enough to compete with central banks and actually purchase bonds at this point are likely to find out about the old saying, "A fool and his money are soon to part".
Today's SP 500 index day low was 3036 .. massive buys could happen any time !
@1575 as I lean more on the contrarian side of things, I'd agree with your comment. A tad bit overdone on the selling imho. Mainly because the Wall didn't hear all they wanted from the Fed & new wave of virus cases smh. Great buying opportunities already showing some promise on my watch list, but I'll hold off until next week & see what transpires. Could possibly get another rebound or opposite.
georgefelix75 profile picture
I think your falling into the delusion that optimism can last forever. I agree the short term opportunity is there after every sell off but soon we will have earnings and it’s not likely to be favorable with many companies. Each failure will be another building block down. Then before you know it the market will start pricing in the 4th quarter which will be no excuses. In the meantime you have rising Covid hospitalizations and it’s going to hit close to home this time as I stated. I know several cases one death. By the end of Q3 it could be dozens of cases in my little circle. If that’s not enough unemployment numbers are high and I expect reopening rehires will be temporary not sustainable as companies PPP runs out and they realize it’s not bouncing back like the market suggests today. Summer is the bleach season. Swimming pools of all kinds need bleach as do water parks and water treatment especially in the summer because heat degrades bleach quickly in heat. The demand is a bit off but it’s still VERY busy. What’s disconcerting is ALL of our customers are saying the same thing. Not spending money and cobbling together equipment however they can rather than the normal spend. We usually cannot keep up running double shifts and weekends and we haven’t sold a unit in 4 weeks. Zero backlog and building inventory out of materials we have in stock because we were prepared for the busy season that hadn’t happened. We laid off some people today. Our vendors say the same that nothing is moving. The national sales reps for Wabash say the phone isn’t ringing other than customer service issues. They are furloughing people on alternating schedules.

So I ask you what part of reality is a buying opportunity that I want to hold during Q3 and Q4 earnings.....because it’s coming and they better post up some decent numbers. If we were public our stock would be in the toilet as it should be. Btw we also sell resin to the industry and no one is buying and were the cheapest source. It’s widespread.
1:37 will be the big reversal
JAMES CARLINI profile picture
One thing has been consistent - the "experts" have been wrong all over the place.
I wonder how many individual investors got decapitated today.
@wyostocks even my diversified portfolio gave back, but as I stated before I also live & wait for these big Market selloffs, buy lower & sell higher. Both bear & bull Markets are welcomed to me, as buying opportunities are made to take advantage of if you have the extra $$ in your money bin. Market will undoubtedly rebound, just a matter of when. Cheers. Question for you, did you continue to $SDOW ? If so, congrats again to you.
@Novavax Op Warp Speed
Yes. I faced a dilemma 15 minutes before the close deciding to sell and book the gain or ride overnight. I normally only hold these for a day or two. I decided to hold em.
Hurry sundown see what tomorrow brings.
"that some Zoom calls were mistakenly routed through Chinese servers."
Some mistake.
Did anyone really expect a better report from the Fed?
@genomegk even though the Wall didn't hear all they wanted from the Fed, the main drive for the selloff was fear of another COVID-19 wave sweeping through States. A little overreaction as usual imho. This to shall pass.
@Novavax Op Warp Speed The country was headed into a recession before the pandemic hit. The one wave of virus will be quite enough.
Bhughes7918 profile picture
Today most banks way down we are adding 20% back in of OPY under $21.70 today.
If TMP gets back under $61 will go back in.
Covered all CIT”short” today.
matt.wood profile picture
The Dow is now down 3% today yet Tesla shares were priced at $1000 this morning? Something to tell your grandchildren assuming you can ever afford a family that is.
Waiting for a post by STRIKE. Where are they?
As some have stated, " the market needs a vaccine " before it can continue the move higher, until that day comes, who knows how volatile the Markets will remain. Got my $$ reserve ready for my watch list buying after the pullback damage has been inflicted. Patience is my best ally.
Interesting to think about the value of a product which the entire global economy depends on.
50 DMA on SP 500 index daily chart :
1) This 50 DMA just made its U turn around May 20 and go rising ..
2) The first sizable pull back against this rising 50 DMA is necessary technical move and textbook BUY !
Selling could end by tomorrow (Friday) close / early Monday..
Next week should be a big up , followed by another moderate down week, paving the road for 3350 ~3400 by end of July ..
It's a possibility but not without further stimulus $'s imo. More likely X Stimulus $'s a bonce there will lead to a classic failed rally. Yes. Friday position squaring usually leads to a rally off the lows.
Will be watching Adobe earnings report after hours today. I'll be keeping an eye on AMD & MU also after the recent tech run up. They're pps should drop considerably during this Market pullback, making for an enticing entry point when the selloff has tapered imho.
ABDE going up in after hours trading after earnings report.
GearDownBigShifter profile picture
It’s really just about having enough free cash on hand when these fireside sales come out of nowhere. Some economist says “squirrel “ next week and the market will be back up where it was last week.
Don't think jobless claims are quite real..I don't think
a lot will happen till free money ends in july. Then people will have to go to work. A number of buisnesss owners I know are having a hard time getting employees back because they are making more money staying home. We will see...
Supercharged222 profile picture
Yes, I have 2 friends who own businesses and BOTH are having problems getting fully re-open because employees refusing to come back. I hope these stupid people realize that if companies hire new employees that they won't have a job to come back to... It is only the highest skill set my friends are refusing to replace, the rest of the lower level people are about to lose their jobs permanently! Shame on them for taking advantage of the system instead of doing what's right. I have no sympathy for these people who stay at home milking the system.
I know people that are offered jobs back at 30% pay cut,and no benefits. Might as well stay away.
GearDownBigShifter profile picture
Jobless payments end this month so there will be plenty of people looking for a job.
Jobless claims 1.542 million + 20.9 million continuing claims so 22.495 MILLION out of work, not good.
blueline profile picture
"The latest figure from the Labor Department marked the 10th straight weekly decline in applications for jobless aid since they peaked in mid-March when the coronavirus hit hard. Still, the pace of layoffs remains historically high.

The total number of people who are receiving unemployment aid fell slightly, a sign that some people who were laid off when restaurants, retail chains and small businesses suddenly shut down have been recalled to work."
GearDownBigShifter profile picture
Those numbers about to go way down when the government stim ends this month. A lot of those numbers are low skill jobs where people were getting more money from the government to stay unemployed.
In the REIT news Simon Property Group Inc.( SPG ) is taking Taubman Centers Inc.( TCO ) to court. Ending their buyout offer for the time being for ( TCO ) This developing story will get interesting. Taubman shrs took a dive yesterday.
Tarokh2020 profile picture
The Bubble will burst for FAANG soon. Those of you who have invested in Mid and small caps can sleep comfortably.
FAANG balance sheets and income looks more promising than some sovereign debt at this point. Not sure I'd fight these
Tarokh2020 profile picture
When large number of people buy a stock, the price goes up suddenly as the matter of supply and demand. Most purchases are emotional or promoted by a news or rumor or even so called experts. Think of a stock that goes up from $200 to $1000 or from $1700 to $2700 in 2 months. The earnings are poor and the P/E ratios are going up. The bubble will burst sooner than later. One other thing is please save your money and not invest in COVID Vaccine companies. These companies have published some news,” like phase one vaccine was successful”. Then the executives cash out on the back of ordinary people like me and you and become rich. Phase one vaccine means you inject something to human volunteers and that something, whatever that is, does not cause harm. It could be as simple as Injecting saline. That does not mean that it works against COVID-19. But before we understand what happened, they are rich and stock prices have dropped back to what it was before the news. Good luck.
Nokia is the "black swan" in the 5G race. They're gaining more contracts everyday as they continue their 5G development strategies. An Ericsson & Nokia merger would be something to think about in the future. Together they would make a formidable force.
Novavax Op warp speed
Nokia better be gainning more contracts every day because at 4.00 their PE says thay are overvalued.
@john boy
What isn't overvalued?
A bipartisan group of U.S. lawmakers introduced a bill to provide more than $22.8 billion in aid for semiconductor manufacturers, aiming to spur the construction of chip factories in America amid a strategic technology rivalry with China.

The proposal would create a 40% refundable income tax credit for semiconductor equipment , $10 billion in federal funds to match State incentives to build factories & $12 billion in research & development funding. The proposal is in response to Washington's growing worries over the damage the novel coronavirus has inflicted & China's recent actions, mainly towards Hong Kong.
Are govenment funded businesses communism or capitalism?
either, both, neither
novavax on warp speed
The bill for semiconductor manf. is something I can get behind.
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