Wall Street Breakfast: Jobs Day

Aug. 05, 2022 7:32 AM ET115 Comments
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Jobs day

New Episode! Weekend Bite, a Seeking Alpha original series. This week we're joined by David Alton Clark - also known on Seeking Alpha as "The Winter Warrior" - to discuss why he's buying AT&T stock after earnings and get his thoughts on the semiconductor bill passing through legislative hurdles. Plus, Daniel covers upcoming earnings and economic events to watch for next week!

Investors and the Federal Reserve will get another glimpse into how strong the labor market is this morning when the Department of Labor releases its "employment situation" report at 8:30 a.m. ET. Economists expect non-farm payrolls to expand by 250K jobs in July, lower than the 372K seen in the previous month, and bringing down the rolling three-month average to 333K (from 375K in June). The unemployment rate is expected to stay at 3.6%, near its all-time low.

Interesting dynamics: If the July numbers are soft, "I think the markets will cheer it," as that could be viewed as a reason for the Fed to pause its tightening, Sumit Handa, managing director at Pennington Partners, told Seeking Alpha. Indeed, the job openings and labor turnover report for June showed a decline in the number of openings - falling from 11.3M in May to 10.7M. The four-week moving average for initial jobless claims also edged up to 254,750 the week ended July 30, from 248,750 in the previous week.

"I think we're starting to see cracks in the labor market," Handa continued. "It started with a number of the technology companies from Google (GOOGL) to Tesla (TSLA) to Microsoft (MSFT) to even Apple (AAPL) freezing hiring and even layoffs." In addition, companies that originate and refinance mortgages have been cutting jobs as higher interest rates constrain demand. By contrast, hiring in leisure and hospitality sector should remain strong as travel rebounds from the pandemic, in yet another contrasting indicator for the economy.

By the paycheck: With inflation a chief concern, consumers and the Fed will be on the lookout for what's happening with wage growth. Average hourly earnings, which stood at $32.08 in June, are expected to rise 0.3%, about the same increase as in June. So far, Fed officials say they're not seeing signs of the dreaded wage-price spiral. (20 comments)

A crystal ball

Not everyone is optimistic about the recent trading sentiment hitting markets, with the benchmark S&P 500 rallying 13% from its bottom in mid-June. Famed "Big Short" investor Michael Burry is out with his latest cryptic tweet about impending doom, and as per usual style, he deleted it just hours after posting.

Quote: "The Silliness is back. After 1929, after 1968, after 2000, after 2008, the strain of Silliness that transformed bulls into bubbles completely and utterly disappeared. But that familiar COVID-era Silliness is not dead yet. Like 2001 before Enron, before 9/11, before WorldCom," he wrote on Twitter.

Recall that Burry has been predicting a market plunge for years, and appeared to be on track after the S&P 500 recorded its worst first half since 1970. "Greatest speculative bubble of all time in all things. By two orders of magnitude," he tweeted in June 2021, following up with similar rhetoric like "the mother of all crashes." This past June, Burry continued the gloom, noting, "as I said about 2008, it is like watching a plane crash," and asking in July, "S&P 500, is it 2001 or 2022?"

Time will tell: Elon Musk has compared Burry to "a broken clock," with his recent forecasts similar to the repeated "superbubble" warnings touted by famed fund manager Jeremy Grantham. Burry (along with Grantham) is still known for calling the U.S. housing market crash, and he made billions of dollars betting against those subprime mortgages. Crying wolf, or should we all be concerned? (20 comments)

It's an emergency

The Biden administration has declared the current monkeypox outbreak a public health emergency in a bid to marshal resources and raise awareness to contain the virus. The designation will allow the FDA to speed up the authorization of measures to prevent and treat monkeypox - such as tests, therapeutics, and vaccines - and was a provision the agency relied on heavily during the COVID-19 pandemic. Cases of the virus have topped 6,600 across 48 states, Washington, D.C., and Puerto Rico.

Quote: "We're prepared to take our response to the next level in addressing this virus, and we urge every American to take monkeypox seriously," Health and Human Services Secretary Xavier Becerra said at a briefing.

Monkeypox is an orthopoxvirus that is mostly spread by close physical contact and results in similar symptoms to smallpox. Men who have sex with men are at highest risk right now, but anyone can catch the virus, which could start to spread more broadly and has already been seen in children. People who contract the monkeypox experience flu-like conditions and a blistery rash that lasts anywhere from two to four weeks, though a very small percentage develop sepsis or other life-threatening reactions.

Dose-sparing: The FDA is examining ways to maximize limited supplies of the only approved monkeypox vaccine, as well as boost access to antiviral medicines that could see wider use for the virus. That includes giving one-fifth of a full jab of Bavarian Nordic's (OTCPK:BVNKF) Jynneos between skin layers, as opposed to under the fat layer of the skin. While the method is less protective than a full shot, the strategy was also used during previous shortages of the flu vaccine. (132 comments)

Cyber Roundup

"Welcome to the Giga Texas," Elon Musk declared as he took the stage at Tesla's (NASDAQ:TSLA) Cyber Roundup down in Austin. The annual shareholder meeting came just weeks after Tesla reported Q2 earnings, which showed compressed automotive margins even as the company grew year-over-year.

Highlights: "We're aiming to achieve a 2M vehicle run-rate by the end of the year," he announced, adding that Tesla just produced its 3 millionth car. Shareholders also approved a 3-for-1 stock split, the second in two years, though it's not clear when that will take effect. Free cash flow generation was on the radar as well, with Musk pointing to $7B of FCF over the past four quarters, driven by a ramp-up in the Model 3.

"We have autonomy to some degree, but solving autonomy will really be an amplification of free cash flow to a degree that is... you run the numbers and it's like, wow, could it really be that crazy? It could be that crazy," Musk continued, jokingly adding "this year I swear." "We're now at over 40M miles [on the FSD Beta program] and I suspect by this year we're gonna have well over 100M miles. We're still tracking very much to have widespread deployment of FSD beta this year in North America."

Outlook: "Making macroeconomic prognostications is a recipe for disaster," but Musk estimates "we are past peak inflation" and likely to see a "relatively mild recession for something like 18 months." He also teased another factory location this year, saying the company would "end up building at least 10 or 12 Gigafactories." On the Supercharger front, Musk promised some "cool stuff," and suggested that Cybertruck specifications and pricing will be different than disclosed back in 2019 due to soaring inflation. (4 comments)

Today's Markets

In Asia, Japan +0.9%. Hong Kong +0.1%. China +1.2%. India 0.2%.
In Europe, at midday, London -0.2%. Paris -0.5%. Frankfurt -0.2%.
Futures at 6:20, Dow +0.1%. S&P flat. Nasdaq -0.2%. Crude +0.2% to $88.68. Gold -0.2% to $1802.80. Bitcoin +1% to $22,145.
Ten-year Treasury Yield +2 bps to 2.7%

Today's Economic Calendar

8:00 Fed's Barkin Speech
8:30 Non-farm payrolls
1:00 PM Baker-Hughes Rig Count
3:00 PM Consumer Credit

Companies reporting earnings today »

What else is happening...

Bank of England raises rate by 50 basis points, warns of recession.

Warner Bros. Discovery (WBD) sets streaming strategy on earnings call.

AMC (AMC) shares fall 11%, going 'APE' with preferred-stock dividend.

Beyond Meat (BYND) cuts sales guidance, eliminates 4% of workforce.

Sinema proceeds with Senate climate bill after carried interest pledge.

Despite widening losses, DoorDash (DASH) drives higher on record orders.

Virgin Galactic's (SPCE) commercial launch timeline pushed back again.

Visa (V) suspends Pornhub advertising arm from payment network.

Block (SQ) stock slides after Square GPV growth seen slowing.

Lyft (LYFT) tops expectations, aided by recovery in active riders.

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