Morning Reads


Todays Open Interest Change



Sooner or later

The Federal Reserve's policy-setting arm is widely expected to boost its key rate by 25 basis points today as the central bank slows its pace of tightening. What comes next is up for debate, but Fed Chair Jerome Powell offered some insight into his thinking at last month's FOMC press conference, and could do so again this afternoon at 2:30 PM ET.

Flashback to June: "It's sort of standard thinking that monetary policy affects economic activity with 'long and variable lags.' Of course, these days, financial conditions begin to tighten well in advance of actual rate hikes. So if you look back when we were lifting off, we started talking about lifting off - by the time we had lifted off, the two-year [interest rate], which is a pretty good estimate of where [monetary] policy is going, had gone from 20 basis points to 200 basis points. So in that sense, tightening happens much sooner than it used to in a world where news was in newspapers and not, you know, on the wire. So that's different."

"But it’s still the case that what you see is interest-sensitive spending is affected very, very quickly - so housing, and durable goods, and things like that. But broader demand, and spending, and asset values, and things like that - they just take longer. And you can pretty much find research to support whatever answer you would like on that. So there's not any certainty or agreement in the profession on how long it takes... it's one of the main reasons why it makes sense to go at a slightly more moderate pace."

Any changes to this view today will be closely watched by the markets, which will be hanging on to each one of Powell's words. Trading in fed funds futures anticipates that the Fed will stop raising rates after this meeting, with a 55.6% probability that the federal funds rate range will hold at 5.25%-5.50% for the rest of the year, according to the CME FedWatch Tool. There's also a 31.9% chance that the FOMC will increase again by 25 bps, and some are betting the rate will rise to 5.75%-6.00%, giving that outcome a 4.8% probability. By contrast, the median dot on the FOMC's dot plot expects the rate to rise to 5.6% by year-end.

SA commentary: "The data points to extraordinary resilience in the U.S. consumer and economy, suggesting a soft landing is increasingly likely, and this is likely the last hike in a brutal Fed hiking cycle," writes SA analyst Christopher Robb. "One reason that the Fed is likely to continue hiking is the desire to avoid the "stop and go" policy mistakes from the 1970s and early 1980s," counters Logan Kane. "This is a valid concern. Then, inflation came in several waves, and after each wave, the Fed would ease up, only for inflation to come roaring back." (5 comments)

AI costs

Despite quarterly results that topped expectations, Microsoft (MSFT) fell 3.7% AH on Tuesday as it forecast aggressive AI spending that will weigh on its bottom line in the near term. Capital expenditures are expected to increase sequentially each quarter as Microsoft ramps up investments in its cloud infrastructure amid strong AI demand. "Growth from our AI services will be gradual as Azure AI scales and our copilots reach general availability dates," CFO Amy Hood declared, adding that the impact will be weighted towards H2 FY24. SA Investing Group Leaders also discussed the results, with Michael Wiggins De Oliveira saying much of the news was already priced in, while Bohdan Kucheriavyi warned against accumulating a long position at current levels. (92 comments)

Accelerating growth

Thanks in part to strong advertising from Google Search, Alphabet (GOOGGOOGL) gained around 7% AH following a Q2 earnings report that beat top and bottom line expectations. The tech giant also expanded the role of Ruth Porat as the company seeks a CFO successor, and she reiterated that the focus is still on growing expenses slower than revenue in 2024. Those tuning in to the earnings call heard Alphabet's No. 1 innovation priority, and referenced "our continued leadership in AI," while Investing Group Leader Jonathan Weber was quick to laud Alphabet's successful margin turnaround following the results. (56 comments)

Stronger together

The latest bank consolidation will see regional lender Banc of California (BANC) acquire PacWest (PACWin an all-stock deal. The merger comes after PacWest, which took the spotlight during the regional bank crisis, disposed of certain assets to shore up its balance sheet. News of the merger, which will result in a combined company with ~$36.1B in assets, helped push PACW up 32% before the bell today, while BANC rose 11%. Separately, PacWest posted weak Q2 results hurt by losses on loan sales, while Banc of California's earnings were largely in line with expectations. (127 comments)

Today's Markets

In Asia, Japan flat. Hong Kong -0.4%. China -0.3%. India +0.5%.
In Europe, at midday, London -0.7%. Paris -1.9%. Frankfurt -0.9%.
Futures at 6:30, Dow -0.2%. S&P -0.2%. Nasdaq -0.3%. Crude -1% to $78.86. Gold +0.5% to $1,973.10. Bitcoin +0.2% to $29,195.
Ten-year Treasury Yield -3 bps to 3.89%.

Today's Economic Calendar

7:00 MBA Mortgage Applications
10:00 New Home Sales
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:30 Results of $24B, 2-Year FRN Auction
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference

Companies reporting earnings today »

What else is happening...

UPS (UPS) signs tentative deal with Teamsters to avoid costly strike.

Snap (SNAP) slides 17% on gloomy forecast amid platform rehaul.

Ad business, AI to be catalysts for Meta's (METAQ2 earnings.

Wells Fargo (WFC) raises dividend, authorizes $30B buyback.

RTX (RTX) plunges after disclosing Pratt & Whitney engine defect.

Dish (DISH) to sell mobile service on Amazon (AMZN) by end of week.

Historic tightening: UBS looks back at three ways the Fed 'messed up.'

Teladoc (TDOC) climbs 6% as improved margins drive Q2 earnings beat.

Magellan (MMP) CEO is confident that sale to Oneok (OKEwill prevail.

Visa3MGE and GM earnings discussed on Wall Street Lunch podcast

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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