- Raises Stakes with West
- Eurozone Inflation Hits Record in Boost for Big-Hike Calls
- Income and Spending Lag Behind Inflation
- Cooling Consumer Spending
- Need for Treasury Market Fixes
- More Pain Ahead
- Insurance Meltdown Leaves Homeowners Without Policies
- Auto Sales Expected to Slide, Prices to Soar
- The Hamptons Covid-Era Buying Frenzy Is Officially Over
- Netflix Says It’s Business as Usual
- The iPhone’s Creators Reveal the Consequences
- Back to the Future?
- Kohl’s Abandons Talks
Investors are proceeding into the second half of 2022 with caution after the worst first six months to a year in decades. Risk-off sentiment was seen in most areas of the market, fueled by soaring inflation and the Fed's aggressive monetary policy to fears of slowing growth and increased borrowing costs. A much hoped-for "soft landing" also hit some turbulence, with Fed Chair Jay Powell remarking this week "there is no guarantee that we can do that and it's obviously something that's going to be quite challenging."
Perfect storm: The S&P 500 (SP500) has plunged 21% since January, losing more than $9T in market capitalization and suffering its worst first half of a year since 1970, while the Nasdaq Composite (COMP.IND) and Dow Jones (DJI) fell 16% and 30%, respectively. The 10-year Treasury yield climbed from 1.50% to around 3.00%, and Bitcoin (BTC-USD) has tumbled nearly 56% YTD to under $20,000. One of the only pockets of the market that gained in the first-half was commodities, with crude oil going from $75 to well over $100 a barrel and U.S. gas prices nearly tripling before falling back in recent weeks.
Heading into H2, many are worried that central bank actions could push the global economy into a downward spiral. The latest reading from the Atlanta Fed's GDPNow tracker is now in negative territory, predicting Q2 real GDP growth of -1.0% as of June 30, down from +0.3% on June 27. If that print comes to fruition, it would mark two straight quarters of negative real GDP growth (-1.6% in Q1) making it a technical recession.
More volatility ahead? Earnings season, which kicks off later this month, could present the next trading risk, though you never know when buy-the-dip institutional managers and retail investors will step in and gain control of the markets. "If we have any words of comfort, it is that universal losses at this pace rarely take place in successive quarters, but this is not the same as saying that further losses should not be anticipated," said Michael Shaoul, CEO of Marketfield Asset Management. "This still very much looks to be the middle of the story, the period in which a previously 'pacific' outlook is replaced by something far stormier, and we are yet to see any signs that the weather is about to turn for the better." (25 comments)
Micron Technology (MU) reported earnings after the bell on Thursday, providing clues to the latest happenings in the chip industry. However, things don't look any better than a few months ago, with the memory maker publishing mixed FQ3 results and issuing guidance that was well below consensus forecasts. Revenue of $6.8B-$7.6B is expected in the coming quarter, compared to analyst estimates of $9.05B, prompting shares of Micron to slide 5% in extended trading.
Quote: "Recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023," CEO Sanjay Mehrotra declared. "We are well-poised to emerge stronger on the other side of this downturn, so we are really executing well, working closely with our customers to understand the latest demand trends and various end-market segments, and adjusting our plans as necessary and as fast as we can."
Micron specializes in DRAM, which is used in PCs and servers, as well as NAND memory, which is used in smaller devices like smartphones and USB drives. Chip prices surged during the pandemic amid heavy demand for stay-at-home electronics, but the industry is beginning to see signs of easing as inventories build and companies plan for a decline in consumer spending. There have also been efforts to reshore more of the crucial supply chain to the U.S., with legislation to support foundries and incentives for semiconductor manufacturing and R&D.
China competition bill: The measure, which includes $52B for the domestic chip industry, is facing uncertainty in Congress amid controversy over it being tied to a broader spending package. "Let me be perfectly clear: there will be no bipartisan USICA as long as Democrats are pursuing a partisan reconciliation bill," tweeted Senate Minority Leader Mitch McConnell. "Senate Republicans are literally choosing to help China outcompete the U.S. in order to protect big drug companies," responded White House Press Secretary Karine Jean-Pierre. "This takes loyalty to special interests over working Americans to a new and shocking height. We are not going to back down in the face of this outrageous threat." (206 comments)
In a big win for Elon Musk's Starlink (STRLK) network, the Federal Communications Commission has approved the company's plan to expand broadband offerings to vehicles in motion. "Authorizing a new class of [customer] terminals will meet the growing user demands... whether driving an RV across the country, moving a freighter from Europe to a U.S. port, or while on a domestic or international flight," wrote Tom Sullivan, International Bureau Chief of the FCC. Starlink also made headlines during the war in Ukraine, with President Volodymyr Zelenskyy praising Musk for helping the country stay online and conduct military operations.
What is Starlink? Operator SpaceX (SPACE) has launched a constellation of 2,700 Starlink satellites since 2019, blasting batches of them into low-Earth orbit on its Falcon 9 rockets. The service is meant to deliver high-speed internet with few delays, and has FCC approval to expand its network to 12K satellites. As of June, operator SpaceX told the agency that Starlink had more than 400K subscribers, including many who pay $110 a month for broadband internet using $599 self-install terminal kits.
Contracts in recent years have focused on remote and rural users, though business clients are starting to be drawn in. Delta Air Lines (DAL) is testing the service, while Hawaiian Airlines (HA) and charter provider JSX are adding it to their routes. That has raised the alarm for the competition, including OneWeb, Viasat (VSAT) and Jeff Bezos's Kuiper project, which is planning a similar network to Starlink with the first prototype satellites to launch later this year.
Can Tesla (TSLA) drivers expect Starlink internet in the future? Back in March, Elon Musk tweeted that such a plan is not in the works since "our terminal is much too big" and would be more suitable for large trucks & RVs. He has also said that Starlink would IPO "once we can predict cash flow reasonably well" and suggested that retail investors will get "top priority" in the coming offering. (3 comments)
84% of Americans plan to celebrate Independence Day this weekend, according to the National Retail Federation, though inflation will add to the cost of cookouts and festivities. Those who have plans for the holiday are forecast to spend over $84 for food items on average (up $4 from last year and $10 from 2020) for a total of $7.7B. More than half of consumers are planning a BBQ or picnic, and 26% of those celebrating expect to purchase additional patriotic items.
Snapshot: Ground beef prices are up 36% from a year ago, per the American Farm Bureau Federation, while the cost of chicken breasts and pork have increased by more than a third. Fuel, fertilizer and other key farming inputs were already under pressure before the invasion of Ukraine, which further disrupted the global agriculture supply chain. Anyone hitting the road this weekend will also face near record high prices at the pump and good luck to those traveling by plane as airport numbers reach pre-pandemic levels.
"Airlines are learning the hard way that there is a severe price for over-optimism," noted Joseph Schwieterman, a transportation expert at DePaul University. "They are on the edge of a cliff this holiday."
Chasing the Mustard Belt: Around 35,000 people are estimated to convene on the corner of Surf and Stillwell avenues in Coney Island to watch the Nathan's Famous (NATH) Fourth of July Hot Dog-Eating Contest. Millions more will watch the ESPN telecast of the event, which has been formally going on since 1972. Keep an eye on defending men's champion, Joey "Jaws" Chestnut, who ate 76 hot dogs during last year's showdown. Nathan's stock has also had some luck in 2022, with shares recently rebounding to $58 - the same price where they started the year - despite a broader market downturn.
In Asia, Japan -1.7%. Hong Kong closed. China -0.3%. India -0.2%.
In Europe, at midday, London flat. Paris +0.2%. Frankfurt +0.1%.
Futures at 6:20, Dow -0.2%. S&P -0.2%. Nasdaq -0.3%. Crude +2.2% to $108.06. Gold -0.9% to $1791.70. Bitcoin +0.3% to $19,120.
Ten-year Treasury Yield unchanged at 2.97%
Today's Economic Calendar
What else is happening...
Restart delay at Freeport LNG export terminal sends natural gas plunging.
Kohl's (KSS) terminates deal talks with Franchise Group (FRG).
Walgreens (WBA) reports decline in FQ3 sales amid waning COVID impact.
ECB prepping rate hike as eurozone inflation hits a record 8.6% in June.
Coinbase (COIN) is selling geolocation data to U.S. immigration enforcement.
FTX nears deal to buy crypto lender BlockFi for pennies on the dollar.
eToro said to terminate agreement to go public through SPAC (FTCV).
Facebook parent Meta Platforms (META) anticipates 'fierce' H2 headwinds.
American Airlines (AAL) offers to boost pilot pay 17% by the end of 2024.