I hope everyone had a nice weekend!
Tech Heavyweights Set to Report- Decision Time
Technology bellwethers Microsoft, Alphabet, and Apple will all report earnings this week which will be closely dissected and produce market moving swings. To add to the fun, the Federal Reserve meeting is also meeting this week and is expected to hike interest rates another 75bps. With global high frequency economic data showing forward looking signs of significant weakening, Jay Powell’s press conference will closely watched to see if he leaves any sliver of daylight open to slowing or pausing rates or balance sheet runoff into the fall/winter timeframe. So far, the Q2 earnings beat rate is 73%, which is on pace to be near the lowest since Q4 2015, excluding the pandemic shutdown. Earnings season is ~20% complete, so it's still pretty early. For FY22, consensus estimates for S&P 500 operating EPS is now been revised down to 6%. However, analysts have not done much with FY23 EPS estimates with the consensus still standing at +11.5% (still too high?)
Both Microsoft and Alphabet are riding their respective downward sloping 20WK EMA’s into downtrends with a weakening weekly RSI now firmly below 50. I have to admit that both weekly charts look pretty bearish. Apple is attempting to rally back to its declining 40WK MA as well. Breakdowns and lower weekly lows post-earnings from these names could trigger another leg down in the S&P 500 index. The most difficult part of the current market environment this year is that bounces are nothing more bear market rallies into downtrending resistance levels. Microsoft has already early warned about foreign currency headwinds impacting their earnings report but are there corporate IT spend weakness now showing up? Is Alphabet seeing advertising weakness and slowdowns in other parts of their business after announcing a hiring slowdown?
Microsoft (MSFT)
Alphabet (GOOGL)
LNG Scramble For Fall/Winter Is Now Officially On
Russia continues to hold Europe hostage by withholding natural gas flows and the scramble before fall/winter is now officially on after Nord Stream pipeline maintenance was completed last week. Meanwhile, a significant inflection point occurred in the first half of 2022 when the US officially became the world’s largest LNG exporter. Expect this trend to continue as new floating LNG facilities come online in the upcoming year. Natural gas storage fleet companies like $GLNG, $FLNG, $NFE, $EE, and others could see a big second half as a scramble to secure alternative natural gas supplies heats up. While the Biden administration talks up the recent pullback in oil prices, US natural gas prices are now up 35% alone in just the past month. US natural gas futures skyrocketed above the $8.5/MMBtu mark, moving closer to a 14-year peak of $9.5/MMBtu hit in early May on prospects of an increasing need for cooling as the weather remains hotter than usual in the United States. Soaring international demand is also adding to the bullish outlook.
Some interesting charts from this past week:
1) Homebuilder Confidence In Freefall
Builder confidence has plummeted in July to the lowest level (excluding 2020) since 2015. Builder sentiment is a leading indicator for the housing market. Inflation, higher rates, higher home prices all hurting buyer traffic and sales. Traffic of prospective buyers, a leading indicator of housing demand, collapsed to just 37 in July. The housing market is a leading indicator of economic activity, and it's moving lower at an accelerating pace.
Mortgage demand fell more than 6% last week compared with the previous week, hitting the lowest level since 2000, according to the Mortgage Bankers Association’s seasonally adjusted index.
2) Net New Highs/Lows
To give you a sense of how difficult this market has been this year, we've only had 7 days so far this year with new highs > new lows. The typical year in the past two decades has had 100 days of new highs > new lows by mid-July.
3) Inflation Continues to Bite Real Incomes
Inflation continues to take its bite into real hourly earnings in 2022. Real average hourly earnings are down 3.6 percent over the 12 months ending June 2022.
Stocks I’m Watching
1) Digi International (DGII)
Digi International Inc. provides business and mission-critical Internet of Things (IoT) products, services, and solutions in the United States and internationally. The company operates in two segments, IoT Products & Services and IoT Solutions. It offers cellular routers for mission-critical wireless connectivity; cellular modules to embed cellular communications abilities into the products to deploy and manage intelligent and secure cellular connected products; console servers to provide secure and remote access to network equipment in data centers and at edge locations; and radio frequency products, including embedded wireless modules, off-the-shelf gateways, modems, and adapters under the Digi XBee brand. The company provides embedded system products under the Digi Connect, ConnectCore, and Rabbit brands; and infrastructure management products, comprising of serial servers, which offers serial port-to-Ethernet integration of devices into wired Ethernet networks; and universal serial bus solutions.
2) Richardson Electronics (RELL)
Richardson Electronics, Ltd. engages in the power and microwave technologies, customized display solutions, and healthcare businesses in North America, the Asia Pacific, Europe, and Latin America. The company’s Power and Microwave Technologies Group segment provides engineered solutions, power grid and microwave tubes, and related consumables; technical services for microwave and industrial equipment; flat panel detector solutions, replacement parts, tubes, and service training for diagnostic imaging equipment; customized display solutions; and power conversion and RF and microwave component for broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar, and radiation oncology applications. Its products are used to control, switch, or amplify electrical power signals, as well as are used as display devices in alternative energy, healthcare, aviation, communications, industrial, marine, medical, military, scientific, and semiconductor markets.
3) NL Industries (NL)
NL Industries, Inc., through its subsidiary, CompX International Inc., operates in the component products industry in the United States and internationally. The company manufactures and sells mechanical and electronic cabinet locks, and other locking mechanisms, including disc tumbler locks, pin tumbler locking mechanisms, and CompX eLock and StealthLock electronic locks for use in various applications, such as ignition systems, mailboxes, file cabinets, desk drawers, tool storage cabinets, integrated inventory and access control secured narcotics boxes, vending and cash containment machines, medical cabinetry, electronic circuit panels, storage compartments, and gas station security. It also offers original equipment and aftermarket stainless steel exhaust headers, exhaust pipes, mufflers, and other exhaust components; gauges, such as GPS speedometers and tachometers; mechanical and electronic controls and throttles; wake enhancement devices, trim tabs, steering wheels, and other billet aluminum accessories; grab handles, pin cleats, and other accessories; and dash panels, LED indicators, wire harnesses, and other accessories primarily for performance and ski/wakeboard boats. In addition, the company offers insurance brokerage and risk management services.
Disclaimer:
All investment strategies and investments involve risk of loss. Nothing contained in this website should be construed as investment advice. Any reference to an investment's past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.