— Jesse Pound
Stocks continue to climb
The market climbed another leg higher in afternoon trading, with the Dow climbing over 300 points. Top performers in the 30-stock average include Disney, Merck and Apple. The S&P 500 is now up nearly 3% for the week. — Jesse Pound
Michael Burry warns of ‘addictive’ consumer behaviour: ‘Winter is coming’
“The Big Short” investor Michael Berry, known for his work on the subprime mortgage crisis, warned that “addictive” consumer spending signals more trouble to come. “Net consumer credit balances are growing at record rates as consumers choose violence over spending cuts in the face of inflation,” Barry said in a tweet on Friday. “Remember the savings drain problem? Not anymore. The COVID helicopter cash taught people to spend again and it’s addictive. Winter is coming.” Burry argued that consumers were still overspending on goods and services at a time when inflation remained at a multi-decade high. The investor, who now runs hedge fund Scion Asset Management, was down on markets and the economy. In May, he drew parallels between today’s market environment and 2008, saying it was like “watching a plane crash.” — Yun Li
The chips are back after matches earlier in the week
A rough start to the week for semiconductors has turned into a small hit for the stock market, Bespoke Investment Group noted on Twitter. After earnings warnings from Nvidia and Micron, the VanEck Semiconductor ETF fell sharply on Monday and Tuesday. But the ETF is now slightly up for the week. Meanwhile, Nvidia fell just 2.6% for the week after falling 10% on Monday and Tuesday. Micron rose 4% for the week. — Jesse Pound
Stocks expand earnings
Stocks rise as the afternoon begins. The Dow is now up about 250 points, while the S&P 500 and Nasdaq Composite are up 1% and 1.4%, respectively. —Jesse Pound
The S&P 500 could be close to signaling if the market is already down
The S&P 500 rose above a key technical level for a second day, and if it closes there, that historically could be a signal that stocks are already down. For a second day on Friday, the S&P 500 traded above the 4,231 level, a 50% retracement from the peak to the threshold. It has not closed above this level. Chart-watching strategists say that if this level is cleared, then it would usually mean that the market has already seen its bottom and will not return to the lows. “It means we’re not going to make the low, but it doesn’t mean we’re going straight from here,” said BTIG’s Jonathan Krinsky. He said the big question is whether it will hold the level and close there or just touch it on an intraday basis. According to Krinsky, in data dating back to 1950, the S&P has never returned to its lows after closing above a 50% retracement. He noted that in May 2001, the S&P 500 rallied above 50% returns, but only on an intraday basis, and the bear market continued for another 18 months. But even if it closes above the level, the S&P 500 could be in trouble. “Previous 50% reversals in 1974, 2004 and 2009 all saw decent volatility shortly after clearing that threshold,” Krinsky noted. – Patty Dom
Wells Fargo Cuts Petco Price Target But Still Says Buy
Pedestrians cross a street in front of a Petco Animal Supplies Inc. store. in New York, USA on Wednesday, September 9, 2020. Angus Mordant | Bloomberg | Getty Images There is an improved risk-reward outlook for Petco, but estimates for its second-half performance should be lowered, according to Wells Fargo. The company cut its price target for the retailer to $22 from $27, citing a difficult second quarter and the company’s need to manage its expectations in the second half of the year. Petco is expected to report earnings on August 24. However, the firm maintained a buy rating on the company, and the new price target represents more than a 40% upside to where shares are currently trading. Longer term, the “growth story remains attractive, the business is still taking share and the category is more defensive than credit taking. Adding it all up, we see a solid LT entry point,” analyst Zachary Fadem wrote on Friday. Note. — Carmen Reinick
Lumber prices on track for best week of 2022
Back-to-back inflation reports this week showed an easing of price pressures, but not everything is going in the right direction. Case in point: Lumber futures prices are up 22% this week alone, for their first positive week in five and their best week since mid-November. Of course, lumber prices are still down more than 40% this year. Zoom Icon Arrows pointing out —Yun Li, Gina Francolla
Cryptocurrencies are on pace for another weekly gain
Cryptocurrencies are on pace to extend their winning streaks. Bitcoin has gained 3.9%, according to Coin Metrics. Earlier in the week it rose to its highest level since June 13 before falling to a low as investors digested two better-than-expected inflation reports. The cryptocurrency is currently on pace for its third weekly gain in the past four. The excitement surrounding the merger continues to help the price of Ether, which has been leading the cryptocurrency market lately. Ether is up 12.2% for the week and is on track for its fifth positive week in the last six. — Tanaya Machel
A drop in profits seems less likely, Stoltzfus says
Over the summer, Wall Street worried about a pending decline in corporate earnings.
However, the second quarter reporting period showed that profits are holding up decently and recent economic data has eased fears of an impending recession.
That could mean earnings in the coming quarters could be a positive surprise, according to Oppenheimer’s John Stoltzfus.
“Based on what the jobs numbers have shown us this week and what the CPI and CPI in particular have shown us this week, this may overall work very well for earnings. … The fundamentals are indeed improving, although many challenges remain in the landscape,” Stoltzfus told “Squawk on the Street.”
— Jesse Pound
Top Economists Cut GDP Outlook, Raise Inflation Expectations
Economic growth will be slower and inflation higher than previously expected, according to a survey of economists released Friday. The Survey of Professional Forecasters, compiled every three months by the Federal Reserve Bank of Philadelphia, led to a sharp decline in the GDP outlook and a significant increase in the inflation outlook. Growth in the third quarter is now expected to run at a pace of just 1.4%, compared to the previous forecast of 2.5%. For the full year, GDP is expected to grow by 1.6% (up from 2.5% previously) and 1.3% in 2023, a full unit lower than the previous outlook. The 12-month outlook for inflation for the third quarter, as measured by the consumer price index, rose to 6.7% (up from 4.5%) while the full-year view, as expressed on a four-quarter basis from the fourth by the fourth quarter, it now stands at 7.5% (versus 6.1%). Core PCE inflation, which is the Fed’s preferred measure, is set at 4.5% for 2022, compared with 4.1% previously. Fed officials watch the survey closely and use it to help make decisions about monetary policy. Some of the 35 panelists include Jan Hatzius at Goldman Sachs, Mark Zandi of Moody’s and Ellen Zentner of Morgan Stanley. — Jeff Cox
Consumer sentiment exceeds expectations
A preliminary reading of the University of Michigan consumer index came in at 55.1, beating expectations of 52.5, according to Dow Jones. One-year inflation expectations fell to 5.0% from 5.2%, although five-year expectations rose slightly to 3.0% from 2.9%. The survey has gained increased importance in recent months after Fed Chairman Jerome Powell pointed to the component of inflation expectations as a motivator for the Fed to push for bigger rate hikes. — Jesse Pound
Stocks open higher
Stocks opened higher on Friday, putting the S&P 500 and Nasdaq Composite on track for their fourth consecutive positive week. The Dow gained more than 100 points, led by Disney, which rose nearly 2%. — Jesse Pound
Walmart’s concerns may be overblown, Morgan Stanley says
Worries about Walmart’s upcoming earnings release may be overblown, even after the company lowered its earnings outlook for the quarter and full year, according to Morgan Stanley. The firm has a buy rating and a $145 price target on the retailer. The firm sees a few reasons why Walmart may be in better shape than feared after analyzing the numerator data.
- Walmart sees big reductions in discretionary categories like tools and home improvement, home and garden, electronics and sporting goods. However, these are consistent with what the industry is seeing and the shift in consumer spending that the company has noted. On the other hand, apparel sales at Walmart look flat in the second quarter, suggesting that the cutback strategy is working, Simeon Gutman wrote in a note Thursday.
- Gross margin contraction in the second quarter is likely primarily due to markups, which may last into the second quarter and second half of the year, but should not carry over into 2023.
- There is evidence that higher income households are trading up to shop at Walmart. This is positive for the retailer, even though inflation remains high. Walmart will report its latest quarterly earnings on August 16. Shares closed at around $129 at the end of Thursday’s session. — Carmen Reinick
Too early to look for Fed pivot, Citi says
Signs of peaking inflation and negative GDP growth have led some on Wall Street to speculate that the Fed could change course on a rate hike, but investors shouldn’t bet on that, according to Citi. General Jamie Fahy said in a note to clients on Thursday night that the Fed is likely to keep its foot on the gas pedal in the coming months. “Inflation levels are still sharp and the labor market is still too tight, so the Fed will want to…
