Tech-Heavy: What’s bad for the economy is great for stocks in these strange inflationary days

Wall Street shares had a half-arsed show of attempting to rally post the weak-arse Friday June jobs report. That didn’t happen, US stocks were lower for the day and the week.

While the Nasdaq gave up just -0.3%, all 3 major US averages posted weekly falls.

The Dow shed an impressive -1.5% loss last week.

The S&P 500 was out of town by -0.6%.

Considering the obtuse and pronounced June rally, these are not shocking losses.

With Wall Street’s Q2 earnings season imminent, the market is chasing for another catalyst to maintain the high.

Staying invested and riding the rate-hike cycle is an awful difficulty for twitchy US traders, but it seems like the smart play in a world as uncertain as this one. If I was a fundie and let’s thank my powers of concentration this is not a thing, my general counsel, in between extended sessions of Minecraft, would be to stick close to large caps with a phat track record, handsome dividends, impeccable balance sheets and with P/E rations that’ve walked back some from the nonsense of a the pandemic.

Still. So far. It’s not the start to 2H 2023 many were placing large bets on.

A day earlier the ADP employment number was 2x Wall St estimates and sent stocks tumbling on that familiar ‘The Fed will keep raising’ tune.

Weak jobs report for June, vs an equally powerhouse labor market.

Investors still trying to digest the news. Imagine what The FED is feeling. But who’d be a jobless economist in the US?

What’s bad for the economy is great for stocks in these strange inflationary days.

In this case, lower jobs growth could be seen as reason for the Federal Reserve to pivot from its hawkish stance with monetary policy.

Halftime at the major US market indicators
(and it’s BTC by a country mile):

Bitcoin (BTC-USD): 82.67%
Tech-Heavy Nasdaq Composite Index : 30.52%
S&P 500: 14.57%
Dow Jones Industrial Average: 1.77%
Russell 2000: 5.87%

That was not the case on Friday as stock fell for a second straight session on renewed concerns that the Federal Reserve may start hiking rates again after its June parkbrake.

209,000 new US jobs were created in June – lower than Dow Jones consensus of 240,000, according to the Department of Labor.

Despite the seeming collapse from April-ish, the total is still very punchy from a historical perspective.

US traders weren’t willing to risk all they’ve made lately, on the hock. Now when the Fed has indicated that they plan to raise interest rates at least on two more occasions, and it appears that the market is starting to believe that this will actually happen.

On Friday The tech-heavy Nasdaq Composite declined 18 points, or 0.13%,the Dow Jones Industrial Average lost -0.55%, the S&P 500 index dropped 12.64 points, or 0.3%

Apple (AAPL), Microsoft (MSFT), IBM (IBM), Nike (NKE), Salesforce (CRM) and several other blue-chip names were under pressure, across a second straight session of mild bleeding.

The Wall Street week ahead:
Inside US banks

America’s fantastic banks are due to open their books later this week.

Bloomers, a really good media company, has gone and found the time and resources to compile a full list of the average estimates of bank analysts, with largest US banks reportedly set to deliver their Best Of in loan losses since the pandemic, came crashing into us back in ’20.

Rising interest rates usually mean more moula for sensible banks. Less sensible banks can find bad loans to bas borrowers applies bad pressure to badly managed households, businesses and so on.

The Q2 revelations, due to start on Thursday (see below) is surely going to show which banks have benefited from higher interest rates and which are internally bleeding from the slings and arrows of outrageous misfortune.

America’s biggest 6 monster lenders/investors, these are: Messrs Wells Fargo, the 2 x Morgans (JPMorgan Chase (JPMC), Morgan Stanley (MS)), Bank of America (BoA), Citigroup (C) and Goldman Sachs (GS) — have (according to Bloomberg’s number-crunchers) apparently written off a combined US$5 billion in and around defaulted loans during an exciting Q2.

We’ll know soon.

Elon’s Attorneys

A company Elon likes and probably regrets owning called Twitter has a lawyer who wrote a letter to Meta the mother of Facebook and Great Aunt of the new and apparently useful short messaging media app Thread last week, accusing Meta of “systematic” and “unlawful misappropriation” of whatever trade secrets a business called twitter might have.

It’s all about the launch of Threads and the 70+ million or so sign-ups the app has enjoyed over the last few days.

The letter from longtime Elon Musk attorney Alex Spiro alleged that Meta’s new Twitter clone was built by former Twitter employees “deliberately assigned” to develop a “copycat” app.

Next for Elon’s Twitter is the business of suing the former heavyweight law firm Wachtell, Lipton, Rosen & Katz (WLRK) over “unconscionable,” “last minute” legal fees it charged during the extended blue over Elon’s silly takeover.

The story’s a good one.

Musk’s X Corp., which just loves owning Twitter, is seeking through the violence of the US legal system to recoup “any associated excess fee payment” and attorney’s fees from the US$90 million Twitter paid in 2022 to keep the billionaire from backing out of his $44 billion deal to buy the platform, according to Reuters and CNBC.

Let us recall, when Elon tried to hit the reverse button on his commitment to buy Twitter, the company then god hold of WLRK in July 2022 to make sure they slammed the hell out of Twitter, Elon and the lawsuit and they did exactly that. So well in fact that they eventually forced Musk to complete the merger, which by now was a horrible, heaving worthless trainwreck of a business decision.

Musk, undoubtedly cheering inside, finally honoured the merger contract in October when it became clear that he’d get his arse kicked by WLRK when push came to court.

Musk’s lawsuit in San Francisco County Superior Court now alleges that the bastards at WLRK overcharged Twitter (his outright enemy at the time, let’s make sure we’re clear here…) when it collected the nigh $US 100 mill – which included US$84.3 million on the same day Musk completed his buy out of Twitter.

“This action for equitable relief arises out of an effort by Wachtell to fundamentally alter its fee arrangement as litigation counsel in the twilight of its representation of Twitter to obtain an improper bonus payment in violation of its fiduciary and ethical obligations to its client,” claimed the lawsuit filed by X Corp.

“Wachtell exploited a corporate client left unprotected by lame duck fiduciaries who had lost their motivation to act in Twitter’s best interest pending its imminent sale to Elon Musk and his entities, X Holdings I, Inc. and X Holdings II, Inc.”

The Musk/Twitter deal closed on October 27, with team Wachtell, Lipton, Rosen, absolutely ensuring the deal was done and was paid the US $90 million fee for its work, which I dn’t mind saying was reportedly done – just like the twitter deal itself – at a wonderfully significant premium to Twitter’s public market valuation.

If I’d been on the twitter Board, hiring Twitter’s lawyers, I’d have scribbled a blank cheque and demanded it be covered in victory zeroes.

X Corp., Twitter’s holding company, is seeking repayment of “any associated excess fee payment” and attorneys’ fees associated with the cost of litigation.

Musk’s company is represented by Reid Collins & Tsai, a Texan law firm which should have a TV series about it and which would do very, very well to appraise the current situation and act accordingly.

Wall Street market moving Calendar
Monday July 10 – Friday July 14

MONDAY
China mainland CPI inflation and PPI (Jun)
Canada building permits (May)
US wholesale inventories (May)
US consumer credit (May)
US Fedspeak: Vice Chair Michael Barr

TUESDAY
US NFIB Small Business Index (June)
German CPI inflation (Jun)
US S&P Global Investment Manager Index (Jul)

WEDNESDAY
US Consumer price index (June)
US CPI inflation (Jun)
Japan PPI (Jun)
Mexico industrial production (May)
Canada BoC interest rate decision

THURSDAY
US Initial jobless claims (week ended July 8)
US Producer price index (June)
US weekly jobless claims
US monthly budget (Jun)
China balance of trade (Jun)
France CPI (Jun)
ECB monetary policy meeting accounts

FRIDAY
US University of Michigan consumer confidence prelim (Jul)
US Import/export prices (June)
US Consumer sentiment (July preliminary)
Japan industrial production (May)
EU balance of trade (May)

US Earnings worth watching this week

Thursday
PepsiCo, Conagra, Cintas, Delta Air Lines,

Delta Air Lines (DAL)

So. Wall Street expects Delta to deliver US $2.36 a pop (EPS) on revenue of US$14.44 billion. This compares to the year-ago quarter when the loss came to $1.44 per share on $12.31 billion in revenue.

Delta’s done well and airline stocks have been a great indicator. Some of these sector players have made strident progress after being under pressure for most of what seems to have been an inordinately long pandemic and post-pandemic…

Certainly one of the stronger emergent players – and beneficiaries – has been unsung Delta Air Lines. DAL shares are now up an insolent 45% year to date, makes the 15% rise in the S&P 500 index a bit of a gag.

Friday

BlackRock, UnitedHealth, JPMorgan Chase, Wells Fargo, Citigroup, State Street

Citigroup (C)

Wall Street analysts are seeing Citigroup hitting US$1.40 EPS on revenue of US$19.68 billion, Vs same quarter last year EPS of US$2.19 per share on revenue of US$19.64 billion.

Citigroup’s been struggling. Considering the pretty limited fallout from the explosion of Silicon Valley Bank (SVB) and Credit Suisse (CS) just as examples – Citigroup stock has been squeezed by some perceived liquidity pressures. Is it a bum steer or a bargain for 2H 2023. There’s a potential resumption of C’s share buyback program, but you’d need to look closer than I’m going to this week. .

JPMorgan Chase (JPM)

JPMorgan expected EPS of US$3.97 on revenue of US$38.97 billion.

This compares to Q2 2022 of $2.76 EPS on revenue of US$31.63 billion.

JPMorgan Chase hasn’t been delivering the results we’re used to especially when the rates are going up so quickly.

But. iIt’s JPMorgan. A beast. A consistent, brutal, efficient beast. Analysts reckon JPM can grow its EPS at an annual rate of 9% for the rest of the year.

Writing for the Nasdaq, absolute legend Richard Saintviulus says:

JPMorgan appears grossly undervalued relative to expectations. What’s more, at the current valuation of $144 per share, and priced at a forward P/E ration of 12, JPMorgan stock trades below the average price target of $154, making it a strong bargain for investors who are looking for exposure in the banking sector.