July 27, 2022

The Wait Is Finally Over…

It was a wild Wednesday on Wall Street — here’s what you missed.

The stock market was strong across the board after the Federal Reserve delivered its telegraphed 75 bp rate hike. We break down the Fed’s move and commentary below. 👇

Earnings remain in focus, with Meta reporting after hours. We recap all the top earnings movers in our final story. 📰

Here’s today’s heat map.

Every sector closed green, with technology (+4.25%), communication services (+4.22%), and consumer discretionary (+3.74%) leading. 🟢

In U.S. economic news, U.S. durable goods orders rose 1.9% in June, driven by strong demand for automobiles and military planes. Meanwhile, pending home sales fell 20% YoY in June, hitting their slowest pace since September 2011. Lastly, wholesale inventories rose 1.9%, and retail inventories rose 2.0% in June. Lastly, mortgage applications fell to a 22-year low as rising rates and record prices push housing affordability out of reach. 📦

And in international news, Australian inflation hit a 21-year high as its central bank struggles to control prices. ♨️

In voting news (no, we’re not talking politics), Spirit Airlines shareholders voted to terminate their merger agreement with Frontier airlines, setting them up to vote on the all-cash bid from JetBlue. Meanwhile, Twitter will hold a shareholder vote to approve the company’s $44 billion acquisition by Elon Musk on September 13th. The meeting will hopefully result in an approval and ready the company for its court battle with Musk in October. 🗳️

Paypal shares rallied 12.18% after activist investor Elliott Investment Management took a stake and plans to push the fintech giant to ramp up its cost-reduction efforts. 📈

The crypto market rallied along with other risk assets today. In non-price-related news, a bipartisan bill seeks to eliminate taxes on crypto transactions under $50. Next, Cathie Wood’s ARK fund has ditched its $75 million Coinbase position as the company comes under investigation by the SEC. Lastly, FTX’s CEO leads Trustless Media’s seed round to help build community-owned web3 shows. Given all the crypto drama, they’ll have plenty of content ideas to work with. 🤣

Other symbols active on the streams included: $SIGA (+2.70%), $AMC (+3.21%), $XELA (-15.68%), $IMPP (-10.20%), $BTC.X (+8.41%), $ETH.X (+16.45%), and $MULN (-0.52%). 🔥

Here are the closing prices:

S&P 500	4,024	+2.62%
Nasdaq	12,032	+4.06%
Russell 2000	1,848	+2.39%
Dow Jones	32,198	+1.37%

Policy

Fed Delivers 0.75% Hike, Drops Forward Guidance

Two weeks ago, the market got a bit ahead of itself after a red-hot headline inflation print, pricing in the potential for the Fed to hike 100 bps at this meeting. That lasted for about a day before several Fed Governors were in the media reiterating their support for a 75 bp hike. 📉

Today, the Federal Reserve did exactly what it told us it would do, raising rates by 75 bps today to 2.25%-2.50%.

Although it was a unanimous decision, Powell’s press conference signaled that this is where the real fun begins. 🥳

The Fed has been playing catch up with inflation all year after failing to recognize its “transitory” thesis was wrong last year. As a result, the committee has told us it would act aggressively until interest rates reach what it feels is a 📉

According to Powell, they’ve reached that rate and will be taking a more measured approach beginning with their September meeting. That includes giving less precise guidance to the markets about its next move.

What this means is up for interpretation, and Powell was cautious with what questions he did/did not address at his press conference. However, despite his attempts to be coy, there was a loud and clear message in his prepared remarks and Q&A session. ⚠️

With the labor market remaining strong, the Fed is focused on bringing demand back into balance with supply (aka getting inflation’s long-term trend back down towards its 2% mandate).

The Fed cannot do anything about supply chain issues or oil/food supplies. They can only impact demand by raising rates/tightening financial conditions.

So that’s what they’re going to do.

Powell reiterated today that another outsized hike could be appropriate at the next meeting but that the committee will decide as the data rolls in.

He also noted that “…this process is likely to involve a period of below-trend economic growth and some softening of the labor market, but such outcomes are likely necessary to bring prices down.” 🔻

In other words, the Fed is willing to potentially push the economy into a recession and cause a weakening in the labor market to get inflation in check.

Powell and the committee know that high inflation causes pain in the economy and would prefer to pay the piper now rather than deal with it when it becomes a much bigger issue.

We’ve already seen housing market activity crater as interest rates/prices rose. We’re also seeing softening in some areas of the economy, like retail, where companies are dealing with inventory gluts, and consumers are cutting back on spending. Not to mention business and consumer sentiment, which have fallen to multi-year (or in some cases, multi-decade) lows. 👎

So far, aggregate-level labor market data has remained strong, but there are pockets of the economy like tech that are seeing layoffs/hiring freezes daily.

We can expect some labor market data to begin turning in the months ahead as Powell and the Fed sacrifice some jobs at the altar of inflation to get prices back in check.

Lest there was any doubt, continued economic weakness is coming. We just don’t know how harsh it will be or how long it will last. 🤷‍♂️

So far, the markets are cheering today’s news, but we’ll have to see if that enthusiasm holds into the weekend or if it reverses as it did in June.

Guess we’ll just have to wait and see. 👀

Earnings

Earnings Highlights

Meta’s report was highly anticipated, given the stock is down 50% from its highs…but the news was not what bulls had hoped for. 👎

The company missed both earnings and revenue expectations, with revenue declining YoY for the first time in its history as a public company. Additionally, the company issued a weak forecast for the third quarter, anticipating a second consecutive decline in YoY revenue. 😲

The company blamed broader economic uncertainty for the weak advertising demand environment. Additionally, the company continues to spend heavily on the metaverse, which is not expected to generate meaningful revenues anytime soon.

Like many of its tech peers, Meta is looking to cut costs wherever possible to deal with the more challenging macro environment. This week, CEO Mark Zuckerberg addressed the company’s plans to cut underperforming workers and was not thrilled by one employee’s question about vacation.

Given the context, we can only speculate what Mark was thinking when he heard that, but it was probably along the lines of, “Yeah, you’ll have plenty of vacation when we fire you along with the rest of the slackers in this company…” 🤣

Anyway, it was not a great quarter for Meta, and it appears that the advertising slowdown was not a Snapchat-specific issue after all. 😬

Ford shares popped after the company beat earnings and revenue expectations, with a substantial jump in operating income. The company reiterated its full-year guidance and raised its dividend to pre-pandemic levels ($0.15/share) but would not comment on reports that it is planning layoffs of roughly 8,000 workers to support its EV push. 🚗

Qualcomm slightly beat earnings and revenue expectations, but its guidance for the coming quarter was below Wall Street’s expectations. Investors seem to be focusing on the possibility of slower handset growth amid a broader decline in smartphone demand. 📵

Shopify’s earnings and revenue came in below expectations, and the company warned that inflation and rising interest rates would weigh on its business through the rest of the year. This poor earnings news comes less than 24 hours after it laid off 10% of its workforce. 🛒

The company now expects 2022 “…will end up being different, more of a transition year, in which e-commerce has largely reset to the pre-Covid trend line and is now pressured by persistent high inflation.”

Spotify adjusted earnings missed expectations, but revenue and total monthly active users beat.

Monthly active users grew 19% YoY to 433 million, 5 million above its guidance. Additionally, 19 million net additions were the company’s largest ever second-quarter growth. And total paid subscribers came in at 188 million, above estimates of 187 million. 🎧

T-Mobile popped after its mobile subscriber numbers topped estimates (723,000 vs. 575,000 expected), signaling that the company continues to take market share. The company raising its subscriber growth rate forecast for the second straight quarter overshadowed the fact that this quarter’s earnings and revenues missed expectations. 📱

Boeing posted a larger than expected loss on lower-than-expected revenues this quarter but stuck by its forecast to return to free cash flow this year.

Weakness in its defense unit hampered results, offset by strength in its commercial airplane unit as travel demand remains robust. The company expects cash flow to improve in the second half of the year as it *hopefully,* resumes deliveries of its 787 Dreamliner planes after dealing with manufacturing flaws for the past two years. ✈️

Teva Pharmaceuticals rallied nearly 30% after reaching a $4.35 billion settlement of U.S. opioid lawsuits. The company also reported earnings, revenue numbers, and updated guidance, but investors are primarily focused on the settlement, which was not as hefty as expected. 📈

Deutsche Bank beat expectations, posting its eighth straight quarterly profit amid strength across its four core businesses. 🏦

Meanwhile, Credit Suisse posted a $1.66 billion net loss and announced the resignation of its CEO, Thomas Gottstein.

The company’s chairman Axel Lehmann quashed any rumors that it had plans to sell or merge the company with another bank. However, he also noted that the company continues to manage its common equity tier one capital (solvency) closely after getting wrapped up in several scandals like the Archegos hedge fund collapse. 🙅‍♂️

Hilton Worldwide’s revenues and earnings beat expectations, with the company raising full-year guidance due to its confidence in a continued recovery through the rest of the year. 🏨

Keep track of all the upcoming releases with the Stocktwits’ earnings calendar! 📅

Bullets

Bullets From The Day:

💰 South Korean SK Group pours $22 billion into the U.S. The country’s second biggest conglomerate will invest in high-priority areas like semiconductors and clean energy. While its exact investment timeline is unknown, President Biden said the company plans to grow its U.S. workforce from 4,000 to 20,000 by 2025. CNN Business has more.

⚖️ Cassava Sciences faces criminal probe over Alzheimer’s drug. The U.S. Justice Department has opened a criminal investigation into whether the company manipulated research results for its experimental Alzheimer’s drug. The DOJ will be looking into whether companies or individuals at the company misled or defrauded investors, government agencies, or consumers. More from Reuters.

🤖 Ex-Googler founded adtech startup raises $250 million in funding. Seedtag is a contextual advertising startup that uses AI tools to “read” content on a page to match that up with advertisers’ goals and track how those ads perform. The company has raised roughly $252 million from a single investor, Advent International, which will help it expand beyond Europe and into the U.S. TechCrunch has more.