HI Market View Commentary 07-31-2023
DIS earnings = Weakness in the parks = CA parks are booked 4 weeks out and the October Halloween bash sold out in 4 hours, FL is losing roughly 150-200 people daily or 4000 less visitors a month, Europe booked but China re-opening and China probably has bad numbers.
Movies have lost $ per the cost to make and advertising but NOT 900 million and did make money on some
Subscriber loss in India expected to be between 4 – 8 million due to the cricket contact change
How do trade DIS earnings on the 9the of August ?
What is the risk of 500 shares costing $87.23? = Every Penny 43,615
BTO Aug 25 $86 Long puts for 3.15
New risk In trade = 87.23 + 3.15 – 86 = Risk $4.38 = 4.8% TIC
STO Sept Monthly short call Credit of $1.95
Overall risk = 4.38 – 1.95 = $2.43 or 2.76% of TIC
MY EXPECTATION DISNEY probably going to $75-$78
Why would you cap DIS at $95 and what if you are wrong ? ADJUSTMENT buy back the short call for a loss, add a short put to cover the short call loss
Why did DISNEY POP today The past two executives that could have taken Iger’s place are brought back on
As a reminder the market is heading higher because there have been cash available on the sidelines and its also coming from overseas
I think earnings have a been an overall surprise
AAPL – 8/03 AMC
BIDU – 8/28 est
CVS – 8/02 BMO
DIS – 8/09 AMC
PFE – 8/01
SQ – 8/03 AMC
UAA – 8/08
MU – 9/27
The Big Picture
Last Updated: 28-Jul-23 12:48 ET | Archive
What is in the past is still in the past
From March 2020 to March 2022, the target range for the fed funds rate was set effectively at the zero bound. The shift away from that zero bound happened in late March 2022 with a 25-basis points increase to 0.25-0.50%. That was the first of ten consecutive rate hikes that took the target range for the fed funds rate to 5.00-5.25% on May 3, 2023.
The FOMC skipped a rate hike in June, but got back to it in July, voting unanimously to raise the target range for the fed funds rate another 25 basis points to 5.25-5.50%.
If This, Then That?
If we told you in March 2022 that…
- The Fed would be raising rates a total of 525 basis points over the next 16 months
- There would be a run on the regional banks in March 2023
- The eurozone would slide into a recession
- China’s reopening from its COVID lockdown would be a disappointment
- Core inflation would remain north of 4.0%
- There would be a deep inversion of the yield curve
- There would be no end in sight to the Ukraine war
…how many of our dear readers would have predicted that (a) the unemployment rate wouldn’t go above 3.7% over the same period (b) real GDP growth would average 2.6% from Q3 2022 to Q2 2023 and (c) the S&P 500 would be within striking distance of an all-time high?
We certainly didn’t, adhering too much to historical precedent and admittedly not appreciating the unprecedented effect of more than $5 trillion of fiscal stimulus provided during the COVID pandemic.
Those are the facts, however. The U.S. economy is holding up just fine — actually, better than fine so far — with all the rate hikes. Presumably, that’s because the lag effect of stimulus spending (meaning it hasn’t all been spent) and the enduring wealth effect seem to be offsetting the lag effect of policy tightening.
It helps of course that the labor market is as strong as it is, yet that is the case because demand has held up relatively well with the help of excess savings from the pandemic stimulus. In turn, the prolonged period of zero-bound rates and ultra-low mortgage rates fueled housing demand that has padded equity cushions for homeowners that have aided the wealth effect along with rising stock prices.
The stock market fallout in 2022 notwithstanding, the S&P 500, which topped 4,600 this week, is 55% higher than it was before the pandemic. The Nasdaq Composite for its part is 67% higher.
It has been a remarkable turn of events, and there is still a good bit of spending and investing potential with over $5 trillion currently in money market fund assets. It is there in large part, though, because interest rates have risen and because so many people are looking to preserve capital, mindful that aggressive tightening cycles often lead to bad economic outcomes and earnings recessions.
So far, the bad economic outcome has been avoided, and Fed Chair Powell, along with the Fed staff and a growing number of economists, think the U.S. economy can avoid a recession.
Mr. Powell said as much during his press conference to discuss the FOMC’s latest decision to raise the target range for the fed funds rate. In fact, he said a lot at that press conference without saying anything specifically that would upend the capital markets.
An Important Nuance
When it comes to raising rates again, Fed Chair Powell said definitively: “maybe.”
The Fed may, or may not, raise rates again at the September meeting or any meeting thereafter. It will depend on the data, he said; hence, it will be a meeting-by-meeting decision. He also said that it makes all the sense in the world to slow down now in order to assess how its prior policy actions are impacting the economy.
Still, he believes the process of getting inflation back down to 2.0% has a long way to go. An important nuance here is that he didn’t say the Fed has a long way to go with its rate hikes to get inflation back down to 2.0%. That’s possible, but he recognizes the current fed funds rate is at a restrictive level already.
That has helped temper inflation, but with core-PCE inflation still well above the Fed’s 2.0% target and not expected to reach that target until 2025 or so, he acknowledged that the Fed thinks it is going to need to hold policy at a restrictive level for some time — or, in market speak, “higher for longer.”
That isn’t a scary thought at this point for the market because policy rates are the highest they have been since 2001, and yet the economy is still growing, the labor market is still tight, and the stock market isn’t that far off from all-time highs. The only thing to fear at this point — or so it seems looking at the price action — is fear itself.
That confident view will change if incoming economic data start to show some acute weakening in the broader economy, and especially hiring activity, as that will ignite concerns about the lag effect of prior rate hikes having a more meaningful impact at a time when the crutch of pandemic stimulus savings is no longer as supportive as it has been.
Market participants are operating today, however, with the luxury of knowing that hasn’t happened yet and are imbued with a sense of confidence in the stock market’s price action that it won’t happen.
What It All Means
Higher interest rates are not all bad. In fact, they are good in many respects:
- They are good for savers wanting to avoid riskier assets.
- They are good for fighting inflation.
- They are good for the dollar.
- They are good for attracting capital from markets where interest rates are lower.
- They are good for weeding out weak, over-leveraged companies.
- They are good for popping asset bubbles.
- They are good for providing room for future rate cuts if/when they are needed.
Higher interest rates, however, present a headwind for economic activity. That is a fact and there is ample historical precedent to indicate as much. To that end, Fed Chair Powell noted in his press conference that the historical record suggests there is likely to be some softening in labor market conditions.
He said as much while maintaining his view that the economy could possibly avoid a recession in spite of the restrictive policy. The direction of the labor market will have a lot to say about that, but the stock market for one likes his way of thinking.
All that remains to be seen is if the economic data in coming months support it and keep historical precedent in the past.
Where will our markets end this week?
DJIA – Bullish and slightly overbought
COMP – Bullish
Where Will the SPX end July 2023?
Mon: RMBS, RIG
Tues: MO, BP, MAR, TAP, SIRI, UBER, AMD, CHK, DVN, EA, MOS, NUS, SBUX, VFC, PFE
Wed: DD, HUM, KHC, YUM, CLX, HUBS, MRO, VAC, MGM, PYPL, QCOM, HOOD, ZG, CVS
Thur: BUD, LNG, COP, CMI, HAS, H, K, MUR, SHAK, MNST, AAPL, SQ
Fri: D, FLR, PPL
Mon: Chicago PMI
Tue ISM Manufacturing, Construction Spending, Jolts
Wed: MBA, ADP Employment
Thur: Initial Claims, Continuing Claims, Productivity, Unit Labor Cost, Factory Orders, ISM Services
Fri: Average Workweek, Non-Farm Payrolls, Private Payrolls, Unemployment, Hourly Earnings
How am I looking to trade?
Adding protection based on technical analysis on indexes and earnings seasons starts soon
www.myhurleyinvestment.com = Blogsite
firstname.lastname@example.org = Email
Yes full colar on DIS for earnings and possibly letting F get put to people at $15 booking us a nice profit
Will Lower Inflation Halt Rate Hikes?
The Federal Reserve raised its federal funds rate target range to 5.25 to 5.50 percent on Wednesday. In June, the median member of the rate-setting committee projected the federal funds rate would climb to 5.6 percent this year. That suggests another rate hike is on the horizon.
The Personal Consumption Expenditures Price Index (PCEPI), which is the Fed’s preferred measure of inflation, grew at a continuously compounding annual rate of 2.9 percent from June 2022 to June 2023. It grew at an annualized rate of 2.5 percent over the last three months and just 1.9 percent over the last month. In other words, inflation is falling fast.
Core PCEPI, which excludes volatile food and energy prices and is therefore thought to be a better predictor of future inflation, is also falling. Over the 12-month period ending June 2023, core PCEPI grew at a continuously compounding annual rate of 4.5 percent. It grew at an annualized rate of 3.9 percent over the last three months and just 3.7 percent over the last month.
Figure 1. Headline and Core PCEPI Inflation, January 2021 to June 2023
Will lower inflation cause Fed officials to forego further rate hikes? Maybe. Disinflation passively increases the real (i.e., inflation-adjusted) federal funds rate. When inflation falls faster than Fed officials expect, real interest rates rise faster than Fed officials intended when they set the nominal interest rate target. If the real rates rise high enough, Fed officials might be able to achieve their desired level of tightness without pushing its nominal rate target higher.
Judging by interest rates, monetary policy looks sufficiently restrictive. The Federal Reserve Bank of New York estimates the natural rate of interest at 0.58 to 1.14 percent. Using the prior month’s core PCEPI inflation rate of 3.7 percent as an estimate of expected inflation implies the real federal funds rate target range is 1.55 to 1.80 percent—well above the natural rate. If one were to use last month’s headline PCEPI inflation rate instead, it would imply the real federal funds rate target range is even higher: 3.35 to 3.60 percent. No matter how you slice it, real rates look sufficiently restrictive to bring down inflation. Indeed, they may be overly restrictive at this stage in the tightening cycle.
Nominal spending growth also suggests monetary policy is sufficiently restrictive. In the 10-year period prior to the pandemic, nominal spending grew at a continuously compounding annual rate of 3.9 percent. Nominal spending surged in 2021, growing 11.5 percent. But it has fallen in the time since. In 2022, it was 7.1 percent. It grew at an annualized rate of 6.0 percent in Q1-2023, and just 4.6 percent in Q2-2023. Although it is not yet back to the pre-pandemic average growth rate, it is on track to normalize by the end of the year.
If monetary policy is already sufficiently restrictive, why is it not so clear that the Fed will forego further rate hikes? In brief, some Fed officials are not yet convinced they’ve done enough—and don’t want inflation to resurge on their watch.
Governor Christopher Waller made the case for further rate hikes in a recent speech. Waller argues that monetary policy lags are much shorter following large shocks, like the 525 basis point increase in the federal funds rate that has occurred since February 2022. Whereas people might be rationally inattentive to small shocks and, as a consequence, react slowly, they cannot help but notice large shocks and, hence, respond more quickly. Waller also argues that the start of the lag beggins not when the Fed raises its federal funds rate target but rather when it announces it will raise its federal funds rate target in the future—at least so long as such announcements are deemed credible.
If monetary policy lags are shorter and start sooner than more conventional estimates suggest, “the bulk of the effects from last year’s tightening have passed through the economy already” and “we can’t expect much more slowing of demand and inflation from that tightening. To me,” Waller concludes, “this means that the policy tightening we have conducted this year has been appropriate and also that more policy tightening will be needed to bring inflation back to our 2 percent target.”
If Waller’s argument carries the day, Fed officials will raise the federal funds rate target range another 25 basis points in September or November. If disinflation continues over the next few months, such a hike could prove devastating—not merely wiping out inflation, but economic growth and employment as well.
Ford Keeps Losing More Money Making Electric Cars No One Wants
When will shareholders ask Ford to choose between Klaus Schwab and their money?
|July 28, 2023 by Daniel Greenfield|
No one except the state wants them. And who cares what consumers or shareholders want? Not Ford.
Back in March, I wrote that, “Ford reported that it’s going to lose $3 billion on electric cars in 2023. Unlike most automakers, Ford reports its electric vehicle numbers separately, but experts estimate that most car companies are losing similar amounts on the dead end business.”
“Ford plans to make 2 million electric cars every year by 2025. That would be impressive considering that Ford only sold 61,575 of them in 2022. It sold 3,624 electric vehicles in Feb 2023.”
And the numbers just keep getting worse. It’s now a loss of $4.5 billion.
Ford said the higher loss projection for Ford Model e reflected “the pricing environment, disciplined investments in new products and capacity, and other costs.” Ford also now expects to reach a 600,000-unit EV production run rate during 2024, instead of the end of this year, on the way to achieving a 2 million annual run rate.
The pricing environment is that prices keep rising. How exactly is that hurting Ford? The Biden administration and China and California have conspired to price real cars out of the reach of consumers. And yet Ford still can’t sell electric cars at a time when Tesla is moving them.
And nothing says “disciplined investments in new products” like a $4.5 billion loss and production delays while sales are actually falling.
But Ford’s CEO is doubling down on ESG-Uber-Alles.
“The near-term pace of EV adoption will be a little slower than expected, which is going to benefit early movers like Ford,” Ford CEO Jim Farley said in a statement. “EV customers are brand loyal and we’re winning lots of them with our high-volume, first-generation products; we’re making smart investments in capabilities and capacity around the world; and, while others are trying to catch up, we have clean-sheet, next-generation products in advanced development that will blow people away.”
How are they blowing people away, Jim?
Somewhat worrying for Ford and investors was a dip in EV sales, with the company noting EV sales dropped 2.8% for the quarter, with Mustang Mach-E sales down 21.1% and its E-Transit electric van sales down 23.8%.
How long does this go on until activist shareholders ask Ford to choose between Klaus Schwab and their money?
Contraction in China factory activity extends into a fourth month
PUBLISHED SUN, JUL 30 20239:31 PM EDTUPDATED MON, JUL 31 202312:21 AM EDT
- China manufacturing PMI came in at 49.3 in July, slightly better than the expected 49.2.
- China non-manufacturing PMI slowed to 51.5 in July, its fourth-straight monthly decline.
- National Bureau of Statistics said construction activity was hit by extreme weather.
China’s factory activity contracted for a fourth consecutive month in July, while non-manufacturing activity slowed to its weakest this year as the world’s second-largest economy struggles to revive growth momentum in the wake of soft global demand.
The official manufacturing purchasing managers’ index came in at 49.3 in July — compared with 49.0 in June, 48.8 in May and 49.2 in April — according to data from the National Bureau of Statistics released on Monday. July’s reading was slightly better than the 49.2 median forecast in a Reuters poll.
Monday’s figures also showed China posting its weakest official non-manufacturing PMI reading this year, coming in at 51.5 in July — compared with 53.2 in June, 54.5 in May and 56.4 in April. A PMI reading above 50 points to an expansion in activity, while a reading below that level suggests a contraction.
“Although China’s manufacturing PMI rebounded to 49.3% this month, some enterprises in the survey reported that the current external environment is complicated and severe, overseas orders have decreased, and insufficient demand is still the main difficulty facing enterprises,” Zhao Qinghe, a senior NBS official, wrote in an accompanying statement Monday.
These readings for July point to the “tortuous” economic recovery that China’s top leaders described last Monday, which the Politburo attributed to insufficient domestic demand, difficulties in the operation of some enterprises, many risks and hidden dangers in key areas and a grim and complex external environment.
Employment sub-indexes for both manufacturing and non-manufacturing sectors declined in July, pointing to lingering softness as youth unemployment hit successive record highs in China. The service industry — a major sector that hires young workers — sub-index slowed 1.3 percentage points in July from the previous month, according to the NBS.
More worryingly, business expectation among the non-manufacturing sectors declined from the previous month.
A similar production and business activity expectation index for manufacturing sectors, though, saw an increase of 1.7 percentage points from the previous month, which the NBS attributed to policy support to grow private enterprises and expand domestic demand.
The NBS said construction activity, which declined 4.5 percentage points in July from the month before, was hit by extreme weather conditions.
“Downward pressure on manufacturing eased slightly. But this was more than outweighed by a sharp deceleration in construction and cooling services activity,” said Julian Evans-Pritchard, head of China at Capital Economics.
“Policy support should drive a turnaround later this year. But with officials taking a restrained approach to stimulus, any reacceleration in growth is likely to be modest,” he added.
Still, there were some nascent green shoots.
There were month-on-month improvements in the new orders and raw materials inventory sub-indexes, which helped underpin the slightly better-than-expected manufacturing PMI reading.
The purchase price index and ex-factory price index of major raw materials saw meaningful increases from the previous month, the NBS said, pointing to an improvement in pricing power.