It’s been one HELL of a week in the financial markets. We had everything from GDP to Federal Reserve’s bimonthly meeting to Big Tech earnings.
Each of these things have ripple effects when they happen on their own. But together it's like making jumbo. It could come together and taste amazing but if you mess one thing up. The whole thing will be garbage. So let's talk about just what kind of meal we are about to be having for the next quarter.
But first a quick look at the Stock Market returns over the last month.
It surprised me to see that the market is up almost 8% (S&P 500). With all the negative headlines about an impending recession, you would think the market would have been going lower. However, it has done a reversal and we have recovered about half the losses (percentage wise) from earlier in the year.
Does this mean we have seen the bottom? I have no idea.
However, I do know the Stock Market tends to be a front runner meaning it will reverse before the headline news ever does. This is why we stay invested and invest even more regardless of what the news may be saying. You can never time the market perfectly.
Tale of the Tape
Economy
As expected the Fed raised interest rates by 75 basis point as they continue to do everything in their power to fight inflation (might be working look below for more)
The markets reacted positively to the news and kept its early positive pace
The only question now is, will this be the interest rate hike that finally breaks everything because no longer is Jerome talking about a soft landing
Now it is a total focus on a soft-ish landing aka if the economy breaks that's fine as long as we get inflation down
With unemployment remaining super low and wages rising, Powell is feeling emboldened to end the party sooner rather than later
Bad News for Retailers is Great News for US
Part of the reason Jerome is feeling good about his push is that he is seeing it work in different ways
Walmart on Monday announced that their profits for the year are going to be almost 15% less than expected.
The Stock fell 9% once announced and drug down Target, Amazon, and other retailers
In an earnings statement they said, "Food inflation is double digits and higher than at the end of Q1. This is affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel."
What they actually meant to say was when everyone was buying everything, we over ordered stuff but people switch from buying stuff to experiencing stuff (see airports being crazy packed)
So now we have to sell all these goods for super cheap, which is bad for their profits but great for us consumers.
Manchin to the Rescue After Causing the Fire
Senator Joe Manchin the ultimate thorn in the side of Biden finally decided to be a hero earlier this week by agreeing to major parts of the Build Back Better bill that has been held up for months
Just 9 days before lawmakers go on Recess (which I still find so weird), Machin and Chuck Schumer decided to do something that we never see in politics. They devided to actually work together
They announced an agreed on a $700 billion Climate and Tax bill
So what changed Manchin's mind. One man, Larry Summers, former Treasury Secretary who was able to convince Manchin that the bill would not cause the national deficit to be worse but actually spur growth across the nation
To which, everyone else was like NO DUH!! We been saying that for the last year and a half
Here are some highlights:
$370 billion for clean energy over the next 10 years
$30 billion to incentivize companies to build clean energy solutions
Extending and expanding the Federal tax credits for EVs aka more Tesla's and Ford EV buyers can get the tax credit
Medicare will actually negotiate prescription drug prices which would be powerful because they are the largest buyers of medication in the nation. They can help bring those prices back to earth
The Federal minimum tax for companies will be 15%, but more importantly they closed a few loopholes that allowed companies, hedge funds and private equity funds to pay way less taxes
Now the only hold up, convincing Senator Kyrsten Sinema who has been just as staunch as Manchin to sign
Big Tech Earnings
While every other retailers announces they are struggling, Amazon just shrugs their shoulders and announces that they are making even more money than anyone can imagine
The stock took off higher than Elon's Space X rocket
In one quarter they brought in $122 Billion
Every part of their business saw a double digit revenue growth
Advertising continues to show massive strength growing 18%
AWS continues to be a cashflow MACHINE!!
Plus they gave awesome guidance for the next quarter with expected revenue growth of 13 to 17%
The only downside of the entire report was Amazon's investment in Rivian which should be ignored
Missed on both profit and revenue expectations and also guided for slower growth for its ad market when compared to last year
But despite all of that, the stock went up 5%. Why?
Because investor expecting things to be much worse. One of the things you learn about the stock market is it is literally a way to view how people are feeling in a moment of time
With the fears of recessions looming on the heads of everyone, the expectation was Google being primarily an ad business would suffer the worst of it as businesses begin to slow down spending money on advertising
Some people had said Google would actually pull a Netflix and not grow at all.
Well Google proved everyone wrong, despite being a $50 billon dollar a quarter business they continued to make more money. Making $69 billion in the quarter
Now this does not mean everything is fine, there are still major headwinds (fancy way of saying challenges) facing Google with TikTok stealing more and more eyes from its various platforms
Tiktok is now the #1 website in the world challenging YouTube's place
But with over $120 billion in cash sitting in the bank, Google is in a very strong position
Microsoft also like Google missed on revenue and profits expectations but unlike Google gave great guidance for future revenue growth
That alone caused the stock to gain back all the loses since Friday
Microsoft's cloud platform Azure continues to grow rapidly, CEO Satya Nadella said, “Coming out of this macroeconomic crisis, the public cloud will be even a bigger winner.”
The only negative right now for Microsoft is PC sales and Xbox Sales but those are cyclical and 2020 and 2021 drove those sales through the roof
Just amazing for a company that is already a $45 billion a quarter company to still be growing by double digits!!
Closed out Big Tech earnings with a massive, WE ARE NOT THE SAME!!
Even in a slower time for Apple, they still dominated
Despite chip shortages, Apple continues selling iPhones like its water in the desert
Almost every single part of their business grew by double digits which is hard when a business already brings in $80 billion a quarter
And they are predicting revenues to accelerate next quarter. According to Tim Cook “In terms of an outlook in the aggregate, we expect revenue to accelerate in the September quarter despite seeing some pockets of softness,”
Key Takeaway from Big Tech Earnings
Never compare these companies to other tech companies
They may all play similar sports but they ain’t in the same league
It is almost like comparing AAU basketball to the NBA. Similar but there is a huge gap in skillsets and understanding of the game
I still cannot believe people were comparing Snapchat to Google or Shopify to Amazon
Facebook is the only Big Tech company that I have no faith in and is not in anyway on the same level as these guys. Speaking of which
Looking Ahead
Its all about Jobs, Jobs, and more JOBS.
On Tuesday we get the Job Openings and Labor Turnover Report from the Bureau of Labor and on Friday, we get the Nonfarm Payroll numbers this week which tells us how many jobs that were added in a month span. Both of these will tell us the effect the Fed has had on the economy with its various rate hikes.
Are businesses still hiring at a high clip?
Are businesses still having to increase wages to match inflation?
The Fed has been using the unemployment rate as its main indicator that the economy remains strong and can take continued rate hikes. If there are signs that it is beginning to soften, Jerome and his buddies might change their tune a bit.
As far as earnings, we get even more companies reporting:
Extras
Facebook released an update to its various apps and websites with a "For You" page where everything you see is decided by an algorithm
As Facebook and basically all social media sites continue to loose ground to TikTok they are all trying to find ways to compete and it looks like the best way is to play the game the exact same way they play
So short form content and algorithms over followings
This is great for giving a chance to new content creator where your follower count does not matter as much
Facebook has to play this way because younger generation prefers things being prescribed for them than actually having to search things out
This has a lot of ripple effects not just for businesses like Google and YouTube which are the search engines of the world but also for society
If we begin to move in the direction where what is popular (even if wrong) becomes the preferred option of doing things, we run into other problems
If you thought the current issues of echo chambering was bad. Just wait until you never even get to see the other side of any topic because it is not popular
Stats of the Week
Sunday marked the 13th anniversary of when the minimum wage was raised to $7.25
In 2009 dollars, that $7.25 is more like $5.27/hour
If we were to actually adjust minimum wage to keep up with inflation, it would need to be $21.50/hour
In DC the minimum wage was raised to $16.10 on July 1st
The price I paid for gas on Tuesday
So good to see prices well under $4 again here in GA
Across the US, gas prices have pulled back from the average of $5 it was in June to now $4.22 according to Triple A
We love to see it
Seems Biden was serious about that whole student loan forgiveness cause it seems to be back on the table according to a report from Bloomberg
However, it would only apply to a very specific group of borrowers. No details on who those are just yet
But on a brighter note, seems loan repayment will be pushed out once again past the Aug. 31. Earlier this week the Education Department advised loan services to hold off on sending payment reminders
My take a one time loan forgiveness is pointless, we need a substantial overhaul to the whole college loans system.
Colleges need to be audited for why they charge what they charge and then if students are not able to get jobs after they graduate the college has to be the ones to cover the cost.
I think by putting the cost on colleges, that would actually force them to do a better job of preparing students for post college world
However, I also think that students should also be held accountable, if they decide to drop out or go out of state and over pay a certain amount should be on them
I also think more avenues for loan forgiveness needs to be created to incentivize people to go into industries we need more workers in the economy like welders, plumbers, home builders, electricians, etc.
Sports I Care About Update
The NFL is finally trying to join the 21st century and go streaming
It announced its own streaming service and just guess what the name is
Yup, NFL+ Who in the world decided the best way to name streaming sites was to add a plus after the name?
Anyway, the streaming service will cost you $4.99/month or $39.99/year
You will get access to local Sunday afternoon games and all national games on Sunday, Monday, and Thursday
But here is the catch, games will only be viewable on your phone or tablet not the TV. To which I laugh because there are so many ways to get around that EASILY!!
However, NFL is looking for who will take over NFL Sunday ticket the most subscribed TV package in history
Currently DirecTV owns it but Apple and Google are vying or it and are rumored to pay upwards of $2 billion a year for it
Random
Marvel just released the trailer for the new Black Panther movie and I AM HYPED!!!
If you have not seen it, go watch it and get as hyped as I am
Marvel also gave us a preview into Phase 5 & 6 of the massive Cinematic universe they have been building since 2008
Some movies that will be coming over the next two years includes:
A New Guardians of the Galaxy movie
New season of Loki
Ironheart - The new Ironman
They are bringing back Daredevil that was a Netflix original but was awesome
New Antman & the Wasp movie
They are actually gonna make a BLADE movie
A new Captain America movie
Fantastic Four movie
Then a new avengers movie in 2025
The line up is looking HELLA EPIC!!
Looking like a good reason to invest in Disney cause bro this is awesome!!
John Wick
Mode Movie Announcement from Comic Con
A new John Wick movie was announced and the trailer was as hyped as you expect a John Wick movie to be
As Hope King of Axios said "Boredom Beware"
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