Better Than Expected Earnings

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JJ is out of the office today. Today’s article is by guest contributor, Josh Fabian.

Key Takeaways

  • Apple and Amazon Upbeat
  • 2Q GDP Disappoints
  • New Spending Bills
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The job of a market strategist is collecting as many data points as possible in an effort to understand what the market is communicating. It’s akin to an economic forensic analysis of sorts. Sometimes, even an exhaustive search remains wanting of more data. Other times, the abundance of evidence is overwhelming but conflicting. This week has been on the latter variety.

Last night after the close, Apple and Amazon
released 2Q earnings. Both companies reported subpar numbers; however, those numbers were less subpar than many feared. In the case of Apple, continued demand for iPhones was welcome news. For Amazon, strength in their cloud computing business reduced the headwinds being caused by inflation. Perhaps most importantly, despite a cloud of macroeconomic uncertainty, both companies sounded relatively upbeat in their forward looking statements. The optimistic statements in what has been a pessimistic environment were welcomed by markets, sending both stocks higher. In premarket trading, Apple is up close to 3% while shares of Amazon are up over 12%.

This morning we also heard from both Exxon Mobile and Chevron
Corp. Both companies beat expectations, posting their highest ever profits. Exxon warned of continued tight global energy supplies while Chevron announced an increase in share buybacks. In premarket trading, both companies are trading higher.

Prior to last night’s earnings, a disappointing first look at 2Q GDP was topic de jure. For the second quarter in a row, GDP contracted, this time at a rate of 0.9%. While two consecutive quarters of declining GDP are commonly considered a recession, technically speaking, it is up to the oracles of the NBER to make that declaration. Still, the contraction suggests a cooling of a once hot economy. Next week’s July employment situation report will provide a look into whether or not the job market has also slowed.

Speaking of cooling… Senate Democrats announced yesterday a deal for a $369B bill, dubbed the Inflation Reduction Act, aimed at reducing inflation while combatting climate change. The bill calls for greater investment in wind, solar and electric battery development while also offering support for traditional sources of energy such as oil, gas and coal. News of the deal sent shares of solar companies such as First Solar
and Sunrun
into the stratosphere.

The Inflation Reduction Act was accompanied by the House passing the Chips and Science Act of 2022. This legislation calls for nearly $53B in spending on semiconductor manufacturing facilities aimed at improving competitiveness with China. Passage of the bill allows for construction on new domestic facilities by companies such as Intel
, On Thursday, Intel reported a loss for the second quarter, catching many investors off guard and then added a rather pessimistic outlook for good measure. Shares of the chip company are down in premarket trading.

A fair question to ask at this point might be what to make of this week. Well, the S&P 500 is up nearly 3% through Thursday with the Nasdaq up nearly the same and all indications are for a strong opening. Volatility as measured by the VIX is down close to 5% heading into today. With some of the biggest tech names having reported earnings and offering forward looking statements that were better than feared, there’s a case to be made for optimization. However, an inverted yield curve still looms. Next week brings more earnings from companies such as Caterpillar, Uber
Advanced Micro and Starbucks
to name but a few. We’ll also get a lot more economic data throughout the week, anchored by next Friday’s jobs report. This is what I’ll call a sensitive market, prone to volatile moves. But volatile doesn’t have to be a negative.

Self-directed investors can still find plenty of opportunities to add to or add new positions in beaten up underlyings. Despite the recent contraction in volatility, the VIX remains elevated above its mean, offering equity option traders ample opportunity. For right now, keeping those trades small and diversified amongst uncorrelated assets is key. Have a great weekend everyone!

tastytrade, Inc. commentary for educational purposes only.


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