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SPEAKER_00: Spooked.
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SPEAKER_00: My weekly market review, July 28th, 2024.
- 0:07
SPEAKER_00: With Biden finally realizing last Sunday that he needed to walk the plank,
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SPEAKER_00: the Democrats swiftly clearing the runway for Harris,
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SPEAKER_00: and the resulting shift in the election narrative,
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SPEAKER_00: Wall Street's prior assumption of a comfortable Trump victory in November was
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SPEAKER_00: thrown into some doubt.
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SPEAKER_00: It always had the potential to be a volatile week anyhow,
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SPEAKER_00: with a flood of second quarter earnings reports,
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SPEAKER_00: including from some high profile names,
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SPEAKER_00: as well as big GDP and inflation data releases.
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SPEAKER_00: And so it proved to be.
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SPEAKER_00: On Monday morning,
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SPEAKER_00: the dip buyers at last returned from a one-week vacation as the tech stocks that
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SPEAKER_00: had been battered the week before were heavily bought up from their significantly
- 0:51
SPEAKER_00: lower prices.
- 0:52
SPEAKER_00: Except for CrowdStrike, obviously, which was savagely smashed lower again.
- 0:57
SPEAKER_00: About a quarter of the company's entire value was erased in just two trading days.
- 1:03
SPEAKER_00: The generally positive euphoria intensified as the session wore on,
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SPEAKER_00: ahead of potentially consequential earnings reports,
- 1:11
SPEAKER_00: and all of the indexes ended the day substantially higher.
- 1:16
SPEAKER_00: There were some solid earnings before the opening bell on Tuesday from the likes of Spotify,
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SPEAKER_00: GE,
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SPEAKER_00: General Motors,
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SPEAKER_00: and Coca-Cola,
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SPEAKER_00: although UPS,
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SPEAKER_00: sometimes regarded as a bellwether proxy for the U.S.
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SPEAKER_00: economy, badly disappointed, and the stock price got butchered.
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SPEAKER_00: The headline indexes meandered in and out of positive and negative territory all day,
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SPEAKER_00: finishing a touch lower.
- 1:40
SPEAKER_00: The rotation trade that I talked about in last week's report seems to be back on again,
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SPEAKER_00: as small cap stocks resumed their significant outperformance.
- 1:51
SPEAKER_00: After the closing bell,
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SPEAKER_00: Alphabet Google's results lacked a wow factor,
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SPEAKER_00: with concerning levels of spending burn,
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SPEAKER_00: although profitability slightly surpassed most estimates.
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SPEAKER_00: Tesla,
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SPEAKER_00: however,
- 2:04
SPEAKER_00: totally whiffed on earnings expectations yet again for the fourth straight quarter
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SPEAKER_00: and also provided distinctly underwhelming forward guidance,
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SPEAKER_00: despite Musk's awkward and evasive attempt at smoke and mirrors on the analyst call.
- 2:20
SPEAKER_00: Both stocks ended up getting punished in after hours trading and then again when
- 2:24
SPEAKER_00: real markets opened the next day.
- 2:28
SPEAKER_00: A palpable change in tone emerged on Wednesday morning after Bill Dudley,
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SPEAKER_00: former New York Fed president,
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SPEAKER_00: publicly suggested that an interest rate cut should be made at this week's Fed
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SPEAKER_00: meeting rather than waiting until September.
- 2:42
SPEAKER_00: This sentiment was quickly echoed by a number of other analysts who suggested that
- 2:47
SPEAKER_00: at the rapid rate the economy appears to be cooling,
- 2:50
SPEAKER_00: a September rate cut might possibly be too late to save it from falling into recession.
- 2:56
SPEAKER_00: Wall Street was spooked,
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SPEAKER_00: partly by this recession-taught revival,
- 3:01
SPEAKER_00: but mostly by the Google and Tesla earnings,
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SPEAKER_00: and a growing concern that recent massive AI investment is actually not going to
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SPEAKER_00: translate into materially higher productivity or revenue anytime soon.
- 3:15
SPEAKER_00: Stock indexes were pounded across the board from the moment that markets opened.
- 3:20
SPEAKER_00: The worst of the ugliness was saved for mega cap tech and the NASDAQ in particular
- 3:25
SPEAKER_00: got slammed by waves of furious selling to experience its worst session since the
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SPEAKER_00: dark days of October 2022.
- 3:34
SPEAKER_00: The carnage cascaded through Asian and European markets,
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SPEAKER_00: pushing Japanese stocks into a technical correction that is down more than 10% from
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SPEAKER_00: the recent high.
- 3:45
SPEAKER_00: It also crashed other risk assets like crypto and commodities.
- 3:51
SPEAKER_00: But then before the New York opening bell on Thursday,
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SPEAKER_00: we got the first estimate of Q2 gross domestic product,
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SPEAKER_00: GDP,
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SPEAKER_00: which showed that the U.S.
- 4:01
SPEAKER_00: economy is in tremendous shape with a surging 2.8% annualized growth rate,
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SPEAKER_00: blowing through the 1.9% expectation and the 1.4% rate in the first quarter.
- 4:14
SPEAKER_00: This derailed fears of an upcoming recession and appeared to give the Fed breathing
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SPEAKER_00: space until September for its destined rate cut.
- 4:23
SPEAKER_00: The earnings reports kept on coming,
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SPEAKER_00: including a profitability and outlook horror show from Ford,
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SPEAKER_00: whose stock price was mercilessly punished as a result.
- 4:33
SPEAKER_00: All of its 2024 gains were wiped out in a matter of minutes.
- 4:37
SPEAKER_00: The indexes initially stabilized on the back of the GDP print and then bounced
- 4:42
SPEAKER_00: around rather chaotically for the rest of the session to finish little changed,
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SPEAKER_00: but with mega cap tech and AI still feeling very fragile.
- 4:52
SPEAKER_00: Stocks turned higher and finished what was a tough week with some nice gains on Friday,
- 4:57
SPEAKER_00: with the large to small rotation trade very much back in play as the latest
- 5:02
SPEAKER_00: inflation reading did nothing to alter bets that interest rate cuts are definitely
- 5:07
SPEAKER_00: coming in September.
- 5:09
SPEAKER_00: Fed actions rely heavily on the personal consumption expenditures
- 5:14
SPEAKER_00: price index,
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SPEAKER_00: which showed core inflation rose 0.2% last month and 2.6% annualized,
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SPEAKER_00: all just as expected and further evidence of a continued declining trajectory
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SPEAKER_00: towards the Fed's 2% target.
- 5:34
SPEAKER_00: While many of the more dramatic analysts out there are explaining this current
- 5:38
SPEAKER_00: pullback as a warning on future economic growth or extrapolating some kind of
- 5:43
SPEAKER_00: political commentary by the markets,
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SPEAKER_00: my view is that it is being caused by much less sexy yet still important factors.
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SPEAKER_00: Institutional trader positioning and earnings.
- 5:57
SPEAKER_00: The recent meaningful decline in stocks is being driven by the correction of an
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SPEAKER_00: overextended tech sector,
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SPEAKER_00: particularly AI related,
- 6:05
SPEAKER_00: and some disappointing earnings from a few specific corporations.
- 6:09
SPEAKER_00: There is no evidence that the defensive sectors of the market are starting to
- 6:14
SPEAKER_00: notably and consistently outperform the broader market.
- 6:17
SPEAKER_00: And until that happens,
- 6:19
SPEAKER_00: any weakness in stocks should not be viewed as a lasting top being established,
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SPEAKER_00: but instead as a relief of overheated short-term conditions and profit-taking
- 6:30
SPEAKER_00: pullback by major market players.
- 6:33
SPEAKER_00: Of course,
- 6:34
SPEAKER_00: the persistent recession fear-mongers and chicken littles will eventually be right
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SPEAKER_00: one day,
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SPEAKER_00: simply by virtue of the broken clock theory.
- 6:44
SPEAKER_00: For them, fear springs eternal, you might say.