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SPEAKER_00: Exiting my weekly market review, August 4th, 2024.
- 0:07
SPEAKER_00: There are three main factors that have propelled the S&P 500 higher in 2024.
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SPEAKER_00: One, solid economic data.
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SPEAKER_00: Two, impending Federal Reserve interest rate cuts.
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SPEAKER_00: And three, AI enthusiasm.
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SPEAKER_00: Last week provided challenges for all three of these narratives.
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SPEAKER_00: With key earnings reports,
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SPEAKER_00: central bank interest rate decisions taking place in Washington,
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SPEAKER_00: D.C.,
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SPEAKER_00: London and Tokyo,
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SPEAKER_00: and a pivotal jobs report,
- 0:35
SPEAKER_00: it always looked like it was going to be a highly volatile week.
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SPEAKER_00: From that perspective, at least, it didn't disappoint.
- 0:44
SPEAKER_00: Stocks cautiously miranded around with no real purpose on Monday and ended up essentially unchanged.
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SPEAKER_00: with traders acutely aware the potentially impactful economic data and crucial
- 0:56
SPEAKER_00: earnings reports were all on the docket for the following few days,
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SPEAKER_00: rendering this session something of a lame duck.
- 1:03
SPEAKER_00: The real business of the week began on Tuesday with the job openings and labor
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SPEAKER_00: turnover survey,
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SPEAKER_00: JALTS,
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SPEAKER_00: which came in unchanged and,
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SPEAKER_00: as expected,
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SPEAKER_00: showing 8.2 million open job positions in the U.S.,
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SPEAKER_00: further evidence of no imminent recession.
- 1:21
SPEAKER_00: PayPal, JetBlue and Pfizer released impressive earnings.
- 1:25
SPEAKER_00: Procter & Gamble, Starbucks and Merck, not so much.
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SPEAKER_00: These were only appetizers, however.
- 1:33
SPEAKER_00: The main course was Microsoft after the closing bell.
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SPEAKER_00: Dragged down again by tech and AI,
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SPEAKER_00: stocks dipped partly due to pre-earnings positioning,
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SPEAKER_00: but also as a result of the increasing geopolitical temperature in both the Middle
- 1:48
SPEAKER_00: East and Venezuela and the potential effect that could have on oil prices and
- 1:54
SPEAKER_00: thereby the global economy.
- 1:57
SPEAKER_00: Microsoft's Q2 sales and earnings were fine,
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SPEAKER_00: but its mostly AI-related capital expenditure was off the charts,
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SPEAKER_00: up by 55% from a year earlier,
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SPEAKER_00: with a perceived lack of resulting direct revenue in return.
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SPEAKER_00: When markets opened on Wednesday,
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SPEAKER_00: Microsoft notably failed to participate in what was otherwise a substantial rebound
- 2:20
SPEAKER_00: in the beaten-down tech sector in advance of the Fed declaration at 2 p.m.
- 2:25
SPEAKER_00: Eastern.
- 2:27
SPEAKER_00: Before attention turned fully to the Fed's interest rate announcement,
- 2:31
SPEAKER_00: the first of the week's three big global central bank resolutions was made by the
- 2:36
SPEAKER_00: Bank of Japan,
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SPEAKER_00: which raised the local interest rate by a quarter of a percent to its highest level
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SPEAKER_00: since 2008.
- 2:45
SPEAKER_00: As was universally anticipated,
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SPEAKER_00: there was no change in interest rates from the Fed,
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SPEAKER_00: with only very limited tweaks to its accompanying policy statement,
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SPEAKER_00: giving Wall Street little to work with.
- 2:57
SPEAKER_00: Chairman Powell successfully navigated a rather feisty press conference,
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SPEAKER_00: playfully dropping plenty of breadcrumbs about a September cut without actually
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SPEAKER_00: confirming it.
- 3:09
SPEAKER_00: A reduction in the policy rate could be on the table as soon as the next meeting in September,
- 3:14
SPEAKER_00: is one thing he said.
- 3:17
SPEAKER_00: As so often happens,
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SPEAKER_00: the Fed gave an inch and the markets took a mile,
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SPEAKER_00: and stocks extended their considerable session gains,
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SPEAKER_00: powered by Nvidia,
- 3:27
SPEAKER_00: which shattered the all-time record for a one-day increase in any company's value,
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SPEAKER_00: adding $330 billion in just six and a half hours.
- 3:39
SPEAKER_00: Oh,
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SPEAKER_00: and by the way,
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SPEAKER_00: Meta Facebook announced earnings after the closing bell and it was smiles all
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SPEAKER_00: around as estimates were surpassed and the stock screamed higher when markets
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SPEAKER_00: opened the next day.
- 3:52
SPEAKER_00: The Bank of England completed the global central bank divergence full house,
- 3:57
SPEAKER_00: narrowly voting on Thursday to cut interest rates in the UK for the first time
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SPEAKER_00: since early 2020.
- 4:05
SPEAKER_00: Unexpectedly cool manufacturing data and a hot weekly jobless claims number
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SPEAKER_00: triggered a lunchtime collapse in stock prices.
- 4:15
SPEAKER_00: There was also a growing sense that investors might be exiting stocks,
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SPEAKER_00: particularly the highly valued ones,
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SPEAKER_00: as a profit-taking exercise and rushing into increasingly attractive bonds as
- 4:28
SPEAKER_00: treasury yields fell sharply in response to expected Fed policy.
- 4:34
SPEAKER_00: All of Wednesday's gains were quickly wiped out.
- 4:39
SPEAKER_00: The tech earnings parade continued after the close with the releases from Apple, Amazon, and Intel.
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SPEAKER_00: In descending order of good news,
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SPEAKER_00: Apple beat estimates and overall sales and profitability,
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SPEAKER_00: but the company is clearly still having problems with iPhone sales in China and the
- 4:57
SPEAKER_00: fact that,
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SPEAKER_00: shocker,
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SPEAKER_00: no one seems to be buying any Vision Pro headsets at $3,500 a pop.
- 5:05
SPEAKER_00: Amazon showed decent sales growth in Q2,
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SPEAKER_00: but missed on revenue and profitability and gave rather gloomy income projections
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SPEAKER_00: for the rest of the year.
- 5:16
SPEAKER_00: Intel's report was a complete catastrophe.
- 5:20
SPEAKER_00: The company missed estimates on just about every imaginable metric,
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SPEAKER_00: announced mass layoffs and spending cuts,
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SPEAKER_00: admitted that it was late to the AI party,
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SPEAKER_00: gave grim forward guidance and made the kryptonite decision to suspend its dividend.
- 5:37
SPEAKER_00: There's nothing Wall Street hates more than this.
- 5:41
SPEAKER_00: Asian markets crashed overnight in their worst session in years.
- 5:45
SPEAKER_00: Europe did a little better.
- 5:47
SPEAKER_00: The pre-opening Bell jobs report over here on Friday was all that stood between the
- 5:52
SPEAKER_00: US markets and a similar fate.
- 5:55
SPEAKER_00: It utterly failed to do so.
- 5:58
SPEAKER_00: Payrolls rose 114,000 in July,
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SPEAKER_00: way below the 175,000 estimate,
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SPEAKER_00: and the two previous months were also revised downwards.
- 6:09
SPEAKER_00: The unemployment rate rose from 4.1% to 4.3, its highest level in nearly three years.
- 6:16
SPEAKER_00: Treasury yields tumbled in breathtaking fashion,
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SPEAKER_00: accelerating the stocks to bonds exodus referred to above.
- 6:25
SPEAKER_00: The sudden growth scare that I've been warning about for months may well have arrived.
- 6:30
SPEAKER_00: The Fed's decision on Wednesday to delay cutting interest rates until mid-September
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SPEAKER_00: was suddenly viewed as a grave policy mistake,
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SPEAKER_00: and there were loud shouts for a double rate cut in September,
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SPEAKER_00: a full half percent rather than just a quarter.
- 6:45
SPEAKER_00: There were even some calls for the Fed to make an unscheduled interim cut ahead of
- 6:51
SPEAKER_00: the meeting,
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SPEAKER_00: something I must say is highly unlikely.
- 6:55
SPEAKER_00: It was a brutal sea of red when the stock market opened,
- 6:58
SPEAKER_00: with much of Wall Street's venom reserved for Intel,
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SPEAKER_00: which fell over 25% in the first two minutes of trading,
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SPEAKER_00: and Amazon,
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SPEAKER_00: which fell 10%.
- 7:07
SPEAKER_00: There was absolutely nowhere to hide, with small caps getting heavily whacked as well.
- 7:14
SPEAKER_00: All the major stock indexes,
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SPEAKER_00: particularly the Nasdaq,
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SPEAKER_00: closed the day and the week badly battered and bruised.
- 7:21
SPEAKER_00: For those keeping score,
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SPEAKER_00: more than $2 trillion in value has been obliterated from the Nasdaq 100 index in
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SPEAKER_00: the last three weeks alone.
- 7:31
SPEAKER_00: With the September interest rate cut now assured, it's just a question of how big it is,
- 7:37
SPEAKER_00: Any bad economic news has now shifted in Wall Street's eyes from being good news,
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SPEAKER_00: since it could prompt a rate cut,
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SPEAKER_00: to being just straight up bad news.
- 7:48
SPEAKER_00: If you thought July was a wild ride, strap in for August.