Corporate earnings are coming in strong, but investors’ attention has instead gravitated toward a renewed increase in oil prices.
The S&P 500 lost 0.6% this week to 7,411.96 points. Only three out of the 11 sectors were in the red: communication services, consumer discretionary, and staples. Heavy weighting for the first two dragged down the broader market even though eight sectors were in the green. Energy stocks were the best performers, catching a bid from the escalated fighting. Even Saudi Arabia’s workaround for avoiding sending oil exports through the Strait is coming under pressure. Prices for Brent crude, the international oil benchmark, rose to $92.35 per barrel this week.
Fundstrat Head of Research Tom Lee, however, reiterated that the U.S. is more insulated from the war than Europe and Asia.
“While nobody wants the war to escalate, investors need to be mindful that the impact of war on the U.S. economy is on balance positive,” he said in his note.
Head of Data Science Ken Xuan said he’s not too worried about inflation because there’s more visibility on it now than a few weeks ago. He likes that consumer spending remains strong, which is a bullish sign for the economy.
“Financial banks’ reporting is actually fundamentally pretty solid,” he said during the weekly huddle. “Consumers remain strong, which was mentioned by all major banks, and I think that actually mitigates a lot of concerns about recession, at least from the consumer side.”
Further weighing on sentiment this week were weak earnings from Google GOOG0.24% and Tesla TSLA-1.94%. Google-parent Alphabet’s earnings on Wednesday showed that revenue rose, but increased capex guidance led the stock to finish Thursday down 6.9%. It also posted its first ever quarterly negative free cash flow. Tesla increased its spending, as well, dragging its free cash flow into the negative for the first time in two years. Shares fell 15%.
Head of Technical Strategy Mark Newton said the market should still be able to push back to new highs. He said that if he had new money to invest, he would still prefer a diversified approach between now and the midterms. He’s continuing to stick with financials and healthcare.
On crypto, meanwhile, Newton is downbeat, calling the nascent gains in bitcoin a headfake. Sean’s in agreement with him.
“My conclusion yesterday was that we’re in the seventh inning stretch, and we likely have a pullback into September or October, and that’s really when you want to buy,” Newton said. “That’s when I think the entire four-year cycle is done.”
Newton believes the low is close, but there’s one more leg down needed. He recommends buying at around $52,000.
Sean Farrell, Head of Digital Asset Strategy, said he’s been constructive on a tactical rally and the potential prospects of the Clarity Act passing, but from a macro perspective, it’s “not a super favorable environment of risk-reward.”
He estimates bitcoin could trade in a range of $48,000-$52,000.
Chart of the Week
The Federal Reserve meets on Tuesday and Wednesday. Investors largely expect the committee to hold interest rates steady, but the chances of a hike have risen in recent days. Higher interest rates could drag down highflying tech shares, which have already slumped in the summer. In Micron’s case, Fundstrat Head of Research Tom Lee said the declines remind him of Cisco from 1994 to 2002. If you had sold Cisco at the first big dip, then you would have missed out on the subsequent moves higher, as our Chart of the Week shows. “I think it’s important to keep in mind that selling your winners and holding your losers is like cutting flowers and watering the weeds, as Peter Lynch famously said,” Lee said in his Macro Minute video. Lynch is a legendary stock picker.
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FS Insight Video: Weekly Highlight
Key incoming data
7/23 8:30 AM ET: Jun Chicago Fed Nat Activity IndexTame7/23 11:00 AM ET: Jul Kansas City Fed Manufacturing SurveyTame7/24 9:45 AM ET: Jul P S&P Global Services PMITame7/24 9:45 AM ET: Jul P S&P Global Manufacturing PMITame7/24 10:00 AM ET: Jun New Home SalesTame- 7/27 8:30 AM ET: Jun P Durable Goods Orders
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