Apple, Amazon, and Powell Lift Market as Rebound Continues

Jul 31, 2022 | How does the latest comments from the Fed help the market?

Big Tech Lifts Stocks In July 

Stocks stayed hot this week as big tech reported earnings. Also, investor sentiment remained bullish thanks to strong earnings from Apple, Microsoft, Amazon and many other mega-cap tech stocks.

This week capped off a great month for stocks, with July netting the largest one month gains in a year and a half. All three major averages notched wins this week, making July their best month of 2022 by a wide margin. For the week, the Dow advanced by 1%. While the S&P 500 and Nasdaq each jumped by 1.4% and 1.9% respectively. 

When looking at the monthly gain for stocks, you see even more positive news. The Dow rose nearly 7% in July. Meanwhile, the S&P rose over 9% and the Nasdaq went up nearly 12% in July. That performance is a stark contrast to the last six months, when stocks were tumbling all the way down into bear market territory. 

While many of the economic factors that put us into a bear market remain, overall fear from investors does seem to be waning. For example, the VIX volatility index, used to measure fear in the market, this index dropped nearly 25% in the month of July. 

Latest with the Fed

One of the biggest factor’s that’s been driving market sentiment has been the aggressive pacing of interest rate hikes by the Fed. As inflation has continued to soar, we’ve seen more and more rate hikes issued by the Fed. 

Though fear amongst investors could be subsiding as talk of ‘peak inflation’ intensifies. Inflation not only makes it costlier for you the consumer, but it makes it more more expensive to operate a business. As the cost of supplies goes up, that will inevitably eat into profits. 

Still, some remain very concerned about inflation and macro events like the ongoing war in Ukraine. Knowing that any unexpected bit of bad news or turmoil could send the teetering stock market plummeting lower again. 

This week we got the latest report regarding personal consumption and expenditures. With the key inflation report showing a 6.8% year over year climb. One of the largest jumps in 40 years. This is a vital report that the Fed watches closely, but luckily this did not trigger new any unexpected rate hikes. Thanks in part to a fairly positive earnings season, with big tech playing a vital piece.  

Big Tech Earnings 

Gains from two of the market’s biggest players helped push averages higher this week, as Amazon and Apple shares each popped for gains. Amazon’s earnings were seen as especially positive, as shares jumped nearly 11%. This was largely in part to better than expected sales from the eCommerce giant. 

Apple also jumped nearly 4% thanks to strong numbers regarding iPhone sales.  As we’ve discussed in the past, inflation has forced consumers to be more selective about how they spend their money. But Apple and Amazon have proven quite resilient, demonstrating the value consumers see in their products regardless of economic climate. 

This year's earnings haven’t been entirely rosy though. With shares of Roke (a pandemic winner) tumbling 23% thanks to slowing advertising dollars. How much companies spend on marketing campaigns have been deeply impacted thanks to covid and then subsequent inflation. Many companies have cut into their marketing budget in a way to save dollars and battle costs elsewhere. Chipmaker Intel also dropped nearly 9% on disappointing guidance. Meanwhile, Microsoft popped thanks to a rosy outlook and continued growth through its core cloud products. 

What it Means: Stocks have been beaten down for months, putting an extremely low bar in place for Q2 earnings. Investors have been eager to find any signs of positive momentum after months of prolonged selling. 

While big-tech and many of the FAANG stocks helped carry indexes this week, several other smaller players in tech did not provide such a favorable outlook. But investors came into this season expecting negative reports and bad news throughout, so any signs of momentum have been taken extremely positively. More than half of the S&P have reported earnings, and of that percentage, 72% beat earnings. Stocks look set to continue the rally next week.

Is a Hiring Freeze Within Big Tech on the Way?

With fears of a recession still present, an ongoing war in Ukraine, and inflation still soaring, technology companies are having to rethink how they spend their money, and what they invest in. How can they continue to exceed revenue guidance, when everything is more expensive. 

One way companies have been battling inflation is to raise prices. But now, big tech firms are being more strategic in how they manage their staff. This could mean hiring less people, or by shrinking their current workforce. Each is an unfortunate tool that can be used by companies to help lower cost.  

Did you know, Amazon noted they currently have 100,000 LESS employees than they did just last quarter?

This Week’s Picks

EDR (Endeavor)

August 14, 2022

Entry Price:

24.50

Stop Price:

23.35

Target Price:

26.46

Time Frame:

3 Week Hold

EDR has been in a channel pattern over the last few weeks. As it approaches the bottom band, after a some mid-week volatility, look to make enter the trade off the rebound. As noted in KMX, keep a trailing stop loss and close the position quickly should the market turn.

KMX (Carmax)

August 14, 2022

Entry Price:

101.85

Stop Price:

96.45

Target Price:

109.15

Time Frame:

4 Week Hold

KMX, along with most of the market, has been rebounding off June lows. We've seen strong momentum and a crossover of our long-term MAs. Watch for a market pull-back and keep a trailing stop loss. We're riding strong tailwinds, so get in and out quickly

Slowdown the Hiring 

During last week’s earning call, Amazon noted they were adding jobs at their slowest rate since 2019. Google also discussed how they were decelerating their recruiting efforts as well. While Google did add 10,000 jobs last quarter, they expect a significant deceleration of new hires for the remainder of the year. “Like all companies, we are not immune to economic headwinds…” they noted. Amazon talked extensively about how they handled the pandemic. How they used that time to enhance key parts of the business, though all of the hiring done in 2020 may have left Amazon feeling ‘overstaffed’. 

As the Covid variant began to subside, Amazon quickly transitioned from being understaffed. Now concerns are rising that with the overpopulated workforce, productivity could be slowing.

Apple also noted they plan to slow down their hiring in 2023, due to long-term economic uncertainty. Other companies have decided to reduce their workforce through layoffs and terminations 

What it Means: The FAANG stocks have been in an upward growth channel for years. Constantly growing, and constantly hiring new staff for their many innovations. But thanks to the issues caused by the pandemic, many tech companies are now feeling like they may be overstaffed. This has led to hiring slowdowns, hiring freezes and unfortunately layoffs and terminations. 

As big tech sets the example, other companies may be forced to re-evaluate their staffing plans. Thanks to inflation caused by the pandemic, most companies are looking for creative ways to lower their cost as a way to keep revenue high. 

Crypto & Sports: Win-Win

Did you know, cryptocurrency is the fastest growing sponsorship category in sports advertising? Crypto supporters have begun utilizing sports advertising as a way to expose crypto to the masses, while also looking to attract younger supporters. 

The crypto industry has been adding great value to teams, franchises and athletes alike. In turn, athletes and teams are utilizing crypto to connect with GenZ and millennials, an elusive and critical demographic for the sports industry. The sports industry is salivating over the chance to connect with millennials and GenZers, a gap they hope to close through crypto. 

Conversely, the crypto industry sees a favorable opportunity to grow awareness in this new sector. Globally, sports sponsorship is a $40B industry. And recently, over $3B annually has been spent on sponsorship deals with crypto firms. 

Additionally, attracting younger audiences has been a challenge for professional sports over the last few years. Viewership has been declining with younger audiences. Currently, only 23% of Gen Z said they are passionate about sports. Compared to 42% for millennials , and 33% of Gen Xers

Regarding crypto, 94% of crypto buyers are in the Gen Z/millennial bucket. 

What it Means:  Advertisers covet the GenZ and Millennial demographics for advertising. And with sports viewership declining among younger fans, sports teams and athletes alike are looking for advertisers that can help connect with younger audiences.

Since crypto supporters are predominantly Millennials, sports teams believe partnering with players in the crypto industry may make their teams more attractive to younger fans. Conversely, the crypto industry should continue to benefit from the exposure provided by partnering with sports teams. 

Upcoming Economic Reports

Market Performance- Week of 08.14.2022

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Weekly Watchlists

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Weekly Review

Market Performance- Week of 08.14.2022

Recent Winners

CF (CF Industries)

CF (CF Industries)

Entry Price:

87.40

August 14, 2022

Price at High:

105.10

Return for Members:

16.84%

Timeline:

4 Week Hold

CF is a manufacturer of fertilizer and other farming products. Similar to our thesis on oil last week, we're expecting more global tensions to arise over the coming months. Although not directly related, CF should appreciate if adverse events occur. Technically speaking, we're seeing a bounce off the 180MA. However, there is negative momentum so be careful with entering too early.

MRNA (Moderna)

MRNA (Moderna)

Entry Price:

168.85

August 7, 2022

Price at High:

197.33

Return for Members:

16.86%

Timeline:

1 Week Hold

We're starting to see a reversal take place. Watching the 50 day moving average cross over the 100 day. Saw some weakness to close this week, so wait for upward momentum before jumping in.

X (US Steel)

X (US Steel)

Entry Price:

20.15

July 31, 2022

Price at High:

23.75

Return for Members:

17.86%

Timeline:

1 Week Hold

Stark momentum shift from the lows on this one. Tracking our moving averages on the 2-hour time chart. Looking for an early entry and quick trade.

Recent Watchlist Winners

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