Rough Start to Q2, Markets Bashed, Powell Speaks, Tesla Idea, Trading 4 Stocks
There's good and bad news about Intel as the shares trade lower.
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For most net-long equity investors, the first quarter of 2024 was quite strong, as was the full year of 2023. As for the second quarter of 2024, equities are now "oh for two" as US stocks extended Monday's moderate slide into something a little more serious on Tuesday.
Investors and traders are still digesting a generally higher Treasury yield schedule and a stronger US dollar though there was far less movement in those markets on Tuesday than there had been on Monday. By day's end on Tuesday, the US Ten Year Note paid 4.36%, up three basis points for the session.
I now see the Ten Year yielding 4.38%. The US Dollar Index appears to have stabilized close to 104.75 after peaking above 105 on Monday, as the greenback's respective relationships with the euro, yen and pound appear to have all leveled off. At least for now.
There was not a lot of macroeconomic data released on Tuesday, but what there was felt strong. JOLTs job openings printed below expectations for February, but job quits for that month printed above consensus, hinting at perhaps increased confidence on the supply side of labor markets. Both openings and quits appear to have leveled off over recent months after collapsing from year ago levels.
Additionally, February Factory Orders crossed the tape at month over month growth of 1.4%, beating Wall Street and rebounding after January's -3.8% print. Ex-transportation, the sprint held up, posting at monthly growth of 1.1%. On top of Monday's March ISM manufacturing survey results, this was enough for the public to let some more air out of the tires so to speak.
Breadth
Equity markets were decisively negative on Tuesday. Nine of the eleven S&P sector SPDR ETFs closed in the red, led lower by Health Care XLV, Discretionaries XLY and the REITs XLRE as those three funds all gave up more than one full percentage point over the day. Energy XLE ran much higher at +1.4%, largely all by itself as WTI Crude held onto lofty levels reached on Monday.
At the index level, the S&P 500, at -0.75% came the closest to escaping unscathed. The Nasdaq 100 gave up 0.94%, as the smaller caps were really slapped around. The Russell 2000 surrendered another 1.8% on Tuesday as the S&P Small-cap 600 backed up 1.72% and the S&P Mid-cap 400 lost 1.28%.
Losers beat winners at the NYSE by a rough three to one margin and at the Nasdaq by about 7 to 4. Advancing volume took a 31.8% share of composite NYSE-listed trade and a 40.3% share of composite Nasdaq-listed action. However, while aggregate trade increased across the realms of NYSE-listed securities and the membership of the S&P 500, volume tailed off across Nasdaq-listed securities and across the membership of the Nasdaq Composite.
Does the light trading volume make this week's selloff less meaningful? It really could. What matters now is really what Fed Chair Jerome Powell says at Stanford University later today in addition to all of this week's labor market-related data and next week's data on consumer prices.
Speaking of Central Bankers...
Readers may have noticed that this morning, Eurozone CPI printed at year over year growth of 2.4%, as core CPI printed at growth of 2.9%. This keeps the ECB (European Central Bank) potentially on schedule to start reducing short-term interest rates at some point late this summer.
On Tuesday, two Fed speakers who also happen to be voting members of the FOMC at this time, spoke publicly. San Francisco Fed Pres. Mary Daly oddly said in regard to a potential 75 basis point reduction to the target for the Fed Funds Rate this year, "I think that is a very reasonable baseline." I say "oddly" because both inflation and economic activity have been running warm of late and to me, it does not appear that short-term rates are, at this time, restrictive enough.
Daly then added, "Growth is going strong, so there's really no urgency to adjust rates." Yes, basically, she sort of contradicted herself.
Cleveland Fed Pres. Loretta Mester seemed measured in her words on Tuesday. Mester has long been considered a policy hawk and does vote on policy for now but will retire by mid-year. Mester said, "It (rate cuts) really depends on what happens in the economy and how it evolves. Are those early readings that we got in inflation so far this year, are they saying that the disinflation process is stalling or is it going to be that those are sort of like a detour on the road and we're back on that downward path?"
Readers should be aware that on the path to Powell's appearance today at noon (East Coast time), markets will first have to traverse public appearances to be made by Fed Gov. Michelle Bowman (likely hawkish) and Chicago Fed Pres. Austan Goolsbee (likely dovish). Bowman, as a member of the Board of Governors has a permanent vote on policy. Chicago voted in 2023 and does not vote again until 2025.
About Tesla
By now, shareholders are well aware that Tesla TSLA delivered just 386,810 vehicles during Q1 2024, which fell about 14% short of estimates. The stock gave up 4.9% for the day and is down 32.9% year to date.
On the other side of the coin, Tesla deployed 4,053 megawatt hours' worth of energy-storage batteries during the quarter which was good for a company record. The energy generation and storage segment is growing but has been regularly outperformed by the firm's "services and other" segment.
Has anyone at the firm, Elon, ever thought about bundling all non-automotive businesses as a new version of "Tesla" and spinning off the automotive business with all of its global overhead and infrastructure as a stand-alone business and independently run operation. Then, Tesla could really focus on what Tesla excels at, which is cutting edge innovation and allowing car people to run the car company. Just an idea.
Not Sure I Can See That Far
Intel INTC held a new segment reporting webinar late Tuesday and made an announcement. The good news is that Intel's Foundry business currently has an "expected lifetime deal value with external customers of more than $15B."
The bad news is that the foundry business suffered an operating loss of $7B in 2023 on sales of $18.9B. That's deeper operating loss than the $5.2B that the firm reported for 2022, on lesser sales. Those sales were down from $27.5B in 2022.
Not to worry, though... despite the fact that most of Intel's foundry revenue comes from its own operations, the firm expects to be the second-largest semiconductor foundry in the world by the year 2030, which I guess would put them behind Taiwan Semiconductor TSM and ahead of GlobalFoundries GFS.
Intel tells us that the foundry's operating losses are peaking in 2024 and the firm will target 40% adjusted gross margins and 30% adjusted operating margins, again, by the year 2023. After reading through this, I just have to ask... Are you guys kidding me? Obviously, the stock is trading lower overnight.
Trading
- Advanced Micro Devices AMD lost contact with its 50-day SMA (simple moving average). I took some smallish profits on Tuesday in order to protect myself against further price erosion.
- Nvidia NVDA bounced off of support at its 21-day EMA (exponential moving average). Note that Microsoft MSFT did the same. As for profit-taking, I have held my fire of late with both of these names.
- SoFi Technologies SOFI dipped for a third day in a row. Inverse head and shoulders story still intact, but under pressure. I added to this long position on Tuesday.
- Palantir Technologies PLTR lost the 50-day SMA early on Tuesday and regained that line later on. I added to this long position during the session. Am willing (almost eager) to add to this long from $22 down to $18, filling the gap created in early February and setting up the professional money to step in with support at the 200-day SMA.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.93%.
07:00 - MBA Mortgage Applications (Weekly): Last -0.7% w/w.
08:15 - ADP Employment Report (Mar): Expecting 141K, Last 140K.
09:45 - S&P Global Services PMI (Mar-F): Flashed 51.7.
10:00 - ISM Non-Manufacturing Index (Mar): Expecting 52.6, Last 52.6.
10:30 - Oil Inventories (Weekly): Last +3.165M.
10:30 - Gasoline Stocks (Weekly): Last +1.299M.
The Fed (All Times Eastern)
09:45 - Speaker: Reserve Board Gov. Michelle Bowman.
12:00 - Speaker: Chicago Fed Pres. Austan Goolsbee.
12:10 - Speaker: Federal Reserve Chair Jerome Powell.
13:10 - Speaker: Reserve Board Gov. Michael Barr.
16:30 - Speaker: Reserve Board Gov. Adriana Kugler.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: AYI (3.23)
After the Close: LEVI (.21)
At the time of publication, Stephen Guilfoyle was long AMD, NVDA, MSFT, SOFI, PLTR equity.
