Oracle Beats Wall Street Consensus But Stock Stumbles As Adobe Earnings Awaited

If you expect Fed Chairman Jerome Powell and company to deliver anything explosive after today’s meeting ends at 2 p.m. ET, you probably haven’t been paying much attention. Based on recent data, it feels likely we’ll hear “more of the same” this afternoon. Anyone hoping for clear answers on possible taper timing might not get much to chew on.

Of course, it’s always possible the Fed could throw us a curveball, which is why most market watchers pay close attention. Also, some respected economic pundits said recently they disagree with the Fed’s theory that inflation is transitory, so Powell might get challenged on that in his press conference. Will he stick to his guns on the “transitory” nature of price pressure even as inflation runs at multi-year highs? That’s something to keep an eye on today. 

Trading this morning is likely to be featureless and lackluster, as it often is before Fed announcements. Major indices and bonds were basically flat overnight. One piece of interesting news was China’s retail sales rising 12% but still not meeting analysts’ consensus expectations. It’s a pretty torrid pace of growth if 12% is missing estimates.

Volatility is quietly creeping up a bit, with the Cboe Volatility Index (VIX) back above 17. This possibly reflects some people buying what they hope might be a little protection ahead of the Fed meeting. VIX had been down under 16 earlier this week, near post-Covid lows. 

Also, the dollar is retaining its monthly highs, which is kind of interesting given where we are rate-wise. The 10-year Treasury yield dropped back below 1.5% this morning and is near the low-end of its long-term range. 

In U.S. data this morning, both housing starts and building permits for May came in a bit shy of analysts’ average expectations. Homebuilder shares were flat in pre-market trading. 

Fed Projections On Inflation, Growth Awaited

What could make today’s Federal Open Market Committee (FOMC) meeting more interesting is that it’s one of four meetings a year where the Fed releases economic projections, meaning we’ll get an update on anticipated economic growth and inflation.

For reference, back in March, the Fed projected 2021 gross domestic product growth of 6.5% in, and an unemployment rate of 4.5%. It also pegged personal consumption expenditure (PCE) prices to rise 2.4% overall and 2.2% for the core reading that strips out energy and food prices. PCE is inflation reading the Fed has said it monitors closely. 

The March meeting’s so-called “dot plot” of rate projections showed only four Fed officials predicting a rate hike in 2021 and seven seeing one before the end of 2022, with the majority seeing rates staying at the current level of flat to 0.25% through the end of next year. Investors will probably be watching those dots closely today to see if there’s any sign of the Fed getting more hawkish. 

There’s a growing consensus among many analysts that any announcement about a possible tapering of stimulus would be more of a late-summer or early-fall event. CME futures show only a 7% chance of any rate hike this year, down from 10% a month ago. Now the debate is whether the first hike is a late-2022 or an early-2023 event, but both are so far off it’s not really something you’d expect the market to trade on, yet.

What Else Is New?

Oracle ORCL reported after the close yesterday, and another big Tech firm, Adobe ADBE, is scheduled to report tomorrow. ORCL easily beat the average analyst estimate on both top and bottom lines, but the stock kind of pulled back in pre-market trading, maybe a sign of people buying the rumor, selling the fact. ORCL’s enjoyed a nice run so far this year despite only a few analysts on the Street had buy ratings on it. Now, as one analyst told CNBC yesterday, it’s possible some firms could raise their revenue and earnings targets for ORCL based on the strong quarter.

There’s also a fresh batch of data coming our way, including weekly initial jobless claims tomorrow morning. The Wall Street consensus is for 350,000, according to research firm Briefing.com, down from 376,000 a week earlier. The four-week average is down to 15-month lows at just over 400,000. That’s still arguably way too high compared with the average of around 225,000 before Covid. 

Yesterday’s retail sales data, meanwhile, are still being mulled. Retail sales dropped 1.3% in May, but it’s not something to spend too much time overthinking. Many consumers appear to have money and are still spending it, only now they’re shifting where the dollars go. They seem to be landing on services and apparel, two sectors that suffered greatly during lockdowns. Restaurants and bars sales climbed 1.8% last month and apparel sales surged nearly 200% in May over the same period last year. (See more below on other aspects of the data). 

Once Roaring, Many Commodities In June Swoon

Retail sales weren’t the only thing falling recently. Commodity prices are heading lower, too. Lumber, for instance, is down 42% from last month’s all-time highs. Copper fell to an eight-week low yesterday. 

The one commodity that seems to only go up is crude, which keeps stretching away from $70 and climbed above $72 this morning. Resistance might be at the round number of $75, but some chart-watchers point to $77 as a possible level to watch.

Other commodities might be victims of their own success, so to speak. Recent housing data hasn’t been so impressive, meaning the hot housing market might be running into trouble due partly to high materials costs. As the old saying goes, “High prices cure high prices.” That may be true for lumber, but we’ll see if it becomes true for crude anytime soon. 

What’s good for people who use commodities isn’t such good news for people who supply them. Shares of mining company Freeport-McMoRan FCX fell almost 5% by late Tuesday, and are down 12% for June. 

The other thing falling yesterday were the major indices, which isn’t a huge surprise when you consider how the S&P 500 Index (SPX) and the Nasdaq 100 (NDX) both rallied to record highs ahead of today’s Fed meeting. A little consolidation and some profit-taking appeared to be in the mix Tuesday as traders positioned themselves for whatever the Fed has to say this afternoon.

CHART OF THE DAY:  CRUDE COULD HAVE ROOM TO RUN. Though U.S. crude oil (/CL—candlestick) is at nearly three-year highs (as this five-year chart shows), technical analysis suggests it could have more room to the upside. The blue line is crude’s 100-day moving average, which front-month prices are now about 15% above. In past rallies, it’s typically been when crude goes 20% or more above the 100-day MA when selling starts to ramp up. While past isn’t necessarily precedent, maybe that’s one reason some analysts expect a test of $80 this summer. Data Source: CME Group. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.  

Wall Street’s Streak Ends As Fed Meeting Looms: Tuesday’s stock market weakness broke a three-day winning streak for the major indices, with Tech taking it on the chin after starting the week on a strong note. Apple AAPL and Microsoft MSFT both retreated, but only a bit. These are two stocks people tend to throw in the Tech bucket, but they often seem to be stocks where people go when they’re unsure what’s going to happen next. 

On the one hand, we’ve seen a lot of people trading the “meme” stocks when they want more volatility, but on the other there’s been a move back toward trusted names as kind of a storage spot, if you will. We saw the same thing recently with many investors going into fixed income. This could be a pattern until there’s more direction in equities, at which point maybe some people could return with more confidence. 

The meme machine has been a little slower this week, with people using the opportunity to sell some shares and volume thinning a bit. There’s also been some selling in the vaccine stocks like Moderna MRNA and Pfizer PFE, as people wonder what’s next in these companies’ pipelines after so much focus on Covid. It’s a question the firms will have to reconcile with, especially once other countries start to catch up with the U.S. on vaccinations. 

Sector Scorecard As Energy Spikes, Banks Slow: Energy led the sector charge yesterday while Financials rose early but then slid into the close after Citigroup C warned that Q2 trading revenue might take a hit. We mentioned last week that it could be a tough quarter for the big banks thanks in part to low volatility and weak trading activity, and it looks like the industry could be starting to think so, too. 

Meanwhile, Boeing BA shares finished slightly up yesterday after the U.S. and E.U. said Tuesday they’ve resolved a 17-year-long fight over aircraft subsidies, CNBC reported. The U.S. and E.U. have agreed to suspend tariffs for five years stemming from the Boeing-Airbus dispute. BA has also seen 737-Max orders rise recently, a possible sign of strength returning to the travel industry. The Transportation Safety Administration (TSA) recently reported two million passengers going through security at U.S. airports in a single day, the first time we’ve seen that in this post-Covid era.

Can “Brick And Mortar” Shopping Be Saved? Here’s another data point to consider from yesterday’s somewhat disappointing retail sales report: Non-store sales, which include online purchases, rose by what GlobalData Research Group’s Neil Saunders called a “very modest 8.2%,” representing the slowest growth in 17 months. He noted online shopping is about where it was before the pandemic in terms of percentage of retail sales, despite the strong performance of online during Covid. But don’t give up on brick-and-mortar just yet: Physical shopping is still very much alive.

This might be considered an odd juxtaposition, but that point combined with the jumps in restaurant and bars’ receipts—and apparel’s nearly 200% sales surge—could be good news for the Washington Prime Group WPG real estate trusts of the world. WPG—the third major shopping center REIT to file for Chapter 11 bankruptcy protection in the last 8 months—is hoping to land on firmer ground to face the shifting shopping behaviors of consumers once it gets out from under its debt. If consumers head back to shopping centers and malls, where restaurants, bars and apparel stores dominate the scene, all might not be lost for those landlords still standing. Stay tuned.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Image by lauramba from Pixabay