What The Nasdaq-100 Will Look Like After July 24

Economists expect this morning’s retail sales data to show the strongest growth since January. If a recession is coming, somebody forgot to tell the consumer!

Market

Prices as of 4 pm EST, 7/17/23

Macro

China represents the world’s largest market for chipmakers.

• In 2022, it was responsible for $180 billion of $555.9 in global semiconductor purchases.

• The White House has recently taken action to impose restrictions on the sale of chips and related US tech to China.

• Industry players at home, naturally, have warned against such action.

• Yesterday, industry executives met with Biden administration officials to urge them to avoid further restrictions.

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Manufacturing activity unexpectedly expanded for the second straight month in July.

• Expected to fall into contraction, The Empire State Manufacturing Survey’s general business conditions index dropped less than expected to 1.1.

• Underlying components were mixed as new orders and employment increased but shipments declined.

• Outlook for the next 6 months also deteriorated.

• In a positive for inflation, prices paid and received fell to their lowest since August 2020 and July 2020, respectively.

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Yesterday we noted how economists were (again) pushing out recession expectations.

• Goldman Sachs has similarly cut its odds of a US recession within the next 12 months to 20% from 25%.

• The bank’s main reasons for optimism–like those of said economists–are continued progress on inflation and strong fundamentals despite significantly higher borrowing costs.

• Treasury Secretary Janet Yellen agrees: she told reporters yesterday she does not expect a US recession.

Goldman Sachs

Stocks

Here’s something you already know: the Nasdaq-100 has become too concentrated.

• Currently, the top 7 stocks account for 56% of the index.

• After July 24, their collective weight will be brought down to 44%.

• Stocks seeing the biggest declines in weight: NVDA NVDA (3%), MSFT MSFT (3%), AAPL AAPL (0.6%).

• It will be just the second such “special rebalance” in 25 years (the previous one in 2011 had no clear impact on the affected stocks).

• Here’s what the index will look like after the rebalancing:

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EPS estimates are seeing more positive revisions than negative ones as we head into earnings season.

• In fact, consensus EPS has seen fewer pre-season cuts than usual.

• At the same time, earnings uncertainty—a measure of analyst forecast dispersion—has been falling for the S&P 500 as a whole.

• Uncertainty surrounding Tech earnings, however, has been rising:

Energy

OPEC, the International Energy Agency (IEA), and the US Energy Information Administration (EIA) all see oil demand rising in Q3 (chart).

• They also forecast tightening supply in the second half of the year.

• In fact, according to Standard Chartered, the global market is already in a deficit.

• Don’t tell that to oil investors - traders have remained sellers amid warnings of a tight market.

@mikezaccardi

Earnings

With 30 companies representing 11% of S&P 500 earnings having reported, here’s a (very) early look at Q2 trends:

• Companies are reporting a -7.1% YoY decline in earnings.

• The beat rate is above average at 77% but below last quarter’s 90%.

• In aggregate, reported earnings have topped estimates by 8.8%.

Fact Set

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What we’re watching today:

• Bank of America BAC

• Novartis NOV

• Morgan Stanley MS

• Lockheed Martin LMT

• Prologis PLD

• Goldman Sachs GS

• Charles Schwab SCHW

• PNC Financial PNW

• Bank of NY Melon BK

• Omnicom OMC

• JB Hunt JBHT

• Synchrony SYF

• Interactive Brokers IBKR

• Pinnacle Financial PNFP

• Western Alliance WAL

Top Headlines

• Euro AI battle: France and the UK are competing to establish themselves as the leading country for AI in Europe.

• Survey says: BofA’s Global Fund Managers survey reveals increasing optimism about a soft landing.

• Diversification rules: Large US investment funds are being restricted from purchasing more shares in popular tech stocks.

• Telecom slump: AT&T shares fell to their lowest closing price in 30 years following a WSJ investigation.

• Ridesharing: Shares of Uber dropped following a court victory for its drivers.

• Ford EVs: Ford reduced the price of its base model F-150 Lightning by 17% to ramp up competition.

• Twitter writedown: Cathie Wood’s ARK wrote down its Twitter stake by 47%.

Crypto

Prices as of 4 pm EST, 7/17/23

• Steady inflows: A $742 million, inflows into crypto products last month hit their highest level since 2021.

• Addresses surge: The number of unique addresses on the Bitcoin network has topped 500k for the first time since May 2021.

• COIN goes to DC: Coinbase COIN CEO Brian Armstrong will meet with House Democrats tomorrow to discuss legislation and regulation.

• Reddit tokens: Reddit’s MOON and BRICK tokens surged after the company explicitly allowed for trading of its Community Points.

• Crypto liquidation: Celsius’ $160 million liquidation has begun with a $63 million transfer to FalconX.

Deals

• Finish line: The $69 billion Microsoft/Activision deal is unlikely to close by its deadline (today).

• Space investments: Private investment in space companies is showing signs of stabilization after years of steady declines.

• Space unicorn: Rocket startup Firefly is close to announcing the closure of an oversubscribed capital raise.

• Mining M&A: Glencore has agreed to acquire the remaining 18% stake in PolyMet Mining for ~$73 million.

• BTC mining SPAC: Bitcoin mining company Bitdeer has become one of the world’s largest crypto miners just 3 months after its SPAC merger.

Meme Of The Day