In the present

“The future is on the way, the past is gone

Old and rusty with your shattered bones

Break the crystal ball, you’re all alone

Erase the fear of the unknown “

– Hannon, Keith, Luccketta (Tesla, the band) – 2004

Big expectations?

In the “where”? The next day. The day before. Like a strange place.

This morning, the bones are creaking, the mind is racing. We find ourselves in painful joy, on a positive but volatile week-long trading day. One day before the ceremonial start of the 2021 second quarter earnings season.

I hate to disappoint the mighty Casey, but Mudville isn’t the only place there won’t be baseball today. There will also be no quarterly figures or macroeconomic results of any significance. Today we only have the “now” so at least celebrate what is and mentally prepare for what will be.

Prepare to be both right and wrong about abundance and adjust the fire to both realities as we move through the environment provided. Because you know that your greatest ally and your greatest adversary both reside in your bathroom mirror. All in all, I suggest that we accept ourselves as we are, see the beauty of what appears to be lower, and move on.

In retrospect, equity markets soared on Friday in response to a turnaround in Treasury markets. One day, total despair. The next, close to euphoria.

I will not complain. My P&L did better Friday than poor Thursday, but even I have to admit this environment with its blatant day-to-day lack of memory (wow, do I miss the human involvement in price discovery) and its endless mini – or sectors- driven rotations that apparently allow the dance to continue with not a general correction in the equity market that shakes our very foundations, but several partial corrections, or complete corrections that have a partial impact on the market while allowing the less at the level of the headlines to progress even if at times the trunk of the magnificent oak tree seen from your window has been home to harmful pests eating from the inside.

Last week

Equity traders should keep in mind that Friday’s rally occurred on much lower trading volume than Thursday’s beat. Generally speaking, this is not positive in the short term. While the S&P 500, the Nasdaq Composite, and the Dow Jones Industrials all worked towards rather modest gains for the shortened holiday week, once again making new all-time highs pretty mundane, indexes more directly associated with economic growth. all had a very good low volume of rallies to top off a rather gloomy weekly performance. The Dow Transports and the Russell 2000 both lost more than 1% over the period, while the S&P Mid-Cap 400 and Small-Cap 600 also contracted.

The sector breakout was nothing to brag about either. Using SPDR sector ETFs as a proxy, REITs (XLRE) and Utilities (XLU) had the best week, taking the top two places of 11 in the weekly performance charts, while cyclical sectors took four. of the bottom five, including Energy (XLE) and Financials (XLF) all the way down, getting out of the OPEC Plus mess and into the big banks and their quarterly numbers. In addition, the technology is doing quite well overall, led by the hardware, which could be read like Apple (AAPL), and the software. Internet stocks (which are part of communications services) and semiconductors did less well, as a number of Internet giants reacted badly to being targeted by the Biden administration in a series of points raised by decree at the end of last week.

That said, Amazon (AMZN), which is not categorized as a technology or internet stock, although this is perhaps the most egregious example of what people see as a “big technology ”, had a great week. Break them? Shareholders will probably do better. Don’t break them? New CEO Andy Jassy could still split the action. As a result, shareholders are doing better and Amazon continues to eat the world. Just for new kids … Amazon is still considered a general retailer, so the company, depending on the market, looks more like, say, Dillard (DDS) than Alphabet (GOOGL). Hey, don’t ask me. I just work here.

Just for the record, AAPL and AMZN seem to be emerging technically. AAPL in particular has implemented six consecutive “up” weeks. (BTW, both stocks are holdings of Jim Cramer PLUS Action Alerts charitable trust.)

Keep in mind

The thing that caused the volatility last week is still here. The Treasury will auction $ 38 billion worth of new 10-year papers here on Monday afternoon. This note dropped as low as 1.25% Thursday morning and as low as 1.36% Friday afternoon. I saw the 10 year old at 1.33% early this morning.

It is perhaps essential to note that the 30-year bond has bottomed out at 1.99% and is now yielding less than 1.96% to zero thirty Monday morning. (Oh, and pet peeve here … beware of financial journalists on the big networks who don’t get the full inverse relationship between price and yield in debt markets. Higher yields don’t constitute a rally in treasury markets. I mean, hire someone with a little experience. Please. Why does this still happen?)

The forest is still full of dangers. The Delta variant still hunts both young people and those who are too scared to understand. Economic recoveries appear to be slowing further, both here and abroad. China still targets both businesses and Taiwan, threatening trade while raising geopolitical concerns.

European Central Bank (ECB) President Christine Lagarde predicts short-term political pivot, while Treasury Secretary Janet Yellen tries to push forward on her global minimum tax based on a G-20 deal and most of the countries of the Organization for Economic Co-operation and Development. (OECD) through Congress. Just understand that Ireland and Hungary (who would be economically harmed by such a policy) have the power in theory to force a “no” from the entire bloc of 27 nations of the European Union, so you won’t maybe no need to put the champagne on ice for quite a while.

The coming week

You know very well that Tuesday launches “the season”. You may not know that Federal Reserve Chairman Jerome Powell with his biannual show of dogs and ponies to the House Financial Services Committee and Senate Banking Committee (Wednesday and Thursday) will be the headline of a week full of Fed speakers. Luckily for us, the clown car pulls out on Friday morning the second after New York Fed President John Williams stops beating his gums and the Fed enters its pre-political meeting ban period. ‘that the carnival arrives again on Wednesday July 28.

As for profits, the second quarter promises to be stifling. Will this matter with the major large-cap indices already trading at record highs and the S&P 500 trading at 21.4 times earnings forward? Good question. Goldman Sachs (GS) and JP Morgan Chase (JPM) both report on Tuesday after picking up key technical levels on Friday. They will be followed by Bank America (BAC), Citigroup (C) and Wells Fargo (WFC), and because nothing gets better with the bank than chips and sodas, PepsiCo (PEP) is also reporting, which seems a bit moved. with this crew.

According to the most recent data released by FactSet, we will enter this earnings season with an expectation of 64% profit growth in the second quarter on 19.7% revenue growth from the second quarter of 2020, and an acceleration. compared to earnings growth of 52.5% in the first quarter. which came on 10.9% revenue growth. It is expected to be the highest quarter of the year in terms of year-over-year growth, as it is the year with the greatest divergence between economic and living conditions due to the pandemic. The gigantic growth numbers are probably factored to some extent, and I think CEOs are going to have to sing like birds in their boards in order to see the desired effect for shareholders.

Oh, as long as I’m on that note, you can still expect the banks to make huge profits, but there will almost certainly be a year-over-year revenue contraction for the group. Fun fact … with the S&P 500 trading at 21.4x earnings for the next 12 months versus a five-year average of 18.1x, there is only one sector that does not trade at a. Forward P / E higher than own sector over five years average. It would be the materials business, which is one of the reasons I deployed capital across the group. Materials are trading at 17.5x against a five-year average of 17.7x. Financials, because they will be important this week, are trading at 13.8x against a five-year average of 13.2x. On the other end of the spectrum, consumer discretionary types are trading at 32.5x against a five-year average of 24.2x while seeking earnings growth of 208%.

I suspect that what the US 10-year note is dropping, and US dollar valuations will drive this market overall over the next few weeks, could not do any published figures, at least beyond isolated individual stocks.

Need one more reason?

Be long Microsoft (MSFT)? I saw him at Bloomberg on Sunday. I don’t know who got it first. It appears that Microsoft has agreed to acquire RiskIQ, which is a cybersecurity software vendor. The company’s customers include Facebook (FB), American Express (AXP), and the US Postal Service. The price to pay is expected to be around $ 500 million. Once again, Microsoft identifies growth where it is and will seek it. My price target remains $ 315.

Caution….

I do not know. I’m not into the name, and the name is trading higher during the Monday morning pre-opening session.

That said, as the huge pennant formation since the start of the year ends, Tesla (TSLA), the title (not the group) appears to have suffered a “death cross” on Friday with the simple moving average ( SMA) of 50 days. moving very slightly below the 200 day SMA. Now if the cross doesn’t pick up and quickly moves the other way – which it might do with stocks trading well above $ 630 – then “no harm, no fault” I guess.

I currently don’t have a dog in this fight, but I know a lot of you do and wanted to make sure you were fully informed. The daily moving average (MACD) convergence divergence is also far from looking healthy. Just be careful if you’re in that name. I see more short term downside risk at the moment.

Economy (All Eastern hours)

1:00 p.m. – Ten-year ticket auction: $ 38 billion.

The Fed (All Eastern hours)

9:30 a.m. – Speaker: new York Fed. John Williams.

12h00 – Speaker: Minneapolis Fed. Neel Kashkari.

Highlights of today’s earnings (Consensus expectations for BPA)

No significant quarterly results expected.