The spotlight is firmly on tech as Tuesday begins, with a number of stocks in the sector trading lower in the pre-market after
European Union regulators fined Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) $2.7 billion.
The fine, which was related to E.U. antitrust rules, seemed to weigh not just on GOOG but on shares of all the other so-called
“FAANG” stocks, including Facebook Inc (NASDAQ: FB), Amazon.com Inc (NASDAQ: AMZN), Apple, Inc. (NASDAQ: AAPL), and Netflix, Inc. (NASDAQ: NFLX). Tech also fell yesterday, as the tech-heavy Nasdaq (COMP) was the only
big-three index not to post gains.
While a lot of the focus is on FAANG, it’s also a big day from a Fed perspective, with several speakers — including Fed Chair
Janet Yellen —on the calendar. Yellen is scheduled to speak on the global economy in what’s being billed as a “conversation” with
President of the British Academy Lord Nicholas Stern at 1 p.m. ET. Before that, Philadelphia Fed President Patrick Harker will
discuss the economic outlook at an event in London at 11:15 a.m. ET. Meanwhile, Minneapolis Fed President Neel Kashkari will be at
a town hall forum in Michigan.
It seems unlikely that any of today’s Fed speakers will say much to rock the boat coming just a couple weeks after their last
meeting. It’s more likely to be a “rah, rah, the economy is doing better” kind of message. It’s a little early to start
disagreeing.
There’s not a ton of economic data Tuesday, but consumer confidence for June comes out at 10 a.m. ET and is worth a look
considering some of the soft inflation data we’ve seen lately. Going into the report, analysts pegged the index at 116, down from
117.9 in May, Briefing.com said. Confidence peaked in March at 124.9, but remains near 10-year highs.
On the earnings side, Darden Restaurants, Inc. (NYSE: DRI) reported before the open today and beat estimates. Sometimes the performance of
casual dining establishments like Darden’s Olive Garden and Longhorn Steakhouse, both of which had improved sales during the
quarter, can help investors get a sense of consumer health. Perhaps DRI’s results are another sign of consumers doing better, it’s
just a question of lassoing them.
One other note for the day: General Motors Company (NYSE: GM) lowered its industry-wide forecast for new vehicle sales in the U.S. We’ve
had a few really good years of car sales, so maybe those who truly needed new cars are a little exhausted and may stay with their
cars for a couple more years. Others may be buying used cars. In some ways, auto companies are a victim of their own success
because cars last so long. It’s a catch-22, because they build a high-quality product, and, as a result, people often buy used
vehicles.
Oil is on a bit of a rebound and kept rising early Tuesday as a weak dollar appeared to contribute to its strength. There didn’t
seem to be much fundamental news driving oil up, but analysts told the news media it looked like bargain hunting and short covering
might have been behind the rally. From a supply standpoint, the market continues to look pretty saturated, and investors get their
next look at U.S. supply data tomorrow with the government’s weekly stockpiles report. The $44 a barrel level, which oil traded
just a notch below early Tuesday, remains a key technical point, so check if oil can close above that.
Meanwhile, volatility sank back toward historic lows again Monday, with VIX spending most of the day below 10 before clawing
back to just above that level early Tuesday. The sluggish volatility coincided with some rather range bound performance in the
major indices, and with next week a holiday-shortened one, it’s possible more of this lackluster performance might be in store.
FIGURE 1: VIX ON SUMMER RETREAT. VIX, tracked through Monday on the thinkorswim® platform from TD Ameritrade, slid back under 10 to end the day in
the single digits, not far off its two-week lows. Meanwhile, the S&P 500 (SPX), denoted by the purple line, has been trading
relatively flat over the last week, as both VIX and stocks continue to look a bit lackluster. Data sources: CBOE, Standard &
Poor’s. For illustrative purposes only. Past performance does not guarantee future results.
Losing Energy?
It’s still a few weeks until earnings season kicks off, but the oil market’s weakness in Q2 could serve as a cautionary note.
There’s starting to be some concern that energy companies might not be able to meet earnings forecasts as the year continues, in
part because oil prices have remained stubbornly low. The energy sector is expected to account for a major part of the S&P
500’s earnings growth in Q2, analysts forecast, but if the under $50 oil prices indicate anything, it’s possibly a sign that
overall earnings might struggle to reach forecasts. Stay tuned.
Durable Disappointment
Those hoping the May durable goods orders might deliver some positive economic news might have come away disappointed after
Monday’s report from the government. Total durable goods orders fell 1.1%, which was worse than expected. It was the second
consecutive down month for durable goods, and raises questions about possible impact on Q2 gross domestic product growth (GDP). The
Atlanta Fed’s GDP Now indicator still predicts Q2 GDP growth at 2.9%, unchanged from last week. Meanwhile, the government’s final
read on Q1 GDP growth is due Thursday, and analysts’ average forecast is 1.2%, unchanged from the last estimate, according to
Briefing.com.
Strong First Half; Strong Second Half?
With the S&P 500 Index (SPX) up nearly 9% in the first half of the year, there’s reason to be optimistic about the second
half, according to CFRA analyst Sam Stovall. He notes that since World War II, in years when the SPX gained between 7% and 12% in
the first half, the SPX recorded an average price rise of 5.1% during the second half and posted a positive H2 performance an
above-average 87% of the time. Of course, as Stovall notes, history isn’t gospel.
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