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Biden endorses VP Kamala Harris. (0:17) Tesla robotaxi and AI initiatives could balance core auto struggles. (1:54) The world emerges from the blue screen of death. (6:56)
The following in an abridged transcript:
President Joe Biden says he’s stepping down from the presidential race, ending his reelection campaign after he lost the support of senior Democrats amid concerns over his ability to beat Donald Trump.
In a post on X, Biden wrote that he will continue in his role as the president until his term ends in January 2025 and will address the country next week.]
Stock futures will be in focus when they begin trading Sunday evening. Bitcoin (BTC-USD), which trades 24 hours, sank ahead of the official announcement by Biden and that drop accelerated. But it has recovered most of those losses and is down less than -1%.
Mohamed El-Erian, advisor at Allianz, said: “Views are likely to differ on how the news of President Biden dropping out of the presidential race will impact US stock futures when they start trading later this afternoon (and beyond). I suspect that ((some)) will interpret this as implying greater uncertainty on what can be said about policies after the November elections (though they differ on why).”
“Some will see markets as having already priced in the news given the extent to which pressure had been building in the last couple of weeks; and yet others will view this as constituting a short-term distraction for markets at best.”
Biden endorsed his vice president Kamala Harris to be the nominee of the Democratic Party this year.
“It has been the greatest honor of my life to serve as your President. And while it has been my intention to seek reelection, I believe it is in the best interest of my party and the country for me to stand down and to focus solely on fulfilling my duties as President for the remainder of my term,” Biden wrote.
In a phone call with CNN, Trump said he believes Harris will be easier to defeat than Biden would have been.
And now we look to the week ahead.
Two Magnificent 7 stocks headline earnings reports this week.
Tesla (TSLA) will report Tuesday postmarket with full-year estimates for the core auto business being revised down, but investors are still weighing the potential upside from the AI, FSD, robotaxi, energy storage and Optimus initiatives.
Analysts expect Tesla to report revenue of $24.7 billion and EPS of $0.62, which would compare with revenue of $24.9 billion and EPS of $0.91 a year ago. Tesla has missed on the EPS line in three straight quarters. The company’s operating margin will be closely watched after it plunged to 5.5% in Q1 due in part to lower EV prices.
Elon Musk will be on the hot seat to update on the timing of the robotaxi event and what to expect in terms of a low-cost vehicle for the mass market. The robotaxi discussion could steer right into Tesla’s embodied AI capabilities beyond app-based autonomous cars. There is also fear in the EV sector is that a trade war over chips could reverberate across suppliers and impact key U.S.-China partnerships.
Alphabet (GOOG) (GOOGL) also reports Tuesday. Analysts predict a strong quarter, with a 27% increase in earnings and a 12% rise in revenue.
Seeking Alpha analyst Noah’s Arc Capital Management says: “On Google’s next earnings call, I’m focusing my attention on qualitative examples of the company generating strong AI use cases with clients that demonstrate practical, scalable applications of their technology.”
Other earnings this week include Verizon (VZ) and NXP Semi (NXPI) reporting on Monday.
Tuesday also sees Visa (V), Coca-Cola (KO), Texas Instruments (TXN), Philip Morris (PM), UPS (UPS), Lockheed Martin (LMT), GM (GM) and Comcast (CMCSA).
Wednesday brings results from IBM (IBM), AT&T (T), Chipotle (CMG), General Dynamics (GD) and Ford (F).
AbbVie (ABBV), Northrop Grumman (NOC), Union Pacific (UNP) and AstraZeneca (AZN) weigh in on Thursday.
Bristol Myers (BMY), Colgate-Palmolive (CL), and Charter Communications (CHTR) wrap things up on Friday.
The economic calendar sees the latest numbers for the Fed’s favorite inflation gauge on Friday.
Along with the June personal income and spending report we get the core PCE price index. The consensus if for a 0.2% rise in June, which would nudge the annual rate to 2.5%. The latest import prices measure, which feeds into core PCE, came in flat, which leans for a tamer inflation print.
Morgan Stanley says, for now, PCE data shows that the majority of industries are seeing pricing fade.
The markets are now pricing in a near certainty of two Fed cuts by year end with the first one coming in September.
Seeking Alpha’s Rena Sherbill talked to Steven Bavaria, who runs the Inside the Investment Factory Investing Group, about the rate environment.
“…right now, there’s so much expectation that our rates are high and that they’re going to come back down. Well, they might come back down a little bit, but I can remember when rates – where we are now, were normal.
If you go back and look at the average mortgage rate from 50 years – over the last 50 years, it was around 7% to 7.5%. So I don’t expect rates to come down. I believe we’re going to have higher for longer, as they say, which makes me more confident investing in credit, knowing that high-yield credit, if it’s earning me 8%, 9%, 10% now, probably isn’t going to drop all that much in the near future.
So I look at the interest rate level. I also would look at the economy generally. Do people expect defaults and losses? Do they expect corporate defaults to increase or not? If we were going to have a recession, as so many people expected over the last few years, and now it turns out so far we’ve avoided it, and we’ve had an awfully soft landing so far, I guess.
If I really thought there was a recession coming, I’d be a little more concerned about buying high-yield bonds. I’d probably shift more to secured corporate loans as opposed to unsecured bonds, those kinds of things. And again, my general expectation about the equity markets, we could very well have increases in our equity markets over time as we typically have.
Equity markets tend to grow and the economy tends to grow over time. Only if something really disturbing happens in our own country that upsets the economy that we wouldn’t continue perhaps to have growing stock markets. But I think there is enough of a concern that we could have volatility that people could get spooked, the market could get spooked if we end up with an election that is highly controversial or worse.
So that’s why I’m just – I wouldn’t put all my chips on equity right now. If I were an equity investor and not an income factory investor, I would still be concerned about the equity markets just because there’s so much volatility.”
You can listen to the full interview on the Investing Experts podcast.
Another thing to watch out for this week is the three-day Bitcoin 2024 Conference that will include appearances by Donald Trump, Robert Kennedy Jr., ARK Invest’s Cathie Wood, MicroStrategy (MSTR) Executive Chairman Michael Saylor, Edward Snowden, Vivek Ramaswamy and Anthony Scaramucci.
Some of the companies that are participating include Riot Platforms (RIOT), Gryphon Digital Mining (GRYP), and TeraWulf (WULF). Trump is not scheduled to speak until July 27, but his upcoming appearance could create buzz all week for Bitcoin (BTC-USD).
In the news this weekend, businesses are recovering from the blue screen of death seen ‘round the world.
Microsoft (MSFT) said Saturday that 8.5 million Windows devices had been affected by the global outage caused due to a faulty update provided by CrowdStrike (CRWD).
That number represented less than one percent of all Windows machines.
But David Weston, vice president of enterprise and operating system security said that “While the percentage was small, the broad economic and societal impacts reflect the use of CrowdStrike by enterprises that run many critical services,”
A defect in a CrowdStrike Falcon content update for Windows hosts led a crash of Windows systems across the globe on Friday, affecting everything from airlines to banks and healthcare companies. It’s been called the world’s biggest IT outage.
“This incident demonstrates the interconnected nature of our broad ecosystem – global cloud providers, software platforms, security vendors and other software vendors, and customers. It’s also a reminder of how important it is for all of us across the tech ecosystem to prioritize operating with safe deployment and disaster recovery using the mechanisms that exist,” Microsoft’s Weston said.
More air travel disruption is expected after more than 5,400 flights were canceled on Friday and Saturday.
United (UAL) says most of its systems have been restored. American (AAL) said it had completed more than 99% of its scheduled departures on Saturday. Top U.S. carrier Delta (DAL) said it is continuing its operation recovery.
For income investors, Caterpillar (CAT) goes ex-dividend on Monday with a payout date of Aug. 20. Dell (DELL) goes ex-dividend on Tuesday, paying out Aug. 2.
Lowe’s (LOW) is ex-dividend on Wednesday with an Aug. 7 payout date. And Pfizer (PFE) goes ex-dividend on Friday with a Sept. 3 payout.
And in the Wall Street Research Corner, as rotation took hold, the momentum trade gave way to the small-cap trade.
The Carson Group’s Ryan Detrick notes that the small-cap benchmark Russell 2000 (RTY) rose more than 10% in 10 trading days and says since “1979 (when it started trading), this has happened only 23 other times (taking the first signal in a cluster).
“Future returns are quite strong, up nearly 27% a yr later and higher 86% of the time,” he adds.
But Academy Securities is struck by the ratio of between the S&P 500 (SP500) and the Russell.
“Rarely do we think of indices in terms of market capitalization. Individual companies, yes, but indices, no? What struck (us) as ‘odd’ or ‘interesting’ is that (a week ago) the market cap of the Russell 2000 was less than $3 trillion.”
“Yes, the S&P 500 is meant to pick up at least 80% of the market cap of U.S. stocks, but it has grown to closer to 90%. Yes, there is a ‘survivorship’ bias in the Russell 2000 that keeps the market cap smaller (companies that grow eventually get ‘promoted’ out of the index. So, there are many reasons to not think about market cap, but it also seems odd that you can pick up 2000 or so companies, for the price of just a few (or even one) company.”
They ask: “Since getting ‘ratioed’ on twitter (now X) is a bad thing, maybe it is in markets as well?”
Looking at how the market caps of the 5 most valuable stocks in Russell have increased so far this year:
Insmed (INSM) has risen to a market cap of $11.3 billion from $4.3 billion.
FTAI Aviation (FTAI) is up to $10.3 billion from $4.65 billion and Vaxcyte (PCVX) is at $8.66 billion from $5.98 billion. Fabrinet (FN) has risen to a cap of $8.58 billion from $6.91 billion. And Sprouts is at (SFM) $8.31 billion from $4.89 billion last year.
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