Market roundup – what to expect, how to trade
The stock market reversed course following positive earnings reports from AMD and Qualcomm, which led to a rebound in semiconductor stocks. Meta also reported an excellent quarter, contributing to the market’s uplift. The Federal Open Market Committee (FOMC) meeting brought no surprises, maintaining market stability. Below, we provide a brief market roundup.
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FOMC – no surprises
The Federal Open Market Committee (FOMC) unanimously decided to maintain the target range for the federal funds rate at 5.25% to 5.50%, as anticipated. The Fed is now taking a more balanced approach to its mandate, giving equal consideration to factors beyond inflation, unlike previous meetings. This thoughtful shift aligns with recent remarks made by various Fed officials leading up to today’s decision.
Fed Chair Powell’s press conference aligned with market expectations. He refrained from committing the FOMC to a rate cut at the September meeting but indicated that a rate cut would be considered if the anticipated data is received.
The 10-year note yield fell three basis points to 4.11%, and the 2-year note yield declined two basis points to 4.34%.
Year-to-Date Performance
Earnings Highlights
Meta Platforms (META) experienced a notable post-market surge following its impressive second-quarter earnings report, which surpassed expectations. The company reported earnings per share of $5.16, exceeding the anticipated $4.78, and revenue of $39.07 billion, surpassing the projected $38.31 billion. Meta also provided an optimistic sales outlook for the current quarter, forecasting revenue between $38.5 billion and $41 billion, compared to the expected $39.2 billion. Despite escalating tech expenditures, particularly in artificial intelligence, the stock’s positive response defied the recent trend of tech giants witnessing declines post-earnings reports.
Qualcomm (QCOM) shares rose by 4.5% in extended trading after the company released its fiscal third-quarter results, which exceeded expectations. Qualcomm reported an adjusted earnings per share of $2.33 and a year-over-year revenue increase of 11.3% to $9.39 billion. Notably, automotive sales surged by 87% to $811 million, while handset sales grew by 12% to $5.9 billion. CEO Cristiano Amon emphasized the launch of Snapdragon X Series solutions as a pivotal step in transforming Qualcomm from a communications company to a broader tech entity.
Arm Holdings (ARM) saw its shares decline by 9% in extended trading, despite reporting fiscal first-quarter results and guidance that surpassed expectations. The company posted an adjusted earnings per share of $0.40 and a 39% year-over-year revenue increase to $939 million. However, its forward guidance for the second quarter fell short of analyst expectations, projecting adjusted earnings between $0.23 and $0.27 per share and revenue between $780 million and $830 million.
Teladoc Health (TDOC) reported a second-quarter non-GAAP EPS of -$0.28, which beat expectations by $0.09, but its revenue of $642.4 million missed estimates by $7.26 million. The company forecasted modest revenue growth for the full year, anticipating a year-over-year increase in the low to mid-single digits and an adjusted EBITDA margin expansion of 150 to 200 basis points. Despite the mixed results, shares fell by 3%.
Lam Research (LRCX) reported strong fourth-quarter results, with a non-GAAP EPS of $8.14, beating estimates by $0.55, and revenue of $3.87 billion, exceeding expectations by $40 million. The company also provided a positive outlook for the upcoming quarter, projecting revenue of $4.05 billion with a gross margin of 47%. Cash and cash equivalents increased to $5.9 billion by the end of June 2024, up from $5.7 billion at the end of March 2024.
Paycom Software (PAYC) raised its full-year guidance following second-quarter earnings that surpassed Wall Street estimates. The company reported a non-GAAP EPS of $1.62, exceeding expectations by $0.02, and revenue of $438 million, up 9.2% year-over-year. Paycom also expanded its stock repurchase plan, making $1.5 billion available for buybacks. The company projected third-quarter revenue between $444 million and $449 million and adjusted EBITDA between $155 million and $159 million.
Enovix (ENVX) signed a non-binding Memorandum of Understanding with a global automotive OEM to scale its cell architecture for the EV market. The agreement focuses on cell design, performance validation, and optimization at various levels. Enovix also reported a second-quarter non-GAAP EPS of -$0.14, beating expectations by $0.09, and revenue of $3.8 million, surpassing estimates by $0.15 million.
Riot Platforms (RIOT) reported a second-quarter GAAP EPS of -$0.32, missing estimates by $0.18, and revenue of $70.02 million, down 8.7% year-over-year. The decline was primarily due to a $9.7 million decrease in engineering revenues, partially offset by a $6 million increase in Bitcoin mining revenue. The company produced 844 Bitcoin during the quarter, a 52% decrease from the same period last year, mainly due to the block subsidy ‘halving’ event and increased network difficulty.
MediaAlpha (MAX) yesterday announced its financial results for the second quarter of 2024, showcasing impressive growth. The company reported a revenue of $178 million, a remarkable 110% increase compared to the same period last year. Additionally, the transaction value surged to $322 million, reflecting a 156% year-over-year rise. This robust growth was predominantly driven by the Property & Casualty (P&C) vertical, which experienced an extraordinary 320% increase in transaction value.
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Looking forward to the third quarter of 2024, MediaAlpha remains optimistic about its prospects. The company anticipates that the transaction value in the P&C insurance vertical will be 40% to 45% higher than the levels seen in Q2 2024. Moreover, they project revenue to range between $240 million and $255 million, representing an outstanding 232% year-over-year growth.
What we will be watching these days
Thursday: MRNA, CNQ, CROX, MBLY, W, GOOS, AMZN, AAPL, INTC, COIN, ROKU, SQ, MELI, BKNG, NET, TWLO, TEAM, DASH, GDDY,
Friday: ENB, FLR, AMC
The U.S. Jobs Report and Its Potential Impact on Interest Rates
The U.S. jobs report, scheduled for release on August 2, 2024, is highly anticipated by economists and market watchers alike. This report is pivotal as it provides critical insights into the health of the labor market, which in turn influences monetary policy decisions by the Federal Reserve. With an interest rate decision looming in September 2024, understanding the expectations and potential impacts of the upcoming jobs report is essential.
Expectations for the August 2, 2024 Jobs Report
Economists are projecting modest job growth for the upcoming report. Recent trends have shown a deceleration in job creation, with the U.S. economy adding 206,000 jobs in June 2024, down from the more robust figures earlier in the year. The cooling labor market is attributed to various factors, including higher interest rates and economic uncertainties.
As we approach the August report, experts expect the job growth to continue its downward trend. For example, in July 2024, employers added only 122,000 jobs, which was below expectations. This slowdown in job creation is seen as a sign that the labor market is cooling, which could have significant implications for the Federal Reserve’s interest rate policy.
Impact on the September 2024 Interest Rate Decision
The Federal Reserve has maintained its interest rate at a restrictive level of 5.25% to 5.5% since July 2023, as part of its efforts to combat inflation (USA Today ). However, the slowing job growth and easing inflation have led to increased speculation about a potential rate cut in the upcoming September meeting.
Federal Reserve Chair Jerome Powell indicated that a rate cut could be on the table, depending on the economic data, particularly the jobs report (CNN ). The August jobs report will therefore play a crucial role in shaping the Federal Reserve’s decision-making process.
Current Market Consensus on Interest Rate Cuts
The market consensus leans towards an interest rate cut in September 2024, with futures markets pricing in a 64% likelihood of such a move. This expectation is driven by the recent economic data showing slowing job growth and easing inflation pressures.
Wall Street analysts are also forecasting multiple rate cuts in 2024, starting with the September meeting. This sentiment is bolstered by the Federal Reserve’s recent signals and the overall economic outlook (CBS News ).
Our view
The upcoming U.S. jobs report on August 2, 2024, holds significant weight in determining the Federal Reserve’s next steps regarding interest rates. With expectations of continued cooling in the labor market, the report’s findings could pave the way for a rate cut in September. Market consensus has already accounted for this move, considering the broader economic conditions and recent communications from the Federal Reserve. As we await the release of the report, everyone will be focused on the numbers and their implications for the future of U.S. monetary policy. We anticipate that tomorrow’s jobs report will set the short-term direction for the stock market.
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