GOOG crushed it, markets await earnings from META and MSFT, rising yields

• GOOG knocks it out of the park. AMD offers weaker guidance.

• META & MSFT due after the bell.

• Bond markets around the globe are signaling ‘caution’.

• Oil flat, Gold kisses $2800.

• Try the Spaghetti with/Emulsified Aglio e Olio.

Tech continues to rally as we await results from 5 of the Mag 7 …. the Nasdaq rose by 145 pts or 0.8% recording yet another record high for 2024… The Dow gave up 155 pts, the S&P gained 10 pts, the Russell lost 6 pts, the Transports gained 19 pts while the Equal Weighted S&P lost 24 pts.

And this was all before it started…because GOOG reported after the bell…. not during the trading day….and so, at about 4:05 pm….it started…

GOOG hit the tape and as you might expect – they crushed it……the company reported ‘BLOW OUT’ cloud revenue – up 35% y/y….at $11.35 billion vs. the $8.4 billion in the 3rd qtr. of 2023…..EPS of $2.12 vs. $1.85, Revenues of $88.27 bil up 15% y/y and greater than the expected $86.3 billion, GOOG search?  Yeah, that generated $49.4 billion – up 12.3% y/y and the largest contributor to revenue growth, YouTube Ad Revs of $8.92 billion vs. $8.89 billion.  CEO Sundar Pinchar saying that ‘the company’s full stack of AI products is now operating at scale and being used by Googles billions of users creating a virtuous cycle.’

And so, you ask – What is a virtuous cycle?  Well, it refers to establishing a positive feedback loop where an initial action leads to positive outcomes that reinforce and multiply over time. In the cycle, each positive outcome creates conditions that further encourage the initial action, resulting in a continuous loop (virtuous cycle) of improvement.

And to think – it has only just begun…. Now yesterday GOOG gained 1.6% ending the day at $171.14/sh and this morning its trading at $180.50/$180.70 in the pre-mkt up 5.8%.  Today we will hear from META & MSFT and tomorrow comes AAPL & AMZN…. TSLA reported last week and NVDA reports on November 21st. 

In the end – these companies are going to have to post bigger surprises (earnings and revenues) for the sector to continue to outperform into the end of the year. Now in contrast – AMD reported, and they too beat on the different line items – achieving gross margins of 50%, net income of $771 million but the stock is down 8.4% or $14/sh at $152.30 on weaker forward guidance in a ‘take no prisoners’ type of reaction.

Now – the eco data?  Retail inventories were up, so is that positive or negative?  Well, that depends on what narrative you are trying to convince investors of. Rising inventories can signal confidence from retailers in future consumer demand, suggesting they’re stocking up to prepare for expected sales growth. It may also indicate efficient supply chain management, where retailers are successfully maintaining adequate stock levels without shortages.

However - It’s negative if consumer demand is slowing, then rising inventories might indicate a buildup of unsold goods, leading to potential markdowns, reduced profit margins, or financial strain from excess stock. It could suggest that retailers overestimated demand, which can negatively impact earnings.  You really need to understand this datapoint in relationship to the broader economic context and recent consumer trends.

The JOLTS report declined by 600k jobs to the lowest level since the winter of 2021…a sign that the labor market ‘may be cooling’  and contrary to the September NFP report that pointed to a still strong labor market  while consumer confidence rose to the highest level of the year and we haven’t even gotten the October NFP report due out this Friday….and all of just about one week away from the next FED decision.  So, what happens now?  Well, we’re about to find out.

Bonds did trade a bit higher yesterday, but let’s not kid ourselves…. they have been under pressure of late as the bond market has been telling ALL of us a different economic story than what JJ is trying to shove down our throats….Recall, Bond prices represented by the TLT are down 10.5%, the TLH down 8.5% since JJ cut rates by 50 bps on September 15th all while bond yields have spiked higher….up about 18% during that same time frame.

10 yr. yields are now at 4.22% down 9 bps from Tuesday’s high of 4.33% while the 2 yr. is yielding 4.09%.   In any event – the US bond retreat has sparked a global bond retreat with UK, German, Italian, Aussie and Canadian bond prices down and yields up.  And all that does is raise the warning flag to be careful about how aggressive equity investors should be.  You know me – I prefer to be on the patience is a virtue side…I have money at work in the markets and I have money ‘being patient’ in gov’t mm funds as well.

Oil which broke down on Monday – trading down to $66.70 remains in that lower range…. prices remaining subdued due to a possible ceasefire deal between Israel and Lebanon…. not yet between Israel and Iran – that remains in flux.  A cease fire would reduce any concern over disruption…while a new stimulus package initiated by China would help send oil higher…but that hasn’t happened yet either…although they continue to ‘tease’ that prospect.  This morning – oil is trading at $67.58 up 36 cts but remains well below trendline support (now resistance) at $70.26.  Downside support remains at the September low of $64.16.

Gold is pushing higher, up $14 at $2795 - kissing yet another new century - $2800…(overnight it did trade as high as $2801) all this as we deal with strong economic data, confused fed policy and the final days of the US Presidential election….which is now entering a period of complete insanity…

I mean I can’t even begin to discuss or define what is happening, its just nuts… In any event – the move up is due to what I think is much more of a ‘safety trade’ as well as the call for more gold reserves by a number of countries around the world.  It is also an indication that gold bugs are expecting inflation to rear its ugly head…. Yesterday, I said that I thought we were pushing against the trendline….and we are…. I guess the question is what does everyone else think?

US futures are up a tiny bit this morning…. Dow futures up 5, S&P’s up 9, the Nasdaq up 25 and the Russell is down 4.  Eco data today includes – Mortgage Apps, ADP employment – 110k new jobs is what they are expecting, 3rd qtr. GDP 2.9% is the expectation and Pending Home Sales expected to be up 1.9% m/m but down 1.1% y/y. 

Earnings?  We are going to get about 50 more reports representing a range of industries.  Some include EAT (beat), HUM, CAT, ABBV, DAN, KHC, MLM, GPN, LLY, HES, VMC, all before the bell, after the bell – ALL, RIG, AMGN, ROKU, SBUX, TDOC, ETSY, META, EBAY, MGM, & MSFT

European markets are all lower…. France down 1%, while the UK is down 0.2%. Everyone else is in between. Flash data revealed that Eurozone economy grew by 0.4% - well above the 0.2% that they expected.  In the UK – its all about the budget…. all this as earnings season across the continent is well under way.

The S&P closed at 5832 – up 10 pts…. Futures are churning this morning…as we await all of the earnings today, but let’s not kid ourselves…all eyes are focused on META and MSFT – come on, let’s be serious…Not that I think that’s right, but it is what it is….Let’s not hope we get an AMD type of reaction….

Remember – we are in a tenuous time…. the election is causing all kinds of angst and fear…. the divisiveness is so thick, you can cut it with a knife…  The rhetoric is ugly and dangerous, this isn’t the time to be cavalier….

Next week we’ll get the FED decision, I do not believe that they will cut rates and if they do, they better have a really good story, because the bond market is saying something very different.. I understand they would like rates to decline, but I don’t see it and in fact, I see them conceding to the idea (early next year, not on next week) that we are going to have to get used to higher inflation in the years ahead to ‘inflate our way’ out of this disaster that has been created. 

Near term after the tech result today and tomorrow it will be Friday’s NFP report…. Remember – stick to the plan…do not make emotional decisions…We are coming into the year-end, where we typically see markets rally.  You can draw a couple of trendlines to find resistance….and they would suggest that we could see the S&P trade between 6000 & 6200 IF we continue to rally and if we do not…then short term trendline support is 5700 – down 2.4%, Intermediate support is at 5580 down 4.3% and long term trendline support is at 5350 down 8.3%...so all within a normal trading band and none that put us in ‘correction territory which would be down more than 10%.  That number is 5248.   

My guess is that once the election is over and the winners (WH, Senate and House) are determined, then investors can focus back on what the economy would be expected to do under either administration.

Remember - Do not go changing your portfolio based on who will live in the WH…. politics do not price stocks in the long term – although it can and does create short term chaos and long-term opportunity. 

Emulsified aglio e olio w/cayenne pepper

YUM…. This is so wonderful – and it’s a play on the more traditional dish.

For this you need ½ lb. of spaghetti, 5 garlic cloves, olive oil and cayenne pepper (optional).

Begin by bringing a pot of salted water to a rolling boil.  Add the spaghetti and cook until al dente.

In another small pot - add some water and also bring to a boil.  Toss in the whole garlic cloves and boil for 3 mins…. - Strain – reserving a mug of water.

In a food processor – add in the garlic cloves, ½ c of the water and a c of olive plenty of olive oil…. blend until it’s all emulsified.

Now pour that into a large sauté pan….do not heat it up…. Using tongs – remove the spaghetti and add to the sauté pan…stir to coat.  Now serve in individual bowls and garnish some of the sauce and the cayenne pepper …. Not too much, just enough to give it a punch.

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