Crude Oil Adds Fuel To Commodities' Fire

Yesterday, the market turned higher at the first part of chair Jerome Powell’s press conference, as he stressed several key points:

• They will continue buying $120 billion in assets each month.
• It will go on for a “long time.”
• Outcome-based guidance.
• They are not thinking about changing course.
• Inflation is real but “likely transitory.”

The initial pop faded as the questions veered into several directions. I thought there was some doublespeak on scarring of the economy, where Powell didn’t come clean. There are 4.2 million folks unemployed 27-weeks or longer, up from 1.0 million back in April 2020, and yet, the Fed chair seemed nonchalant. 

Recession spikes in long-term unemployed, generally continue to edge higher after the recession has ended. It remains to be seen where this recession will be timestamped. But it’s unlikely there will be demonstrable improvement anytime soon. In fact, Powell admitted the issues with folks unemployed for too long are losing skills and desirability as workers.

To see the chart, click here.

I suspect Powell tried to avoid politics on the scarring question and why businesses cannot find workers. However, he mumbled something about the increased unemployment benefits expiring.

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Message of the Market

Even as Powell was trying to say inflation will be transitory, crude oil kept inching higher, nearing a major resistance point. It’s kind of ironic that crude oil rocketed higher after the election but has been chiefly sideways, as all the other commodities have been on fire, adding fuel (pun intended) to the idea of a commodities supercycle.

Communication Services took off riding the Alphabet (GOOG) coattails, while Microsoft (MSFT) weighed down the Technology (XLK) sector.

Market Breadth

Despite the lackluster close in this session, market breadth actually improved. More advancers over decliners and up volume above down volume, as more names joined the ‘new highs’ list. 

However, I am concerned with the overall volume. It is a weak summertime volume. 

Some Musing from Earnings

The biggest names posted the biggest results, living up the hype and then some. Companies on fire include United Rentals (URI), while those in trouble for a few years struggled after posting results.

Apple (AAPL)

• Revenue: $89.0 billion, consensus $77.4 billion
• iPhone: $47.9 billion, consensus $41.4 billion
• Services: $16.9 billion, consensus $15.5 billion
• Macs: $9.1 billion, consensus $6.9 billion
• iPod: $7.8 billion, consensus $5.6 billion
• Earnings: $1.40 consensus $0.99 
• Operating Margin: 30.7 from 22.0
• Buyback upped to $90.0 billion
• Cash: $204 billion
• Increase Dividend: 7%
• Initial Reaction: moved higher

Facebook (FB)

• Revenue: $26.2 billion, consensus $23.7 billion
• Earnings: $3.30, consensus $2.37
• Operating Margin: 43 from 33
• Average Price Increase: +30%
• Initial Reaction: Big Pop

Qualcomm (QCOM)

• Revenue: $7.93 billion +52%, consensus $7.62 billion
• Earnings: $1.90 consensus $1.67
• Operating Margin: 27.3 from 19.0
• Initial Reaction: Up Big

Down After-Hours

• Ford (F) getting slammed after-hours.
• eBay (EBAY) big earnings beat; but net $641 million, down from $3.4 billion one year ago.

Portfolio Approach

We took profits in Communication Services and Technology. We are adding a consumer discretionary name this morning.

Today’s Session

We got a strong earnings report from Caterpillar (CAT) which underscores strength in the physical economy to go with the digital revolution.  

Initial Jobless Claims edged down 13,000 to 553,000 – a pandemic low. 

1Q21 Gross Domestic Product 

First quarter GDP came in less than expected and well below those whispers which floated between 7.0% and 10.0%.  At 6.4%, the results missed consensus of 6.5%. Although parts of the report were strong, especially consumer spending. 

Personal Consumption Expenditures +10.7% from +2.3%

• Goods +23.6% from -1.4%
• Durable +41.1% from -1.4%
• Non-Durable +14.4 from -1.1%
• Services +4.6% from +4.3%
• Fixed Investments +10.1% from +18.6%

To see the chart, click here.