What Matters More: Earnings or the Election?

I know we have a lot to get to, everything from the change for the Democratic presidential candidate to the flow of earnings to some big economic data this week. But before we get to all that, I want to know, did you guys have any major disruptions, travel or PC heartaches from all the stuff that happened with CrowdStrike and Microsoft last week?

 

Lindsey Bell  00:51

Well, for me, I did not. I was, I was on the ground here in Charlotte, but I had a good friend that had come in to visit, and she was leaving that morning, the Charlotte airport was apparently a disaster.

 

Chris Versace  01:04

I saw pictures on Twitter for it, and I also saw some others from, I think, Denver, and others, just lines and lines of people. And I can't believe that. You know, several days after Delta Airlines still can't get their act together. I mean, it's simply unbelievable, but it just goes to show how reliant we are on I guess, what we could just call the larger digital infrastructure. Bob, Bob, how about you any any issues? Or were you just too busy on the tennis court?

 

Bob Lang  01:35

Yeah, no, no issues for me, Chris and Lindsay, but I find it fascinating how just one little disruption, this wasn't even a cyber attack, right? It was simply a breakdown of process here by CrowdStrike. And the only thing I've noticed here recently is that the stock of CrowdStrike has just taken a beating. I think it's down something like 35 40% over the past four sessions alone. And you know, it seems like maybe where there's smoke, there's fire, maybe there's something a little bit more involved here, with what, with what happened to CrowdStrike, and there might be some rehabilitated measures coming in to try and fix fixes so it doesn't happen again. Because I think it sounds like it was a very serious matter, not just, not just for the airlines, Chris and Lindsay, but for for a lot of areas as well, too.

 

Chris Versace  02:31

You know, you mean, it was financial institutions, local governments. I knew someone who tried to go to the DMV on Saturday, totally shut. Couldn't do anything. So, no, no, not here, not here in the great state of Virginia, Bob, we actually, we are a pro work state. So people are, you know, out and working. I can't really say, Oh, that's right, you live where Elizabeth Warren reigns. I forgot anyway. What I was going to say, though, is, you know, I'm hearing what you're saying, Bob, about this and CrowdStrike, and I'm just going to say to both of you guys, do you think the CEO has to go because this seems like a major management bungle?

 

Bob Lang  03:12

Well, I think he's going to be believe. He's going to be testifying in front of Congress to explain himself, explain their what happened here. But I think at the end of the day, Chris, I do believe that they'll, they'll get a they'll get a pass on this one in golf, we call it a mulligan. I don't, I do think that it was a serious matter. And and there are other companies out there, like Palo Alto, cyber, cyber arc and a few other names out there who are going to probably take advantage of this and maybe steal away some customers from from CrowdStrike, is probably why the pressure has been on the price of the stock lately. But I do think they're going to get a pass on this one. But if it happens again, you guys, I don't see him surviving this one. George Kurtz has been around for a long, long time. He started this company back in 2011 and so I think, fact, I don't know if you know that that CEO, Chris was former Formula One driver. He actually ran in Lamont. He was a, you know, fun fact, right?

 

Chris Versace  04:22

As I have long said, in our relationship, Bob, I will not challenge you for trivial pursuit. Lindsay, Bob says it's a mulligan. Do you think it's a one and done? What do you say?

 

Lindsey Bell  04:32

Yeah. I mean, I think, I think we get a pass, maybe this one time, but definitely all eyes are going to be on, on this situation. And I think too, when you look at like, for me, the most impressive thing, I don't know if you saw on Twitter, X, whatever you want to call it, the the visuals of the the airline traffic disappearing. I mean that visual, you know, you can look it up. It was absolutely crazy. All due to this update. To computers and, like you said, and delta still dealing with it. The interesting thing about the airline industry is volumes are are up. Air traffic is through the roof for all these companies, but you're seeing pricing start to come down to despite the amount of demand that's out there too. So I think it's just, it's an, it's an interesting dynamic in in the airline space, because they're not being able to translate that into profits. You know,

 

Chris Versace  05:29

I think that's a great point Lindsay, and it's one that kind of sets this up, along with McDonald's continuing its $5 meal. Apparently, that is, for some reason, winning traffic. But we'll talk about all of that and much, much more when we come back right after this quick break.

 

Chris Versace  05:52

All right, gang, let's get rolling here with the big part of our conversation this week, the meat, if you will, and we will get to Lindsay's comment about airlines and what I said about McDonald's in a minute, but first, as we kick off, let's just do a check of sorts on the market. Bob. Last couple days, stock market's been a little bit of a roller coaster ride. We saw some pronounced strength coming in to the week. We'll talk about some factors why. But from a technical perspective, what are you saying?

 

Bob Lang  06:22

Well, late last week, we saw the the markets fall, fall like a like a china doll in a in a in a in a bull in a china shop is just running around, going rampant against the bulls. And we saw almost a two and a half percent drop in the SP 500 over the last three days of the week, Wednesday, Thursday, Friday, we had hit some levels on the oscillators that were super high. And in fact, I look back historically sixth highest level of oscillators on the NASDAQ and the s and New York shock exchange in history. So at those points in times the prior five times, the markets fell sharply after that. So I think the odds were probably favoring that the buyers were exhausted. The buyers were done. We were pretty overbought on the markets, and we were due for a bit of a pullback. I'm not sure if it was two and a half percent was enough. Maybe on Monday, Monday's market being up more than 1% on the SP 500 is telling us it is enough, but I do think that we still have some more work to do. We're kind of in a I call it a no man's land in the on the chart. But it's hard to get long right here. It's hard also to short right here. So I think that by and large, we'll get some more earnings this week and bigger amount of earnings next week, at the end of end of July, and, of course, the Fed meeting. I don't want to get in front of that, of course, but I do think that as we end up and end towards the month of July, we're going to have some some some big movements in the markets to to 31st.

 

Lindsey Bell  08:02

You know, tag tag along there like, you know, we've only had this year one five and a half percent pullback, only one, and we're coming into the end of July. Usually, we get something like three or four of those every year. We haven't even had a 10% pullback, which usually happens once a year. Interestingly, though, I was, I'm no technician, like like you. You're much better at it than I am. But I was looking at, I always look at RSI, the relative strength index, and that was overbought for quite a while. With, with last week's pullback, it came back to neutral, to moving higher now, I think, but still more reasonable in the 50s. So I don't know. Like, it is interesting. We're going into a period before the election where volatility increases and earnings season while, like, like I said last week, I the second quarter is so far, and I know we'll talk more about it, Chris, but it's been, it's been a good earning season for the quarter, but the outlook is somewhat cautious or and uncertain. So.

 

Chris Versace  09:05

So, if we're so, if Bob's saying we're in a no man's land, but we're not overbought. Lindsay, are you still kind of sitting on the sidelines here, you know, in terms of putting fresh capital to work? Because I know I am. You know, we're right at the mouth, as you guys both said, the earnings season, and as it's starting to heat up, and what we'll talk about that in a couple of minutes, you know, it's starting to emerge as a mixed picture, right? It's not necessarily going to be a rising tides, lifting all boats. We're going to have to be a little more selective. And I just think that we're a little early in the overall earnings season, kind of, as Bob pointed out, and it just pays to be cautious here.

 

Lindsey Bell  09:44

No, I totally agree with that. I think it pays to be cautious right now. I think interestingly, I was curious and asking myself, coming into this week, especially after Monday's pop the tech sector got sold off. Pretty significantly in the last week, right? And I, I'm wondering, are investors buying back some of these stocks that are going to report in the week ahead, ahead of what could be good earnings or decent earnings? You know, it's always good. You know, what I like to see from an earnings perspective is, I like the stocks that come down into earnings season, it kind of lowers the bar. Just like earnings usually estimates, expectations usually come down going into the reporting period, it lowers the bar. The same goes for if the stock comes down. Usually get a better post post performance, I guess so.

 

Chris Versace  10:35

Well, the the flip side to that Lindsay is when I see companies start to release, like a flurry of press releases right before the earnings date. I always get nervous. It's kind of like a little bait and switch. Do you know what I mean? Oh, look at all we have going on. Don't worry about the quarter.

 

Lindsey Bell  10:52

That is reporting on a Friday afternoon, right?

 

Bob Lang  10:55

Oh, yeah. So I would, I would also say that, just referring back to what Lindsey talked about with relative strength. It we've been we've had that high relative strength for a long period of time. In fact, if you go back to the bottom that was came in and around the end of April, and we started making a series of higher highs, higher lows, our textbook definition of an uptrend, we were actually those elevated levels on relative strength for about a good month or so, and above 75 on RSI for a good actually, I'm looking at the chart here six and a half weeks. So you know, one point, at what point do you say I got to get off the train? It's way overbought. If it just keeps going up and up and up. It says a lot about the market trend and the strength and the power of the market right now, and certainly since last October, when it appears that a bottom was put in on the SP 500 and the NASDAQ. So I think it's a testament of what the strength of the market right now, and even this pullback here, if it's good and yesterday's rally is something real, then we have to be paying attention and try and get on board.

 

Chris Versace  12:05

So Bob, when you're saying the strength of the market, you know, there's been a lot of conversation about a widening out of the market. People moving from big tech to other parts of the market. Are you detecting that? Because you know what we saw earlier in this week, this Monday rally that you referred to, I mean Nvidia, Qualcomm, you know, all those big tech names were back in vogue,

 

Bob Lang  12:28

Right. So when I talk about, when I talk about breath, I'm talking about expansion of groups and sectors and so forth. And recall Chris and Lindsay earlier this year, and even late last year, the talk about the mag seven, right? These seven, eight names that were simply driving the performance of the market. I think the seven names of the mag seven, the Tesla's, Nvidia's, Microsoft et cetera, were responsible for a large portion of that SB, 500 return in 2023 and left a lot of other stocks by the wayside. So when I look at breadth, when I look at participation, I want to see a lot of different sectors, a lot of different groups, and what captures that is the Russell 2000 and we've talked about that recently, and we did a chart recently for that for our Street Pro subscribers on real money. What that what that does is it shows a broadening out of a lot of different groups, not just technology, but financials, gold, housing, retail, a lot of these little companies that are housed in the Russell 2000 started to do well over the past three and a half weeks, and actually since july 11, was really when the day that we started to see the outperformance of the Russell 2000 that was the day that CPI came out and was a little bit better than expected. And all of a sudden, race started to drop, and it was off to the races with the small cap. So when I look at the breath Chris and Lindsay, I look at that, that's really the indicator that I want to see do well.

 

Chris Versace  14:04

So if Bob for Lindsay, it's more clarity on earnings, something I would say that I'm looking for too, as well. What are you looking for from a technical perspective, that would kind of get us out of this, no man's land.

 

Bob Lang  14:17

Right. So I want to see a continuation of the trend of higher highs and higher lows. I also want to see when we touch back, when we get extended, we touch back to moving averages. In the case of the SB 500 we got very well extended over the past six and a half weeks, since the beginning of June, away from the 20 day moving average, which kind of acts like a Magno 20 day moving average is important for me because it's about a month's worth of activity, right? It's about 20 days of trading in a month. We got pulled away from that moving average for a good period of time, and we pulled back down, and we're testing it right now, and so I want to see how well we we do around that 20 day moving average. Here we break out a. Above that, we're put in a planted in a lower, a lower level that's higher than the prior one, which was back at the end of May, and that allows us to step forward and move up and make higher highs along the way.

 

Chris Versace  15:14

Okay, so higher highs, higher lows.

 

Lindsey Bell  15:17

I was just going to say, I love, like this, like, Bob's perspective, because, like I said, I'm not a technician, but I'm a fundamentalist, like I'm always looking at the fundamentals of a security or a sector or whatever it is, but it's always so good to dovetail with what's going on with the technicals, and so it's just another data point that either supports or or helps you make a decision about what you want to do and where you want to be, or where you think we're going. So I always love listening to folks like Bob talk about this stuff.

 

Bob Lang  15:48

Your Christmas present is in the mail. Lindsey.

 

Chris Versace  15:53

I was gonna, I was searching for some quick quip that I could throw in there, but I'm coming up short, but I will just say this Lindsay, this is why we call him the counselor. And for some actually, and the vast majority of people probably don't know this, Bob and I really got to know each other when we were at the street working on one of the first products that we worked on together, which was trifecta. And that was a great product, because it we melded the fundamentals work that I was doing with Bob's technical work. If only there was a better quant rating system at the time, boy, that product would have been on steroids. But that's that's neither here nor there, but I do 100% agree with you. Lindsey on that point about Bob and the technicals that he brings. Gotta love the counselor. Now with that, let's move on, because coming into the week, the big news was what happened on Sunday, and I'm of course referring to Biden out Harris in what do you guys think? Does this fundamentally change the election and the potential impact on the markets?

 

Lindsey Bell  17:02

I don't think it changes much. I mean, I you, I was looking at the betting markets and you still got Trump on top by a wide margin, although I guess that margin is shrinking as as we speak, as Harris moves up and seems to have, you know, all the backing that she needs to clinch the nomination, but, but the DNC obviously isn't for several weeks now. So to me, it's, it becomes a question of because there was a lot of commentary going around that that the move in the market, and I love the the Bob talked about july 11, and the CPI reading, there's a lot of talk in the market that the move that we've seen in small caps, and some of the other trades out there have been the a Trump trade. Is what it is? Is it a Trump trade, or is it an inflation trade? You know, we saw, we saw inflation falling nicely. We saw yields falling with it too. I think it's, I think it's more of that that than than the other.

 

Chris Versace  18:05

Lindsey let me just throw in there. Since that report, and I think Bob wants to talk about this a little bit, we did see expectations for rate cuts bounce back up. Right? The Fed had been talking about one. The market had been kind of thinking maybe two. And since that time, the CME fed watch tool, I think, is showing somewhere, correct me, Bob between two and a half and three. That's right. Yeah. So I think, I think that helps explain the the liftoff in small cap stocks as well.

 

Bob Lang  18:36

So why would

 

Lindsey Bell  18:38

I don't like I don't really know where the Trump trade narrative came from

 

Chris Versace  18:42

So, you know, you know Lindsay, perhaps, sorry, Bob, I mean to cut you off again, again and again, but I think it's Lindsay. I think it's more like Trump just taking credit for it. It could be, you know what I mean, Bob, go ahead.

 

Bob Lang  18:59

Well, what I was going to say here is this is that if you, if you look at the market over the past, let's look at the past seven, eight years, right? We had, you go back to 2017 Trump's first year in office. You remember the SP 500 was up every single month for the whole year. Never happened in history. 2017 every single month was higher. It was a strong market. Following after that was a poor market. Then we had covid coming in. And 2020 we all know what happened there. But then, you know, Joe Biden takes over. And if you want to use Kamala Harris and Joe Biden as a proxy for each other, fine, we've had new high, new all time highs in the markets as well under them. So I really don't know what the difference is. You know, if you're talking about the performance of the stock market, I guess either one of them could, could, or is it, or is it, or is it the Federal Reserve and interest rate policy that is driving it instead?

 

Chris Versace  19:59

Right? Wow. Okay, there's a lot to unpack that's like a whole episode unto itself. Bob, I'll just say kind of quickly and Lindsay, please chime in. I think, as it relates to Trump, right? It was the notion of less regulation, a looser policy on energy potential, tax cut that we eventually got. And if you look at what really popped s&p 500 earnings in those first two years when Trump was in office, it was that tax cut in the impact to corporate earnings with Biden, I think it really shifted around towards stimulus spending and the benefits that we're seeing, along with the expectation really over the last, I guess I would call it, you know, six to nine months, that the Fed might actually be beating on inflation, winning on inflation from the old Charlie Sheen, or getting ready to make these rate cuts. So, you know, we will see. I think we've got some data coming out later this week, though, that could tell us if the market's ahead of itself when it comes to rate cuts. But let's stick with the election. You know, I think you're right, Lindsay, that ultimately, it's not really going to matter much. I think it's going to come down to policy. My suspicion is, and I mentioned this to Bob earlier today, is that right now, Harris is getting, you know, a big wave of euphoria, right? Really playing into the not Trump people, right? Okay, fine, but at some point she's going to have to come out, and she's going to have to start talking policy. What will she do? What will her efforts be directed towards? And I think, you know, I'm not going to say that the balloon will be off the rose, but I think it'll be a sobering moment for folks. Maybe she delivers, I don't know. I think we have to wait and see. But I think it's going to be a long and contentious election season. I think it's going to bring out some of the ugliness that we see in America. I hate to say that, and I think it's going to come down it could very well come down to the wire.

 

Lindsey Bell  21:59

Yeah, I think it will come down to the wire. I think it's it's going to be an interesting it usually the after the election. We usually see strength at the end of the year, going into the first year of a presidential term, which also is usually historically strong. Can we can thank our friends at the stock market almanac over there for that information, but, but we're looking at two candidates, even though, even though she is is new, I think a lot of people are expecting her policies to be Biden ask. And then we know Trump, right? We've already had Trump so. So so the interesting thing there is that we know, we know what we're getting, whereas you know, coming into other elections, you don't always know what you're going to get. If there's not, if there's not a sitting president running, you can have a different type of performance in the stock market. So, so I think it's, I think this technically bodes well for the stock market, at least in the into the end of the year.

 

Bob Lang  23:04

So what Lindsay said, there's very important, what is the mark stock, stock market does not like uncertainty, right? So what, what she just explained there was that we you know what you're getting with both sides, right? With Trump, you know what you're getting if, uh, Kamala Harris comes out with, like, like Lindsay said, Biden esque sort of policies, you know what you're getting. So the market knows what it's going to get, and so it's going to have a tendency to reduce volatility. The VIX is going to come stay low. We already have. What's interesting, I think we've talked about it last week, we already have, we have a huge rise in volatility going out to October, November, which, you know, a lot of people are pricing in a lot of turmoil, a lot of chaos coming from the election. So if that doesn't happen, and like what Lindsay says, the market already knows what they're going to expect over the next four years. Well, why is volatility high? You're going to sell volatility, and what normally happens when volatility recedes, comes down. You see the markets go up, right?

 

Chris Versace  24:07

Okay, okay. I do think I'll just add this before we move on that. I think the onus is on Kamala Harris to show herself to the American public, right? You know, typically the VP is not exactly forefront, and I think she's going to have to win over naysayers. We'll see. We'll see what happens. I But here, here's my call on this. The DNC and the Harris campaign are going to flood the market with digital advertising in order to help kamala's persona become known, recognized and hopefully relatable. I think the two big winners out of this, Google and the trade desk, interesting. No takers on that, huh?

 

Bob Lang  24:55

I would, I would say meta was probably going to be a big winner off this, especially if there's a lot of. A banter, a lot of advertising and so forth. I think they've basically said that they're willing to accept, you know, language and talk on unrestricted. So I think probably-

 

Chris Versace  25:15

You might be right on that, Bob, but I'll say two things on that. One, meta did say that they would reinstate Trump's Facebook account. So, you know it's going to be, you know, it's going to be a poop show. I'll just say it that way. And then the other one is that we own trade desk and Google in the street pro portfolio. Just want to disclose that this less someone accused me of talking our book Lindsay So earnings have started.

 

Lindsey Bell  25:44

Well, wait, let me just before you.

 

Chris Versace  25:45

No go ahead. Go right ahead. Go right ahead.

 

Lindsey Bell  25:47

What I was going to say is I also, I think that Twitter X, I'm sorry, like, I don't never know what to call it. Twitter x,

 

Chris Versace  25:54

well, do you tweet, or do you X, that's the question.

 

Lindsey Bell  25:56

I tweet. I know I tweet, I tweet, um, no. So I think that that's already proving to be a big winner in in this whole election year cycle. Just, I mean, with the Trump attempted assassination, with the Biden news, people are going there first.

 

Chris Versace  26:17

You know it, it is true. Like I like we talked last week when I was at the savannah bananas everybody the minute they heard you, just soft bones turned to x, right? It's, it's, you can say what you want about the platform. There's a lot of noise, a lot of garbage, a lot of funny people as well. But when it comes to breaking news, it is a pretty good resource. And you could be right, you know, Elon Musk could be undercutting folks at meta and elsewhere to capture a lot of this incremental digital advertising during the election season. I mean, Baird came out and they said that they see the presidential cycle and the Olympics driving a mid, high, mid, what high single digit to low double digit year over year, increase in digital advertising. So you know, folks are going to be chasing it now. Lindsay, Lindsay, I mentioned the Olympics. And I know you had something about the Olympics you wanted to talk about, yes,

 

Lindsey Bell  27:13

I mean, because before, as we prepare for this wonderful podcast that we do, Bob had this amazing idea of, like, how do we tie in the Olympics? It's, it's coming out. You know, the kickoff ceremony is on Friday, and I, I shouldn't take credit. I was reading through some bespoke research, and they mentioned the mag seven from 1996 the the women's gymnastic team that just took the gold and dominated. So they the original mag seven, right? So we're going into mag seven earnings as we now know it, which is going to be highly anticipated, I think that you know you saw we started talking about the downtrend of last week in the market, with a lot of the tech sector being hit pretty hard. If you look at the mag seven, if you look at the charts of these stocks, they're still in a pretty strong uptrend. Bob, I know you, you probably are already looking at those. So even though they've sold off, it's kind of like this, this opportunity, this buying opportunity, potentially ahead of what could be good earnings. Of course. You know, I look at the I was looking at the mag six took Tesla off the list. But you know that group of names, alphabet, Google, Amazon, Apple, meta, Microsoft, is expecting about 31% earnings growth in the second quarter. But, but the quarter overall right now is estimated at about a 9% earnings per share growth rate. So you could see that the rest of the market is is lagging significantly. So I think there is a lot of weight on the shoulder of these stocks going into earnings season. And like I said you it's can be a blessing when the stocks sell off ahead of, ahead of the reporting period. But I think just like last quarter, expectations are high for this group. And again, it's going to be like, just like every other company out there, it's going to be about the outlook. What are they expecting? What are they seeing coming forward? And I think, Chris, I know you'll probably want to talk about this. I don't want to forget the move in the semis, Taiwan Semiconductor, a couple of the others came out, and they talked about how strong demand was for their equipment and AI chips. I know you dig into it deeper than I do, so I

 

Chris Versace  29:33

will take that baton. Lindsay. Don't you worry sticking with our Olymp Summer Olympic theme. Yeah. No, you're 100% right. I mean, the TSM earnings report for June came out, holy cow, high performance computing was up over 50% they say that they see it doing that again in the September quarter, smartphone was up big year over year. And if you kind of interpret. Or interpolate. Sorry, their guidance, it should also be strong, kind of confirming it, but, but their commentary about AI on device, whether it's PCs or smartphones, and the the expected upgrade cycle, just kind of reinforcing it. So, yeah, I mean a lot of positive data points, but, but there was also, and I don't know if you guys saw this or not, but there was a price target increase this morning for Microsoft, and I want to say it was Piper or Baird or somebody like that. And what they said is Microsoft is targeting more than doubling its cloud revenue over the next two and a half years, going from about 100 billion to 200 billion. So if they're going to do that, that tells me that they will be spending, I won't say, like drunken sailors, but they're going to have to spend quite a bit on data center. That's going to be great for stocks like Nvidia, Marvell, potentially, AMD, who knows, maybe even Intel, will get its act together finally.

 

Bob Lang  31:02

Well, the one thing, the one thing I was, I would caution about, and I'm like, I TSM and, you know, Chris and Lindsay just played out here, stock is up 70% year to date, January, since January. So I and at the peak, just about two weeks ago, it was up at about 85% so I worry that perhaps the good earnings are already baked into the price of the stock. You know, I hate to throw cold water on it, but, you know, you have to be realize something that the market does tend to get ahead of itself, especially with with foreign stocks, like like Taiwan semi

 

Chris Versace  31:40

I'll go you one step further on that Bob, you know, as we go through this earnings season, one of the things I'll be listening for is, to the extent that capacity is still tapped out for these AI chips, are we getting the sense that companies are putting in multiple orders, right? And the reason I say that, why I'm listening for that is historically in cyclical industries, whether it's rail cars, trucks, ag equipment, construction equipment. During the uptime in the cycle, when capacity is tight, companies will put multiple orders in for equipment. But as things tie, as we go through the economic cycle and things slow, you start to see potential cancelations in that backlog, right? Next thing you know, those companies have production gaps. So I'm not saying, I'm not saying, Oh, this is happening here, but it's something to be mindful of, that's, that's kind of where I'm coming from. But look, we also had comments out from NXP semiconductor, which were not only good for digital infrastructure and mobile, but they were a little eye opening, in my opinion, for auto, because their business for auto chips was down year over year. And sequentially, you know, GM came out with some good guidance, but, you know, in earnings, but that stock is actually falling off, and I think it's a more cautious tone, perhaps, on the second half of the year about getting their their financial house in order. Have you guys seen anything on that?

 

Lindsey Bell  33:08

I noticed what you just said about the auto and the NXP sector, and I think it kind of aligns with, and I think we're going to get to inflation at some point here. But I think I think it kind of aligns with, with what you're seeing is, is, is the consumer is slowing. The consumer is, is starting to feel a little bit of pressure. You see that in the jobs data, you're seeing it inflation, and that's what, that's what we need for, for soft landing, really, is we need a slowdown in the economic environment. So I know we just had a upbeat conversation about semiconductors and AI, but on the other side of it, the consumer is starting to, I think, slow down on spending and things like that.

 

Chris Versace  33:50

I saw, I saw earnings from Polaris right, the big ATV company, you cannot get a more discretionary purchase than an ATV. And you know, they were saying that the inventories that their dealers have ballooned, they slashed their outlooks. They're slashing production to get more in line. I think that's another indicator Lindsay, that you're the consumers are being increasingly selective. But there was also something that I saw, I think chain store age reported on this that there was a large increase, I want to say, 25, 30% year over year, for the number of online vendors that are using discounts and coupons because they've got to lure people in. And that, of course, I think speaks to what you're talking about in terms of disinflation.

 

Lindsey Bell  34:41

I mean, I think that, I mean, we talked, we were talking about it. I think you mentioned it earlier. McDonald's expect spending its $5 meal deal for another month at least. We'll see how long that goes. But, I mean, you're seeing it. Even some of the companies that have reported are ready. I. ConAgra, Pepsi, Starbucks, last quarter, they'll probably we might hear something very similar this quarter. Is that, you know, volumes are dropping as prices have increased, although ConAgra actually cut prices a little bit, like half a percentage point, but volumes were still down. And what I've been saying for the last year is we're literally living through a real life experiment of price elasticity of demand, and I think we're hitting like I think companies are realizing they're hitting the consumer is has reached their tipping point. If you look at food at home costs, for example, I know we're just talking about food here. It's up 25% since 2019 that's a lot. So the consumer is looking forward to that disinflation. I mean, I was at the grocery store recently and I was like, whatever my most recent checkout was, I think that was a little cheaper than I expected. I noticed, you know, the eggs and the butter were on, say, I bought two of the tops of butter because I'm like, Whoa. I like that price. But so prices are coming down, which is a good thing that's going to make the consumer feel better. And we know goods prices has been disinflationary for a while. It's the services, because that's where people where the demand is and where people want to spend their money, right? Bob is more sticky. Anyway.

 

Bob Lang  36:13

I was going to say Chris and Lindsay that as far as General Motors is concerned, I did see it. Stock pop right after earnings came out this morning, and it's retreating here. I think the market is telling you, you know, this may be as good as it gets for them. So this cycle, this is it, you know. And meanwhile, it's time to take some money off the table. Some big investors are in this name. Have always been in this name, but it's time to take some chips off the table. Because I did hear the CFO talk about good pricing for the past couple of quarters. They did raise their numbers, raise their guidance a little bit for the end of the year. But again, I think listening to what the market is telling you versus what the executives are telling you could be two different, completely different stories. But I do think that the that the market is telling you this that perhaps the best is behind them. For For now.

 

Chris Versace  37:02

Let me share, let me share one quick anecdotal story, and then we'll move on to this week's economic data, because we're going to get lost in the sauce if we don't. So the story is this, we recently got rid of a Toyota Highlander and we picked up a Ford Bronco sport. Great car. Love it packed. But here's the thing. We went and looked at all sorts of dealerships. A lot of them had not 10 or 10 or 12 cars on the lot, 3040, 50 cars on the lot. Here we're talking Audi, we're talking Ford, obviously, Kia, Honda, you name it, right? And, you know, you always have to negotiate when you do these things. It's kind of a slimy process, but you got to do it anyway. The first offer that we got for the Toyota Highlander came from Kia, and it was for 12 grand. Okay, we're like, Alright, thanks, whatever, whatever. Whatever. Didn't really want the Kia, to be honest. But then a couple days later, Kia texted us and said, Hey, how about 15 without, without us doing anything, right? So you knew that they were kind of primed to, you know, to deal. So we took that to Ford, and Ford said this, they go, Oh, we're not really sure your car is worth it, but we'll give it to you anyway to make the sale happen. So it tells you that these car dealers, and therefore the automotive companies you know things are you know, as we talked about with the consumer Lindsay, they're becoming more cautious, more selective, what have you. In other words, I think they're getting a little more desperate. I wouldn't be surprised if we see more incentives coming, perhaps that's what the market is taking a look into, calling into question profits on gas engined cars, while these companies continue to take a bath on EVs.

 

Lindsey Bell  38:56

I think that's a good little anecdote.

 

Chris Versace  38:58

I you know, I try, I try. I don't always do it well, but I do try. Let's move on, because I know we're running a little long here. Two big economic data points coming out this week. Lindsay, which one's more important in your mind, the June core PCE number, or the flash July PMI?

 

Lindsey Bell  39:19

So yeah, I think it's, the core PCE, because that drives the Fed. The Fed meets next week, and so everybody's expecting the Fed to kind of signal that September is the time for the first rate cut. And I think the PC will impact that the markets I was looking at, the Cleveland fed, the markets looking basically for two and a half, just under two and a half percent. I know we're going out multiple decimal points, like, are we just losing our minds over here? What? But so which would be down from 2.6 in the prior month, and show the continued, continued resumption of downward trend. And the Fed wants to see us getting to two point. On their favorite indicators. So I think the market's really going to be watching that, although I do think, you know, we've seen the market move in response to CPI, so it's kind of, as long as there's no surprises, this should be par for the course.

 

Chris Versace  40:14

Okay, Bob, any thoughts on the July flash? PMI, are you with Lindsay on this?

 

Bob Lang  40:19

I'm with Lindsay on the PCE post consumption expenditure, I think the month over month, they're looking for a 0.1 so that would be an annualized 1.2% on the core PCE, certainly in the zone for the Fed to start having a discussion about rate cuts based on that one indicated. But I'd also throw one more thing out there as well, too, Chris and Lindsay, is Thursday morning. We get the first look on the GDP for second quarter. And I think this is an important report. I think the Fed is going to be looking at this one, not necessarily on the growth number. I think the consensus is looking at 1.9% Lindsay, you may know a little bit better number than this, but the more important number is the deflator, which I think we're looking at about a 2.6% increase in in inflation. So is, is the growth from q2 being driven by inflation, or actually organic growth? So that's that's what the Fed is going to be paying attention to. I think this is an important number. I know it's a look back from three months ago, really. It's somewhat insignificant, but it is a very important number, because the Fed is concerned about growth, and it will help them make decisions towards policy going forward.

 

Lindsey Bell  41:40

I think that's a really good point, Bob. The other thing I would say, too is the PCE is, it's, it's, it's less heavily weighted towards shelter and rent. So I think also the recent existing homes data, even though the that the number was really weak this week, the prices hit a new record high for the second month in a row, which is like, I'm not so that the shelter component of CPI has been, has been really sticky. So there's definitely a lot of moving parts here too. But I like you. I really like your point on the deflator being an important component of the GDP reading for the Fed as they go into next week.

 

Chris Versace  42:19

Excellent, excellent. And with that, folks, we will be right back, and when we do come back, we'll be sharing what we each learned from our conversation today. Hang tight.

 

Chris Versace  42:35

All right, Bob and Lindsay, let's put an episode. Let's put a bow on this episode for everyone. What do you say, Bob? Sum it up for us. What does it all mean? And what did you take away from our conversation today?

 

Bob Lang  42:49

Well, it all means that, you know, the market is trying to get straightened out here from a little recent corrective period, but there's a lot of data that you talked about with the PCE coming out later on this week, and then also the GDP number, and then the flash number as well, too for PMI. So a lot of data here, and don't forget earnings coming out. So there's a lot of information here that we have to process here. The markets have done pretty well for the month of July, even though the last few days have been of last week were corrected period. But I think that by and large, the uptrend is still intact. And I think we're going to be moving forward. And I think certainly earnings are going to, are going to be the driver of performance here.

 

Chris Versace  43:37

So earnings matter. Lindsey, you just heard Bob say it. Wrap up the episode for us.

 

Lindsey Bell  43:42

You know, I'm always going to agree that earnings matter, but I that's, you know, that's my bread and butter. But, um, yes, no earnings matter. But I think what we're seeing is, to me, what we just talked about is there's a lot of puts and takes in the market, and it's not a one size shoe fits all type of story I am, you know, I, you know, Bob just said, we're still in an uptrend, and so I'm supportive of that, and like to see that too. But I think when there's puts and takes, that creates opportunity. So I think it's, you know, you take each piece of data one day at a time, and you make informed decisions off of that.

 

Chris Versace  44:19

Excellent, excellent. Well, I'll say this. I think what stood out to me in the conversation was what Bob pointing about, pointing out, excuse me, when it came to volatility and for October and November, I think that was a great standout point. Lindsay, you know, I'm going to agree with you on earnings, which is why I'm going to say, for me, what it all means is that we are starting to see the earnings season really accelerate now it's going to be, in my estimation, a little choppy. There'll be certain parts of the market that do better than others, and I think folks that are listening, prepare your shopping lists, get yourself ready to take advantage of some of these opportunities that come your way. You'll be wanting to look for companies with increasing strength in the back half of the year or or levels at which you might want to pick up companies that kind of disappoint a little bit, and given a potentially nervous market, you might see them pull back more than they should. So get that shopping list. Ready? Any closing comments? Bob, any closing comments? Lindsey?

 

Bob Lang  45:26

Well, I'd say, you know, watch the Olympic Games. They're going to be starting on Friday. Lindsay made a good, great reference to that with the mag seven. And I'm excited to see what happens in Paris to our our young athletes and American athletes, to see how they do.

 

Lindsey Bell  45:43

I will add on to that. I watched a Simone bow special on Netflix. You gotta watch it. It's pretty good. It's pretty good.

 

Chris Versace  45:50

Alright alright, we'll do that. Alright, folks. This is Chris Versace saying we will, well, actually, next week, Bob and Lindsay will see you next week, I will be out, but I trust them to take the reins and take you through another wonderful conversation, putting it all together and telling you what does it mean between now and then check. Take a look for Bob over@explosiveoptions.net or at Aztec 99 on whatever we call it, Lindsay, Twitter, X, whatever it is. Uh oh, while you're doing that, look for at just l bell for Lindsay and check out her newsletter the shift. As for me, folks, you can find me over at the Street Pro portfolio or thematic signals. Thanks for listening. We'll catch you next time you.