SoFi's on a High, Palo Alto's Got a Surprise, China Deal's a Maybe and Fed's Back

It's incredible. The speed with which the summer seems to fly by can take folks by surprise. Somehow, some way, though, for those of us just nerdy enough to try to anticipate changes in short-term interest rates, economists, traders, and investors, the waiting from one Federal Open Market Committee policy decision to the next can feel like the passing of an eternity. On June 18, the Federal Reserve Bank's FOMC (Federal Open Market Committee), which consists of just 12 voting members at any given time, released a statement describing an uncertainty around the economy that had diminished from where it was, but persisted to some degree. The committee communicated the need to keep rates where they were as unemployment was still low and inflation remained elevated. 

This afternoon, that committee will take another crack at it. Expectations are for no changes to be made to short-term rates at this meeting, but that the group may take the opportunity to set the table for a rate cut at its next meeting which will culminate on Sept. 17. In fact, Fed Funds futures markets trading in Chicago are currently pricing in a 97.4% probability for no rate cut to be implemented at this afternoon's events, but a 64.1% likelihood for a quarter-percentage point rate cut to be made on Sept. 17. 

This afternoon's decision will be made public in an official policy statement at 2 p.m. ET this afternoon to be followed up by a press conference a half hour later. That is where Fed Chair Jerome Powell, who has been under pressure from the executive branch of government to get the ball rolling on rate cuts, will answer questions for the financial media. We have been discussing in this column, the growing factions at the FOMC. There is a minority, but vocal group that, like the president, would like to see the start of a regime of reduced borrowing costs begin as soon as possible. The rest appear to be on board with Powell, do not trust that the upward threat posed to inflation by higher tariffs will pass and want to be more patient. 

Hence, though no changes are expected this afternoon, it would not surprise many Fed watchers at all should there be some dissent expressed at the tail end of the statement. Fed Governors Christopher Waller and Michelle Bowman have made a public case for a rate cut as soon as this afternoon and can probably be expected to dissent. It has been more than thirty years since more than one member of the Board of Governors dissented at any single meeting. 

That fact alone may be indicative of something problematic at the Fed. How is it possible that over 30 years, there has been so little honest debate? Group think or shall we say "group stink" has long been an issue in our nation's capital and that includes at the central bank. Among regional bank presidents with voting rights this year, Chicago Fed Pres. Austan Goolsbee has made dovish comments since the last policy meeting. Additionally, San Francisco Fed Pes. Mary Daly has sounded dovish as well, but San Francisco will not vote on policy in the Fed's rotation until January 2027. That makes Daly little more than a cheerleader this afternoon. 

Just a little info for the kids out there that might be new to the world where economics intersects with monetary policy, the FOMC makes scheduled policy decisions eight times a year and all eight come packaged with an official statement and a press conference. The FOMC only makes its public economic forecasts on a quarterly basis, so at every other policy meeting. There will be no economic forecasts released this afternoon, but one is due at the September meeting. That is one major reason why a rate cut in September makes sense and some table setting this afternoon is likely. 

Big China 'Maybe' 

Two days of trade deal negotiations between the U.S. and Chinese delegations concluded in Stockholm, Sweden on Tuesday. There was talk of a third day of talks. That did not happen. Treasury Sec. Scott Bessent, who led the U.S. team, said that these talks were "very constructive." 

The secretary also confirmed that a 90-day extension to the president's Aug. 12 deadline was the likely outcome of these talks and not a real resolution to any issues eventually requiring something finite. On the potential extension, Bessent made clear, "Nothing is agreed until we speak with President Trump." Readers will recall that on Monday, Commerce Sec. Howard Lutnick had all but predicted such an outcome but also added that this is the president's decision.

Say What, SoFi? 

On Tuesday, Sarge-fave SoFi Technologies SOFI reported a blowout quarter and raised guidance. Huzzah! Readers know that I took my already Street-high target price up to $29 from $26 after adjusting my pivot. The stock apexed for the session at $25.11, which was up 19.5% for the day at that time. That, however, was precisely when the market started to sense that everything might not be coming up candy canes and puppy dogs. 

The stock closed at $22.40, still up a robust 6.6% for the session, but well off of the high. Overnight, astute traders have likely noticed that the stock is trading with a $20 handle, down 7.7% from Tuesday's closing sale at last glance. 

So, what gives? Late Tuesday, after the closing bell had rung its last, SoFi Technologies announced an underwritten secondary public offering of $1.5 billion worth of common stock. Yes, my friends, the dilution bug was about to bite SoFi shareholders. Goldman Sachs GS, Citigroup C and Mizuho will act as underwriters. I believe that Goldman will act as the lead banker and run the book as that is where SoFi CEO Anthony Noto cut his teeth financially after leaving the U.S. Army. 

At 1:59 a.m. ET on Wednesday, I saw the headline cross the tape: The deal, which amounts to 71.94 million shares, had been priced at $20.85, which was at the low end of the $20.85 to $21.50 range announced on Tuesday evening. I do not like that Goldman priced the deal at the low end of the range. That could mean that they were still seeking buyers as night melted into morning and 2025 is nothing like the glory days of my investment banking youth. 

Investment banks in 2025 do not stand there and support their own deals where they had been priced on day one. Those days have passed. If the real institutional support is somewhere below the deal price, that is where the share price for the stock is going to go. Remember, Anthony bought more than half a million shares for his own account just two weeks ago, taking his long position up over 10 million shares. I've told you before. I trust this guy.

Marketplace 

What's the Fed going to do this afternoon? Different markets told us different things on Tuesday. Bond traders saw reason to pile into U.S. Treasury debt securities a day ahead of the decision. The U.S. Ten-Year Note paid just 4.33% by day's end (-9 basis points), while U.S. Two-Year paper paid 3.88% (-5 bps). Interestingly, yields dropped for 90-day and 180-day T-Bills as well despite the fact that this is a very heavy week for federal T-Bill issuance. 

Equity traders and investors were less optimistic. Both the S&P 500 and Nasdaq Composite closed the day in the red, down 0.3% and 0.38% respectively. That ended a six-day winning streak for the S&P 500 and a four-day winning streak for the Nasdaq Composite. The Dow Transports were trashed for a loss of 2.29% as United Parcel Service UPS suffered a beating of 10.6% after posting another less than successful quarter. 

I have to admit that I was a big fan of Carol Tome taking over the top job at UPS after a very successful run as CFO at Home Depot HD, but she has been the firm's CEO since June of 2020. The stock has been in steady decline since February of 2022. She is not the chair, and I am sure she is hearing it from the board of directors at this point. 

Of the 11 S&P sector SPDR exchange-traded funds, four closed in the green on Tuesday, led by the REITs XLRE and the Utilities XLU. It's always taken as a note of caution when sectors with defensive characteristics become the market leaders approaching potential market catalysts. Seven of these funds closed in the red, led lower by the Industrials XLI, while Technology XLK closed unchanged. 

Breadth was sloppy. Winners beat losers by a smidgen at the NYSE, but losers beat winners by more than a 2-to-1 margin at the Nasdaq. Advancing volume took a 40.2% share of NYSE-listed trade and a 38.2% share of compost Nasdaq-listed activity. Aggregate trade was higher across NYSE-listed securities, but lower across Nasdaq-listed names. Trading volume increased across the membership of the S&P 500 as well. 

This was not a "Day One" of bearish reversal, but it was enough in my opinion to make sure everyone has clean socks in their ruck, at least two sources of drinkable water, six loaded thirty round clips (three on the belt), at least two fighting knives strategically placed and a gas mask on the hip. Otherwise, it should be quiet until Jerome Powell opens his trap at 2:30 ET. Honest.

Palo Alto Surprise! 

On Tuesday, the Wall Street Journal reported that cybersecurity giant Palo Alto Networks PANW is in discussions to acquire CyberArk Software CYBR. Why is this a surprise? Readers will recall that I had recently written that Palo Alto was likely going to have to "buy" some growth to keep up with cybersecurity "best in class" name CrowdStrike CRWD. Well, I was right about that. I had anticipated that SentinelOne S was the fit. Apparently, it was not.

Economics

(All Times Eastern)

07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.84%.

07:00 - MBA Mortgage Applications (Weekly): Last 0.8% w/w.

08:15 - ADP Employment Report (Jul): Expecting 80K, Last -33K.

08:30 - GDP Growth Rate (Q2-adv): Expecting 2.5% q/q, Last -0.5% q/q, SAAR.

08:30 - Treasury Refunding Announcement.

10:00 - Pending Home Sales (Jun): Expecting 0.3% m/m, Last 1.8% m/m.

10:30 - Oil Inventories (Weekly): Last -3.169M.

10:30 - Gasoline Stocks (Weekly): Last -1.738M.

The Fed 

(All Times Eastern)

2:00 - FOMC Policy Decision. 

2:30 - FOMC Press Conference.

Today's Earnings Highlights 

(Consensus EPS Expectations)

Before the Open: MO (1.38), GEHC(.92), HOG (.93), HSY (1.00), HUM (5.87), SMG (2.26)

After the Close: ALB (-.79), ARM (.35), CVNA (1.14), F (.33), LRCX (1.20), META (5.86), MSFT (3.38), QCOM (2.71), HOOD (.35)

At the time of publication, Guilfoyle was long F, LRCX, MSFT, SOFI, PANW, CRWD, S equity.