Technical Difficulties: Google, AMD Disappoint, Apple Under Pressure

Tuesday had gone so well. Palantir Technologies PLTR had ripped the cover off of the ball on Monday evening, after the U.S. had appeared to quickly win trade disputes with both Canada and Mexico. Financial markets reacted very well, despite that the smoldering dispute with China, while not yet at a level that causes tremendous pain to either nation, has escalated.

Then came Tuesday evening's earnings releases. Alphabet GOOGL disappointed investors, falling short of fourth-quarter revenue expectations as sales for the Google Cloud unit missed estimates. One might have expected the company's projected capital spending, which was huge, to have been a positive for tech, or the semis in particular, and it still might be. I see Nvidia NVDA holding its own overnight. But Advanced Micro Devices AMD, a competitor, though distant, to Nvidia in the AI-capable design space, also reported on Tuesday evening.

AMD beat Wall Street's view on both the top and bottom lines, but investors focused instead on (still robust, but) decelerating growth in data center sales. AMD also guided toward a slight year-over-year revenue contraction for the current quarter, while CEO Lisa Su pointed toward the mid-year release of the MI350 series chips as when she sees notable sales growth.

Additionally...

Apple AAPL shares came under pressure overnight in response to a story at Bloomberg News that China's State Administration for Market Regulation is looking into the company's policy of taking as much as a 30% cut of in-app spending, while barring external payment services. The issue comes from an ongoing dispute between Apple and Chinese app developers Tencent Holdings and ByteDance over the American company's app store policies.

This, of course, comes on the heels of the escalating trade dispute between the U.S. and China. This also comes as Apple has quite publicly embraced both Vietnam and India as new manufacturing hubs in an attempt to diversify that base since the supply chain issues that became so glaringly visible during the pandemic and post-pandemic eras.

Marketplace

Tuesday showed some strength in financial markets not seen since the market caught wind late last week that the 25% tariffs on both Mexico and Canada were to go into effect on Saturday. Markets broke free of that spell, or the idea that there might be a far less expensive way to build large language models for generative AI purposes and rallied.

The yields for U.S. Treasures dropped as buyers moved back into that market. By end of day on Tuesday, the U.S. Ten Year Note paid 4.52% (-5 basis point). I have seen this yield drop as low as 4.47% overnight. The U.S. dollar also continued to move off of its recent highs, as strangely enough Bitcoin and many commodities did not rally. Gold and silver, however, did rally.

The Nasdaq Composite ran 1.35% on Tuesday as the S&P 500 gained 0.72%. There was strength in the Dow Transports (+1.11%) and small caps with the Russell 2000, up 1.41%. Interestingly, among the 11 S&P sector SPDR exchange-traded funds, there were six winners, four losers and one of those funds closed unchanged. Energy XLE, which will likely be under pressure this morning, popped for a gain of 2.1% on Tuesday, as the Utilities XLU and the other defensives showed weakness on a strong day for equities.

Breadth

Winners beat losers by a nearly 5-to-2 margin at the New York Stock Exchange and by a rough 7 to 3 at the Nasdaq. Advancing volume took a decisive 68.2% share of composite NYSE-listed trade on Tuesday and a commanding 71.6% share of composite Nasdaq-listed activity. All good, right? Confirms the failure of the market to develop a "day one" bearish reversal over the prior two sessions? Nor really.

Aggregate trade contracted by 8.1% on a day-over-day basis across names domiciled at the NYSE and contracted by a whopping 21.7% day over day for Nasdaq names. Does that render the positivity of the regular session on Tuesday meaningless? Well, meaningless is a harsh word. The trades stand, but the lack of activity often illustrates a lack of conviction by professional portfolio managers. If that crew is sitting on their hands, that is often a sign of indecisiveness.

Weakness in the Macro

There were only two macroeconomic releases on Tuesday that economists and Fed watchers focused on. After a positive-looking January ISM Manufacturing PMI print on Monday that showed significant growth in New Orders, but also sharp growth in prices, December Factory Orders fell to awful levels. Factory orders for December hit the tape at -0.9% from November, which was down from October.

This was the fourth month in the past five that factory orders contracted from the month prior. There was a silver lining, though: outside of transportation, factory orders were up 0.3% for December, implying that this may have been yet another data-point negatively impacted at the headline level by Boeing's BA never-ending problems.

Then there was the also somewhat dated, JOLTs report on job openings and quits for December. Apparently, job openings rolled right off of a cliff in December, down almost 7% month over month. The hiring rate printed at 3.4% for a third consecutive month, which does show stability, but is also just a hair above the lowest levels in more than 10 years (ex-Covid). The quit rate also remains close to the lower end of its non-Covid recent ranges. This implies a lack of confidence in the strength of broader U.S. labor markets.

It's way too early and this is not major data, but ahead of the jobs week data this week, there is now a 16.5% probability being priced into futures markets for a quarter-point rate cut on March 19. An actual rate cut is not fully priced into the market until June 18.

Wells, I Got Some Good News!

The stock price for Sarge name Wells Fargo WFC traded at what may be an all-time high (I only went back to 1991) on Tuesday after the bank reported that the Fed's Board of Governors had terminated two more consent orders dating back to 2011. This brings the number of consent orders stemming from the scandals of the past (under different management) that have been put to bed since 2019 (when Charlie Scharf took over as CEO) up to nine.

This probably, in my opinion, greatly increases the likelihood that the Fed might remove the asset cap placed on the bank in 2018 at some point this year. This has been my primary reason for my continued support of and investment in this bank.

Economics (All Times Eastern)

07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 7.02%.

07:00 - MBA Mortgage Applications (Weekly): Last -2.0% w/w.

08:15 - ADP Employment Report (Jan): Expecting 150K, Last 122K.

08:30 - Balance of Trade (Dec): Last $-78.2B.

09:45 - S&P Global Services PMI (Jan-F): Flashed 52.8.

10:00 - ISM Manufacturing Index (Dec): Expecting 54.2, Last 54.1.

10:30 - Oil Inventories (Weekly): Last +3.463M.

10:30 - Gasoline Stocks (Weekly): Last +2.957M.

The Fed (All Times Eastern)

1:00 - Speaker: Chicago Fed Pres. Austan Goolsbee.

3:00 - Speaker: Reserve Board Gov. Michelle Bowman.

7:30 - Speaker: Federal Reserve Vice Chair Philip Jefferson

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: HOG (-.66), ITW (2.51), SWK (1.27), UBER (.60), DIS (1.43)

After the Close: ALL (6.28), ARM (.34), F (.32), MCK (8.07), WEX (3.55)

At the time of publication, Guilfoyle was long PLTR, NVDA, AMD, WFC equity.