Dan Niles warns of ‘long, punishing journey’ for US economy
Hedge fund manager Dan Niles said on “Tech Check” that he has positioned his portfolio for a U.S. recession.
Niles said that the recent decline in forward earnings estimates would continue in the months ahead and that the Federal Reserve would continue to put pressure on the economy through rate hikes.
“This is going to be a long, punishing journey, as the Fed will probably remind us at Jackson Hole on Friday. They’ve still got to raise rates a lot more,” Niles said.
Niles said that his Satori Fund owns Amazon and Walmart because those companies could gain market share in a recession. On the other hand, the fund is shorting enterprise tech stocks where corporate demand could weaken in a recession.
Overall, Niles said the S&P 500 could get back down to 3,675 or even lower.
— Jesse Pound
Energy jumps 4% as oil prices rise
The S&P 500’s energy sector jumped 4% on Tuesday as oil prices rose after Saudi Arabia hinted at a potential OPEC+ output cut.
Global benchmark Brent crude gained $2.64, rising to $99.12 a barrel. U.S. West Texas Intermediate crude added $2.83, or 3.13%, to $93.19.
Shares of Halliburton, Occidental Petroleum and Diamondback Energy jumped 8%, 7.1% and 5.1%, respectively. Shares of Exxon Mobil, EOG Resources and Pioneer Natural Resources gained more than 3% each.
— Samantha Subin
Occidental jumps again, continuing a Buffett-induced rally
Shares of Occidental Petroleum climbed 8% around midday trading Tuesday, continuing a rally triggered by news that Warren Buffett’s Berkshire Hathaway received approval to buy up to 50% of the oil giant.
Occidental has become one of retail traders’ favorite stocks thanks to the endorsement from Buffett. The stock has been the biggest winner this year on the back of soaring oil prices, rising more than 150% year to date.
Zoom tanks 14% on forecast cut
Shares of the videoconferencing company plummeted more than 14% after cutting its full-year forecast. Zoom posted an 11-cent earnings beat for the second fiscal quarter but revenue fell short of expectations, weighed down in part by the strong U.S. dollar.
The company said revenue in the recent quarter grew 8% year over year, down from 12% growth. Zoom also said it expects its online business to be down 7% to 8% in the full fiscal year.
Palo Alto Networks surges on earnings report
Shares of cybersecurity firm Palo Alto Networks jumped 10% during Tuesday’s session after its Monday earnings report.
The company reported quarterly results that beat Wall Street’s expectations on the top and bottom lines, provided strong quarterly and full-year guidance and announced that its board approved a 3-for-1 stock split to take place in September.
In addition, the company expanded its stock repurchase program by $915 million to a total of $1 billion.
Wall Street cheered the results, with a few analysts raising price targets on shares of the company.
Dick’s Sporting Goods earnings
The retailer forecasts comparable store sales in 2022 to decline between 6% to 2%, compared to previous estimates between 8% and 2%.
Shares ticked slightly higher during the regular session.
— Sarah Min, Jack Stebbins
Treasury yields reverse course after weak housing and PMI data
Treasury yields turned lower, and the 10-year yield was negative on the day after weaker housing and PMI data.
The 10-year, as high as 3.07% earlier, was just holding 3%, after a report that new home sales fell 12.6% in July, about 10 percentage points more than expected. Yields move opposite price.
“The most rates-sensitive sector of the economy has taken it on the chin as the Fed’s aggressive tightening has taken the wind out of the housing market’s sails,” noted Chris Rupkey, chief economist at FWDBONDS.
Both services and manufacturing PMI report were also below expectations, following weaker reports from Germany and France. Manufacturing PMI was at 51.3, still showing expansion. But the services PMI fell from 47.3 to 44.1, the lowest since May 2020. Below 50 signals contraction.
A round of weaker data could encourage traders to expect a less hawkish-than-feared speech from Federal Reserve chairman Jerome Powell at the Jackson Hole symposium Friday. Other key data before that speech includes durable goods Wednesday and personal consumption data Friday.
Shares surged 7% after the department store chain surpassed second-quarter profit and revenue expectations. Macy’s reported adjusted earnings of $1 on revenue of $5.6 billion. Analysts surveyed by Refinitiv were expecting earnings of 85 cents on revenue of $5.49 billion.
Still, Macy’s cut its full-year forecast, expecting lower consumer spending ahead on discretionary goods such as apparel.
— Sarah Min, Lauren Thomas
New home sales drop 12.6% in July
Sales of new homes tumbled 12.6% in July, according to data released Tuesday.
That decline brought the sales count to a seasonally adjusted annualized rate of 511,000, below estimates of 574,000. At the same time, supply rose to 10.9 months.
— Samantha Subin, Diana Olick
Bill Ackman hints at U.S. listing of Pershing Square Holdings
Bill Ackman indicated that his Europe-listed Pershing Square Holdings could one day be available on U.S. exchanges, enabling every investor to bet with him.
“We expect to continually evaluate PSH and its operations, and consider whether in the future it may be able to operate not as an investment company in the U.S., but rather as an operating company that could be listed in the U.S.,” Ackman said in his latest investor letter.
PSH, a closed-end equity fund with about $12 billion in net assets, is Ackman’s largest investment vehicle. It trades only on European exchanges, the LSE and Euronext Amsterdam, even though it is managed by a U.S. manager and owns North American headquartered companies. In recent years, PSH has traded at a large discount to its net asset value.
— Yun Li
August PMIs miss expectations
The August flash readings for S&P Global’s purchasing managers index came in weaker than expected on Tuesday.
The services PMI came in at 44.1, and the manufacturing PMI fell to 51.3. Economists surveyed by Dow Jones expected those readings to be 49.0 and 51.9, respectively.
The S&P Global composite PMI fell to 45.0 from 47.7 in July, hitting a 27-month low.
10-year Treasury yield rises in early trading as traders await Powell speech
The closely watched 10-year Treasury yield rose in early trading, as markets anticipate a hawkish tone from the Federal Reserve’s Jackson Hole symposium Friday.
The yield was at 3.06% in morning trading, after rising above the psychological 3% level Monday for the first time in a month. Strategists expect the yield to continue to drift higher ahead of Fed Chairman Jerome Powell’s 10 a.m. speech Friday at the Wyoming conference.
Strategists have been watching the quick move up in yields in the last several sessions as a potential negative for stocks. Tech and growth stocks are particularly hit when yields rise, since they are priced more for future earnings. Those future earnings are worth less in a higher rate environment.
The 2-year note yield, however, was slightly lower ahead of a 1 p.m. ET auction of $44 billion in 2-year notes.
Treasury yields move opposite price.
Stocks open little changed
Stocks opened little changed Tuesday. The Dow Jones Industrial Average rose 2 points, or 0.01%, shortly after the bell. The S&P 500 gained 0.06% and Nasdaq Composite advanced 0.19%.
— Sarah Min
Whistleblower complaint alleges Twitter has ‘extreme’ security and moderation issues
Twitter’s former head of security has alleged that the company has “extreme, egregious deficiencies” related to privacy, security and content moderation.
Peiter “Mudge” Zatko and the nonprofit law firm Whistleblower Aid have filed complaints with several federal agencies, including the Department of Justice.
The allegations include Zatko saying that Twitter CEO Parag Agrawal asked Zatko to provide false and misleading documents.
The complaint comes as Twitter is preparing to go to trial over Elon Musk’s attempt to cancel his takeover offer. Musk’s attorneys said they have issued a subpoena for Zatko.
Shares of Twitter were down more than 3% in premarket trading.
— Jesse Pound, Todd Haselton
Retail trading has picked up, and that could be a boost for Robinhood
August’s re-emergence of the meme stock trade could be a “modest positive” for retail-focused brokerage firm Robinhood, according to Piper Sandler.
“From various industry sources, it is clear that retail engagement has increased over the past few weeks. This should be a modest positive for HOOD as we expect to see activity levels to improve for the eBrokers,” analyst Richard Repetto wrote in a note to clients on Monday evening.
Robinhood has seen its active users decline sharply this year as the pandemic trading boom among retail investors has waned.
The company said last week that it had 13.2 million monthly active users in July, down from 14 million in June and 19.5 million a year ago.
— Jesse Pound
Morgan Stanley Wealth Management says, “This bear in our view has one last act”
Stocks may have pared back losses from their June lows, but Morgan Stanley Wealth Management believes there is further downside from here.
“[We] feel strongly that the bear market has not ended,” read a note from the firm’s global investment committee led by CIO Lisa Shalett.
Investors are underestimating inflation, growing recession risks, and the likelihood that earnings expectations will have to come down, according to the note.
“We view earnings risks as potentially delayed but not denied. Rising costs, slowing growth, strong-dollar headwinds, bulging inventories and loss of pricing power could drive disappointment. We see expectations for 2023 profits resetting by the start of the fourth quarter,” read the note.
“This bear in our view has one last act.”
— Sarah Min
Zoom Video gets downgrade after cuts to full-year outlook
Zoom Video reported mixed quarterly results and cut its full-year outlook, leading BTIG to downgrade the video conferencing company.
“Overall, the pullback in FY23 profitability and FCF is somewhat concerning as topline growth slows further, and thus we are downgrading shares of ZM to Neutral given significantly reduced near-term expectations,” analyst Matt VanVliet said.
CNBC Pro subscribers can read the full story on this downgrade here.
U.S. stocks will be challenged in the next nine to 18 months, fund manager says
U.S. markets might suffer in the coming months as a result of quantitative tightening by the Fed, Mary Nicola of PineBridge Investments told CNBC’s “Street Signs Asia.”
It means the U.S. central bank will likely continue reducing its balance sheet, which lowers liquidity in financial markets.
The Fed has been removing cash from the system that was pumped into the economy when the pandemic first started, and is expected to continue to do so even if the pace of rate hikes slows.
“We’ve seen such a rapid response and such aggressive returns from the markets as a result of balance sheet expansion,” the portfolio manager said. “Now that we’re seeing a tightening … in balance sheet, that’s where we’re concerned about financial markets.”
“Over the next nine to 18 months, you know, we think that equities are going to be challenged. So we’ve been taking a more cautious stance on equities overall and on risk assets.”
— Abigail Ng
European markets drift lower at the open
The Euro Stoxx 600 Index slipped 0.3% in early deals with media stocks the biggest laggard. Shipping firm Maersk saw its shares dip 2.7% after a price target cut for Citi.
Oil stocks rose by 1% after some steady buying in the commodity markets on Monday afternoon. Both WTI and Brent crude were higher for the session on Tuesday morning.
Read more here.
CNBC Pro: Tech investor Gene Munster reveals why this FAANG stock can top $250
FANNG stocks have rallied strongly in the second half of the year, but tech investor Gene Munster believes one stock could still see further upside ahead.
He tells CNBC why he loves this stock for the “next two to five years.”
Pro subscribers can read the story here.
— Zavier Ong
Markets have not seen peak Fed hawkishness, says Veritas Financial’s Branch
Veritas Financial Group’s Greg Branch believes markets have yet to experience peak hawkishness from the Federal Reserve.
“What we should be worried about is that this level and this persistency of inflation by all accounts is going to persist from the data that we’re seeing, and so what that means is that we haven’t seen peak Fed hawkishness at least at this point,” Branch told CNBC’s “Closing Bell: Overtime” on Monday.
According to Branch, the slowdown during the second half of the year is likely going to be deeper and longer than many investors and analysts anticipated in January when calls for a recession mounted. He also expects the Fed’s September rate hike to exceed 50 basis points.
— Samantha Subin
Where Monday’s moves put the major averages for August
Following Monday’s sell-off here’s where the major averages stand for August:
- Up 0.67% for the month, 10.52% off its 52-week high
The S&P 500:
- Up 0.19% in August, 14.12% off its 52-week high
The Nasdaq Composite:
- Down 0.07% this month, 23.63% off its 52-week high
— Samantha Subin
Zoom shares tumble 9% on revenue miss, weak outlook
Zoom shares dropped about 9% in extended trading on Monday after missing revenue estimates in the recent quarter and cutting its outlook.
The video conferencing company’s earnings came in at $1.05 a share on $1.10 billion in revenue, while analysts had anticipated 94 cents per share on revenues of $1.12 billion. At the same time, Zoom shared disappointing guidance for the current quarter and the full year.
Palo Alto Networks jumps about 9% on earnings beat
Shares of the cybersecurity company surged nearly 9% after posting a beat on the top and bottom lines in its fiscal fourth quarter. Palo Alto Networks beat earnings expectations by 11 cents a share on revenues of $1.55 billion.
The company also issued upbeat guidance for the current quarter and full year, while its board authorized a 3-for-1 stock split.
Stock futures open slightly higher
Stock futures opened slightly higher in overnight trading Monday. Futures tied to the Dow Jones Industrial Average were last up 32 points, or 0.1%. S&P 500 and Nasdaq 100 futures added 0.11% and 0.16%, respectively.
— Samantha Subin