Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Wednesday, July 24. The Bottom Line segment of today’s podcast starts at (3:27) for listeners who want to skip ahead. Be sure to check out the new ‘Stocks on the Contrarian Radar’ segment at the bottom of this page and (5:24) on the podcast.
State of Play
Yesterday was pretty uneventful, though the Russell 2000 which tracks small caps did manage to rally by 1%, recapturing levels from last week. After the close Tesla (TSLA 0.00%↑) earnings fell short of estimates, causing the stock to drop overnight. Google (GOOG 0.00%↑) earnings beat estimates but that stock is down in the pre-market as well.
As we look at our board of indicators for signs of direction at 0640 there is little going on other than the drop in tech:
Stock index futures are pointing to a lower open with tech leading the drop. Nasdaq futures are down 1% with the S&P 500 down 0.7%;
Commodities aren’t doing much. WTI crude oil is up 0.8% to trade around $77.50/barrel. Copper is up 0.2%;
Cryptos are unchanged. Bitcoin trades around $66,500;
Bonds aren’t doing anything either. The 2-year yields 4.44% whilst the 10-year yields 4.25%.
Today’s Known Events
Several earnings today to kick us off again:
Luis Vutton Moët Hennessy (LVMHF) reported first-half earnings that featured softer sales due to Chinese consumers pulling back. Never a good sign for luxury goods makers, of which LVMH is very much the poster child. LVMH is down 4% in Paris trading;
AT&T (T 0.00%↑) just reported mixed results and the stock is moving higher in the pre-market;
Lamb Weston (LW 0.00%↑) and General Dynamics (GD 0.00%↑) also report before the open at 0930;
The bigger names report after the close again: Ford (F 0.00%↑), Chipotle (CMG 0.00%↑ ), IBM (IBM 0.00%↑), Las Vegas Sands (LVS 0.00%↑), United Rentals (URI 0.00%↑), Whirlpool (WHR 0.00%↑), O’Reilly Automotive (ORLY 0.00%↑), and Waste Management (WM 0.00%↑) are the highlights.
We finally get some fresh economic data releases today. In chronological order:
Purchasing Manager Indexes from S&P Global, out at 0945. This is the so-called flash reading, the first one of the month, which makes it more important as subsequent readings just confirm what’s in the first. Economists who were surveyed expect a reading of 51.6 for Manufacturing PMIs, identical to last month, while Services is expected to come in at 54.7, a bit lower than the 55.3 recorded at the last reading. The 50 level separates expansion from contraction.
The Bank of Canada also decides on interest rates at 0945. The BOC is widely expected to cut its key policy rate to 4.50% from 4.75%.
New home sales are out at 1000. The expectation is for 639,000 transactions, an increase from the 619,000 recorded last month.
The Bottom Line©️
Whatever had investors concerned last week appears to be forgotten and a sense of lethargy appears to have set in. The dog days of summer may be upon us. Earnings will drive individual stocks of course, but where the broader market is concerned things are pretty quiet.
Maybe Friday’s PCE Deflator will change that? We have the Fed next week, plus more earnings. In all likelihood earnings will continue to be the story here.
Stocks on the Contrarian Radar
Luis Vutton Moët Hennessy (LVMHF) is now flirting with 52-week lows after the earnings sell-off. The stock is down 22% on the year. As an owner of some of the world’s finest fashion and wine/champagne brands (including Dom Perignon, Christian Dior, TAG Heurer and Tiffany, which it acquired a few years ago) this is the type of stock that could make for a solid addition to the Contrarian portfolio were it to get cheap enough. Unfortunately, that is not yet the case. LVMH trades at 23x earnings and almost 4x sales. More importantly, it has very much become a proxy for Chinese consumers, which is not the type of thing one wants to put money on (literally);
Visa (V 0.00%↑) earnings yesterday disappointed, leading to a small sell-off and vindicating the power of Barron’s as a contrarian indicator. The stock is now down on the year. Results weren’t even that bad, with earnings meeting (though not surpassing) estimates and revenues falling short. This was uncharacteristic as V usually beats estimates, which may be why the market dumped the stock overnight. Management kept guidance unchanged. The Contrarian did take the opportunity (discussed yesterday in this space) to buy more V in the aftermarket — once at $259 and once at $256. The valuation is a little less rich now, but still by no means cheap. Still, The Contrarian would love an opportunity to add to the position. If it sinks below $255 he will set up a limit order to buy more.
Housekeeping
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PMIs, More Earnings