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Tech is Dreck Again, Fresh Inflation Reading, New Fed Pivot Hopes

Tech is Dreck Again, Fresh Inflation Reading, New Fed Pivot Hopes

Stock futures are moving lower after Amazon earnings…

Good morning contrarians! It is Friday, Oct. 28.

Tech stocks sold off again yesterday after disappointing earnings from META 0.00%↑ as the Nasdaq dropped by more than 1%. For whatever reason this did not hit other parts of the market (or maybe not yet) as the Dow Industrial Average rose for the fifth straight day and is on track for a 3% gain for the week.

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State of Play

The bad news for tech resumed after the close, with AMZN 0.00%↑ missing earnings and providing a disappointing sales forecast. As of 0630, we are looking at some risk off:

  • Stock futures are lower, led again by tech. Nasdaq futures are down 1%, the SPY 0.00%↑ about 0.5%. Dow Industrials are flat;

  • Bond yields are rising, which means bonds are being sold. The yield on the 2-year is up 5 basis points to 4.37% with the 10-year up 7bps to 4%;

  • Commodities are dropping a bit. WTI crude oil is down 1% to trade around $88/barrel. Copper is down 1.5%;

  • Cryptos are down again, with Bitcoin off about 2% to trade around $20,200.

PCE Deflator

The Bureau of Economic Analysis publishes Personal Consumption Expenditures at 0830. This is the last inflation reading before the Fed’s interest rate decision next week.

The headline figure was 6.2% year-over-year last month (0.3% month-over-month). For whatever reason there don’t appear to be any survey numbers for the headline figure. Economists expect the Core PCE Price Index, which excludes food and energy, to come in at 5.2% YoY, which would be an increase over the 4.9% recorded last month. The month-over-month core figure is expected at 0.5% after 0.6% a month ago.


It’s been a massive week for earnings and it’s not done yet. Before the open at 0930 we’re due to hear from oil majors XOM 0.00%↑ and CVX 0.00%↑, and consumer staples CL 0.00%↑ and NWL 0.00%↑.

Tech is Dreck Again

What to make of the tech earnings? Amazon and Google were probably the most worrisome, as both lowered their outlooks. That doesn’t speak well to the B2B sector (ad spending in Google’s case) or consumer spending in Amazon’s. We’ve said for some time that the US consumer is one of the last things holding up the global economy. If Amazon thinks Americans are going to buy less stuff, especially during the holiday season, then that can’t bode well.

Meta/Facebook’s issues appear to be company-specific. It turns out that having a tone deaf sociopath with absolute control leading the company is not always a good thing. Maybe a lesson for TWTR 0.00%↑, though unlike META Twitter has never really found much favor with investors. Also, for all of Elon Musk’s flaws there are no reports that he is going to turn Twitter into a multi-billion dollar gamble on the metaverse (whatever that is).

So why has this the sell-off been limited to tech? Investors could be short-sighted or maybe the lack of panic is perfectly justified. For one, none of this means consumers are reining in spending. Remember that Amazon’s online sales are still expected to grow on a year-over-year basis, just by less than previously anticipated. The company has been losing some business to in-person retail all year. This isn’t 2020 and we aren’t forced to order everything online for home delivery. Consumers have returned to shopping in stores as Covid fears have abated.

Google’s ad spend concerns may be due more to a secular move away from web-based search. Most of the action is on social media platforms nowadays (maybe not Facebook anymore, but TikTok etc) so it would make some sense for Google to be losing market share here.

The Bottom Line©

Tech may be dreck again (or maybe just big tech) but that doesn’t mean the consumer is slowing. Nor should it detract from the solid business other companies are doing. Most earnings have been positive and many companies have even raised outlooks. So it makes sense that those parts of the market are moving higher.

There is now talk that next week’s FOMC meeting will include ‘pivot language’. This talk may in fact be helping risk appetite going back to last week. It may also be hopelessly naive as the Fed simply can’t risk having inflation continue to run wild. Yeah there may be political pressure on the Fed to stop with the rate hikes, but if inflation keeps running rampant the fallout will be far worse for the Fed and the economy alike.

It’s hard to see how the PCE Deflator will deliver enough to get the Fed to decide to declare victory over inflation. It’s just one report and the CPI has shown that inflation is still stubbornly high. But we’ll learn more about Fed policy next week.

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