The Big Picture: Jobs Report Eases Rate Hike Fears; Earnings Bar Remains High

[00:00:00] Speaker 1: Welcome back to Morning Trade Live. It's time now for the big picture. So let's get to Joe Mazzola, Director of Trading Services at Charles Schwab. Joe, we've tackled many angles of this jobs report this morning. I'm just wondering what you make of the market reaction to this, given, of course, [00:00:16] Speaker 2: we've been waiting for it all week. Yeah, once the news came out, futures were up actually quite a bit more than they are now. They've paired some of those gains. But, you know, I think if anything, you just have to look at the probability of a rate hike in September dropping from about 55% down to about 42%. So I think, you know, markets looked favorably upon that. Overall, it's not great for the economic picture. But, you know, there's just been some stabilization. And I think if anything, you know, your prior guest summed it up well in that there's not a lot of mobility for workers right now. Wages aren't going up. That helps control inflation to a certain extent. And we've had some recent inflation prints, whether it's a PCE or, you know, CPI, that have shown that while things are above the Fed's target, they don't seem to be accelerating at a quickening pace at this point. If anything, you know, they're kind of just ratcheting up very slowly. [00:01:17] Speaker 1: So we're digesting a pretty mixed tape this week, obviously, a lot on the macro front. Yesterday, we kind of lost the macro, obviously, with higher oil yields. We continue to see WTI picking up this morning. There seems to be a lot of skepticism around the negotiations. Obviously, the Iranians are talking about the Strait of Hamoz, some negative headlines around that. But still, we've had these sort of double digit reactions to some of the earnings in multiple directions. Just walk us [00:01:49] Speaker 2: through exactly what's driving the action today. You know, if you didn't look at individual stocks and if all you did was look at the indices, you would think that the last couple of weeks have been a bit of a ho-hum. Yeah, you know, we're up 3% on the week in the NASDAQ, almost 4%. You know, we're up 2.5% on the S&P after kind of treading water for basically four to six weeks. But below the surface, that's where all that volatility is that you're talking about, Sam. And we've got a, you know, 85% earnings per share beat rate. And we've got blended growth year over year of around 45%. Now, this skewed a little bit. And I think once you pull out Amazon and Alphabet earnings from there, it's still pushing around 28, 29%, which was well ahead of estimates coming into the quarter. And what's interesting, Sam, is typically what you see kind of this far along the earnings cycle is there's usually a negative revision towards forward earnings from the analysts. Now they're actually pushing them higher. So, you know, the bar is going to be relatively high for Q3, but it does show that there's, you know, the estimates are for growth going forward. I think what you're talking about, though, to me is fascinating. It's just, you know, the beats aren't being rewarded maybe as much as the market would expect. And if you miss, you're getting hammered. And we're seeing 20% moves in different directions for different names, even on beats. So it's, you got to beat, you got to raise, and then you got to tell me what you're going to do with all that AI spend going forward, or just any type of CapEx spend going forward. I think that's what the markets are ultra sensitive to right now. [00:03:24] Speaker 1: Yeah, absolutely. And the first one that comes to mind was yesterday's reaction to Datadog, for instance. I mean, you know, a good report, bad reaction, a lot of head scratching going on. As far as this market is concerned, you know, every Friday, I take a look at the flow of funds. I know that BFA's Hotnet has been out this morning talking about investor bullishness becoming so extreme that he believes it's time to start reducing exposure to risky assets. The bull bear reading climbing to the highest level since 2021. I'm wondering what you're seeing on the screens as far as some of this [00:03:57] Speaker 2: options positioning as well here. Well, I mean, let's start with the, you know, flow of funds, and maybe at the sector level, you know, what we're seeing is percentages of stocks above the 50 day moving average, which is a pretty good intermediate term signal, in my opinion, is really moving into financials, health care, those have been kind of the the state of the stabilizing factors over the last couple months. But then now you're starting to see tech get a little bit of a rebound to for a while, you saw a lot of selling in semiconductors, you know, July was one of the worst months we've ever seen in semiconductors down well over 20%. Some of that money is coming in, or coming back into the market within that sector. We're also starting to see, you know, the option positioning is kind of gotten back into what we call a positive gamma regime, where the market makers, the dealers are along a little bit of gamma. So that has a little bit of a stabilizing effect. Whether or not we're in overbought or over bullish territory from a sentiment indicator, I think is interesting, because we're going to release our stocks report next week, and just a little bit of a highlight of that, you know, we saw buying so in the month of July, and it when it wasn't, you know, maybe what you've read in some of the headlines where retail is, you know, running for the hills. No, what they did basically, is they just kind of reallocated things, you saw some ETF buying for for those who wanted to be a little bit broader, as opposed to being so selective in the individual names. And, you know, they bought the dip in tech. So I don't necessarily think that it's a frothy market, especially if you look at where earnings are relative to multiples. I mean, the earnings, since they've been so strong, it's reduced those multiples. I think, of course, you know, as we always know, there are patches, maybe some overbought sectors. But I think at this point, given what we've seen from the earnings cycle, that's helped support these moves. [00:05:48] Speaker 1: All right. And so while the Stacks report is likely to be the main event of next week, Joe, what else is on your radar? Obviously, we turn our attention to a couple of other tech names, Chinese ADRs as well, and inflation. Yeah, yeah. You know, while I would love to [00:06:05] Speaker 2: put Stacks on the number one on the indicator list, I'm probably going to lean a little bit more towards inflation just to kind of keep an eye on that. It's, you know, we've had, since Warch has taken over, we've had already our first Fed meeting, we've got our first nonfarm payrolls report, and I think it's the inflation indicators that are going to be potentially market moving. And it just really depends upon kind of, you know, is, are they shocks, right? And I don't necessarily want to look at one number or one set of data, Sam. I think it's, you need to look at maybe like a 90-day moving average for three months. Like, what's the pattern showing you, right, as opposed to one flash number? And the pattern showing us that, you know, inflation is holding steady, but it hasn't re-accelerated maybe to certain levels that people were fearing as of this point. And I think that's probably why between that and the jobs data, you saw the probabilities of a Fed right hike, you know, drop from, like I said, 55 down to 42%. Now, you know, those are dynamic numbers they can change, but I think right now, you know, the market is still expecting around a, you know, a decent chance of a Fed hike in September, but not an imminent chance. Joe, always appreciate it. Thanks so much for joining [00:07:16] Speaker 1: us for this Friday. Have a wonderful weekend. Joe Mazzola, their Director of Trading Services over at Charles Schwab.