Markets opening higher a few minutes ago following the release of the weaker than expected July jobs report, but it's not the only jobs data for the Fed to consider.
The August jobs report comes out next month ahead of the next Fed meeting.
Now the Dow is This week cooling yesterday while tech giants have run into trouble in impressing investors with their AI earnings.
Now joining me is Walter Todd, president and CEO of Greenwood Capital, to discuss this and more.
Walter, good morning and thank you so much for joining us today.
Yeah, thanks for having me.
So Walter, let's go ahead and start off with the jobs report.
What are your takeaways this morning?
Yes, so, you know, kind of some predictable reactions here to a weaker than expected jobs number, although we've come off some of those extremes, so equity is higher, responding to lower rates, lower probability of the Fed raising rates.
That September probability dropped from over 100%.
Two weeks ago down below 50% to around 40% today, dollar weaker, that's expected, but I think there's people are trying to see if there's some anomalies related to this jobs report, um, you know, related to the World Cup, related to seasonality, so I don't know that we.
Uh, learned a whole lot except that the labor market's pretty much in balance.
We're not creating a lot of jobs.
We're not losing a ton of jobs at this point.
So I think the focus shifts to two events, uh, in the, in the next couple of weeks here, one being CPI, uh, next week, and then Jackson Hole becomes all the more important at the end of August when we'll hear from Worsh.
But as you alluded to, the earnings have been exceptionally good over the last number of weeks, and I think, you know, the market's kind of keying off of that.
So Walter, what exactly do you think this report means for the Fed?
Yeah, so I mean Warsh is really kind of, um, I wanna say ignored the labor market.
He hadn't really talked about it a whole lot.
In his last press conference last week, he, he just said it was imbalanced, and I think this report um is more evidence of that, although, you know, again, underneath the surface a little bit weaker.
The unemployment rate did go down, but of course, that's because the labor force shrank more than the job, uh, jobs that we lost.
So it's not really a, you know, great news necessarily, um, but again, I don't think it really changes, um, the math for the Fed.
Maybe it gives them, um, an excuse to stay on hold in September, uh, and then I don't think they move in October, so that would push, if they're gonna hike this year, that would push it out, uh, to December, and that's still, that probability by December is still over 100%.
We've seen weakness in the NASDAQ and the S&P, though the S&P did recover and hit a fresh record on Wednesday.
So take us through the market rotation we've seen this summer.
Yeah, it's a great question.
I mean, I, I, I've been doing this for 25 to 30 years.
I don't know that I've seen the type of individual name volatility contrasted with, you know, the index level volatility being this low.
July was roughly flat, but underneath the surface you saw semi's down 20%, energy up nicely, healthcare up nicely.
Um, so you saw a really significant rotation in July, but really on that Fed day.
The end of the Fed day from that point around 3:30 on the 29th through today, we're up about 6% on the S&P and, you know, a little over 7 trading days here.
So, really dramatic snapback and that snapback has been really concentrated in those names that got hit the hardest uh during the month of, you know, most of the month of July.
So it's just back and forth kind of running from one side of the boat to the other.
Uh, it does create some, you know, uh, destabilization in my opinion in the market structure.
Uh, so we'll have to, you know, monitor that.
We've seen some of that, you know, significant volatility, for example, overseas, uh, in South Korea, given the concentration there, but it, it's really difficult to have a portfolio that would have outperformed in July, but also outperformed, uh, in the last 5 to 6 trading days.
So you need to have some balance within the portfolio.
All right, so Walter, take us through earnings seasons and how it's driving the markets because like you said, we've seen a lot of action in the markets this summer.
Yeah, so you know, the expectation for earnings was pretty high coming off that very good first quarter reporting season, uh, but we've exceeded that.
So you look at the number of companies that have beaten on EPS, it's over 85%.
On revenues it's over 60%.
Those are very high numbers.
The absolute level of earnings is actually, when you look at the numbers that have been reported, it's over 50%, but that does include some pretty outsized kind of non-recurring gains that you saw from Amazon and Google due to some of the private companies.
Company holdings, but even when you strip those out, you're running at close to 30% earnings growth on a year to year basis.
So it's been very strong and it's been fairly broad.
Uh, I mean, certainly technology has been a big driver there, but it's been, it's, it's broadened out to other sectors of the market and that's been encouraging, uh, to see, of course, we still have kind of the Nvidia being the biggest one remaining, but also a lot of retail earnings will come in the next couple of weeks and will give us, give us a better kind of read on, on the consumer at this point.
All right, and Walter, 15 to 20% moves up and down in individual names has become a commonplace.
So take us through the volatility story unfolding across the markets and I want to get your thoughts on SpaceX.
Yeah, sure.
So, again, to, to contrast that individual name volatility that we're seeing and for example, last week, we saw, you know, Microsoft up 15% in one day, and, and this is a, you know, multi-trillion dollar company.
So that move in Microsoft on a percentage basis equated to 4 $450 billion in market cap.
Then you had Apple dropping 8%.
That's another $350 billion in market cap.
So the percentages are one thing.
And they're, they're significant, but when you do the math of the, of the market cap moves, it's even more dramatic, uh, when you look at that, and you contrast that with a VX on the index level that's in the mid-teens at this point, so fairly subdued.
So that spread between individual name volatility and index volatility is really the widest, uh, that we've ever seen.
Um, as it relates to SpaceX, um, you know, obviously, you came public with a lot of hype and you know.
Pop initially, but it's given back um about, you know, 40% since the highest reached in that first week.
Um, from my perspective, I think the names, you know, there's a lot of still good news embedded in the valuation.
It's still over $1 trillion for a company that's, uh, you know, got negative free cash flow and, and the tens of billions of dollars.
Um, so I think there could be more pain ahead for that, but certainly the, the first earnings call getting that behind.
The Company is a, is a significant event and then, you know, I, I think it's, it's emblematic when it came public of kind of some of the excesses that were in this market.
They've got wrung out in certain corners of it um during the month of July and kind of reset the market and that was kind of uh uh captured or, or kind of ended on that uh situational awareness blow up of, of the hedge fund that was in a lot of these high flying areas of the market.
All right.
Walter, last question.
Uh, the US and Iran, like the, the talks have been ongoing for the last couple of weeks.
So how has the US and Iran pause helped markets and what are you expecting to play out here?
Yeah, it's kind of like Groundhog Day.
It feels like over the last couple of months, we, you know, we have a deal.
We don't have a deal, um, you know, uh, the, the, the weapons are flying again, um, and, and so I, I, I think the market's largely ignored, uh, these headlines except maybe for a couple of hours here or there.
They're kind of looking through this, focusing on other things like interest rates.
The Fed's going to do and then the earnings picture.
So in terms of what's going to happen from here, it seems like, you know, the, the US administration really wants to try to settle things down and get a deal done, but with the demands that are being exhibited by the Iranian regime seem, you know, something we could not really accept at the end of the day, so.
I think there's just gonna be more kind of back and forth here that the market again will likely ignore.
But another big event I would just say too looking ahead is the, the midterm election.
Obviously, as we get into that and head towards that election, that may create some more volatility or at least historically that's what you've seen as you've moved through the months of August, September, and October in those midterm election years.
Well, Walter, thank you so much for joining us today.
Again, Walter Todd, president and CEO of Greenwood Capital.
Thank you so much.
