The Fed Gives In, but Not Enough for Wall Street
Wall Street Needs a Bigger Pacifier
Do any of you have kids?
I have two.
That period around age 3 to 4 is just hell. They ask for everything under the sun and cry when they don’t get it — or even when they do get it.
That is the perfect analogy for Wall Street this week.
For nearly the entire previous month, pundits and talking heads in the financial media wailed over how we needed an interest rate cut to save the faltering U.S. economy.
“The tariffs are too much; we need a rate cut!” they pleaded.
Now, we have a 25-basis-point interest rate cut from the Federal Reserve. Ahead of the Fed’s decision, all the “experts” in the financial media could talk about was how bad it could be:
- “Here’s how the Fed could rattle the market instead of calm it down” — MarketWatch
- “The Fed’s credibility is at stake as it looks to cut rates under pressure from a vocal president” — CNBC
- “The Federal Reserve Is Set to Cut Interest Rates Today. It Might Be Time to Sell Gold.” — Barron’s
- “Fed Meeting: Fed Rate Cut Letdown Risks ‘Wild Ride’ For Dow Jones” — Investor’s Business Daily
It seems we have a self-fulfilling prophecy here. The market is selling off after the rate cut. Apparently, 25 basis points weren’t enough.
Maybe Wall Street needs a bigger pacifier?
There we have it. Wall Street got what it wanted, but not enough of what it wanted.
The 3-year-old analogy holds as the market sells off.
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The Good: Somewhat Appealing
This is where the Apple bulls come out and email me: “I told you so.”
Revenue was up 1% year over year at $53.8 billion, and earnings fell 6.8% to $2.18 per share by the same comparison. But the numbers still came in ahead of Wall Street’s expectations — which, ironically, fell in the month heading into Apple’s report.
But the core problems remain for Apple. iPhone sales fell nearly 12% year over year. Services revenue was up 12.6% from last year, but down 16% from the March quarter. Chinese sales were down 4.1%.
The only true highlight was Wearables, with sales of AirPods and the Apple Watch soaring 50%.
Maybe “Wearables” will be the new “Services” when it comes to Apple’s bullish talking points?
Maybe the new iPhone product line will save smartphone sales?
There are just too many “maybes” here for me.
The Bad: Great Gloomy Gaming Guidance
All in all, Advanced Micro Devices Inc. (Nasdaq: AMD) didn’t have a bad quarter.
The company matched earnings expectations at $0.08 per share and beat revenue targets by reporting $1.53 billion in sales. Gross margins were the highlight, rising to 41%.
But — and there’s always a “but” — AMD lowered full-year sales guidance. It now expects revenue to grow on a percentage basis in the “mid-single digits,” down from prior expectations in the “high single digits.” The consensus is for sales to rise 6% this year.
Essentially, AMD’s guidance went from beating expectations to matching expectations.
Slower chip shipments to game console makers. The major players, such as Sony’s PlayStation and Microsoft’s Xbox, are winding down production on current-generation consoles and ramping up for new offerings.
That said, both Microsoft and Sony are launching new “next-gen” versions of both systems within the next year … and both use AMD chips as their main processors. Sales of these consoles will be big once they launch, so any dip in AMD shares may be a buying opportunity.
The Ugly: 2U Who?
I have to admit, I didn’t know about 2U Inc. (Nasdaq: TWOU) until the stock plunged 59% today.
2U is an education technology company offering an online learning platform, as well as student and faculty tech support services.
Apparently, business isn’t going all that well.
The company posted a quarterly loss of $0.43 per share, more than double last year’s loss for the same quarter. What’s more, it was a surprise miss of more than 22%, as analysts looked for a loss of $0.35 per share.
Looks like 2U could use some math lessons — or English lessons. Seriously, naming your company in “text speak” is just a bad idea.
Today’s comic is courtesy of Hedgeye. Originally posted back in February, it remains relevant today.
I told you, we really are stuck in a roundabout.
Yoo-Hoo! I’ll Make You Famous
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Great Stuff Managing Editor, Banyan Hill Publishing