1. SPY SPY 0.00%↑
Ok, so this is a big one, but hear me out. I’m not one to hold forth on index funds (this is an equity research blog for crying out loud), and I’m not strictly speaking a macro guy, but I do think there’s something to pay attention to when it comes to SPY, especially right now. First, it is quite likely that the individual stocks in your portfolio will move to some degree in conjunction with SPY or the other major indexes such as the Dow DJIA 0.00%↑ or the Nasdaq QQQ 0.00%↑ to some degree, so it can at least be beneficial to stick your finger up in the air sometimes to see which way the wind is blowing.
The Fed cut rates this week and did so in a bigger way than many were expecting, delivering a 50 basis point cut instead of the anticipated 25. This is, broadly speaking, good for the economy and, by extension, stocks. Or so the thinking goes.
While unemployment has risen and inflation has mostly fallen over the last six months, another development has taken place—the normalization of the yield curve.
Behold:
The above chart details the state of the yield curve (the 10-year Treasury yield minus the 2-year Treasury yield) over the last 4 years or so. For a good while, beginning in July of 2022, the yield curve inverted (dropped below zero on the chart). What this meant is that a 2-year Treasury yielded more than a 10-year Treasury, which is… not how things are supposed to be.
Anyway, things went along like this for a long time, and in the last 30 days or so, the yield curve has suddenly turned positive. Good news, right? Well, maybe. But maybe not.
The above chart plots out the actual path of the interest rates for these bonds. Now, when you think about it, there are really only two ways that this inverse gap can close—either the longer bond can rise above the shorter (known as a bear steepener), or the shorter bond’s yield can fall below the yield of the longer bond (known as a bull steepener).
It’s not entirely difficult to understand how each move could impact the economy. If longer term rates move higher while shorter term rates stay stagnant, this would be indicative of a tighter monetary environment which is generally perceived as bad for equities. The other scenario (bull steepener), then, would be a stronger indicator that things are alright and good times are ahead.
So, as you can see from above, the 2-year has (thankfully) fallen faster than the 10-year. Will this continue? Who knows? However, it is something that I think those with a macro interest or positions in the major indexes should keep an eye on.
2. Intel INTC 0.00%↑
OK, back to our regularly scheduled programming.
If you want to see an ugly chart, look no further than chipmaker Intel.
While it’s been no secret that the company has had a tough go of things over the last few years while competitors like Taiwan Semiconductor Manufacturing Company TSM 0.00%↑ ate their lunch, last quarter’s results were particularly abysmal.
For the 2nd quarter the company was expected to turn in $12.98 billion in sales and whiffed it by ~$150 million. No big deal right? Well, on a GAAP basis, the company posted a $0.38 loss per share while the market on average expected a loss of only $0.11.
Oh, and the company suspended its dividend and announced the cutting of 15,000 jobs.
For Intel enthusiasts this must be disappointing, to say the least. But, hope springs eternal, right? … right? Things have to turn around eventually, don’t they?
In this case, I think maybe it’s time to take ol’ hope out behind the woodshed.
First, the company is bleeding cash like there’s no tomorrow. It hasn’t generated free cash flow per share for consecutive quarters since 2021. Shares outstanding have risen steadily over the last three years as well, diluting investors. Revenue has at least flatlined, but cash from operations continues to see-saw lower.
Remind me again… wasn’t this the company that cleaned up on the CHIPS act…?
Anyway, while Intel is becoming more and more like Boeing BA 0.00%↑ in the sense that the U.S. has a national-security type interest in its success, its unlikely that anything cataclysmic happens to the company. But it’s completely unclear how things will get better at this point.
Verdict: Negative
In Other News
Insiders in the volatile Trump Media DJT 0.00%↑ will be able to start unloading shares tomorrow. Mercedes-Benz is cutting its full year outlook. Tupperware is entering bankruptcy while Red Lobster is leaving it. Target gets a new CFO.
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