Wall Street Brunch: Price Perturbation Replaces Jobs Jitters

Listen below or on the go on Apple Podcasts and Spotify

A soft CPI could mean a half-point Fed cut, but also hit stocks. (0:14) Walmart leads retail earnings. (2:33) Disney announces new films, attractions. (6:50)

The following is an abridged transcript:

Remember inflation?

After fixating on the employment situation, the markets will get their fix of consumer and producer prices this week.

The big show will be on Wednesday when the July CPI is due. The consensus is for a 0.2% monthly rise in the headline number, with the annual rate staying at 3%. The core CPI is seen rising 0.2% as well, dipping to an annual rate of 3.2%.

Wells Fargo economists say: “Weakening in the jobs market may have finally stolen the spotlight from inflation, but the extent to which the FOMC reacts to the dimming labor picture depends in part on how price data unfold from here. The past two months of inflation prints have shown that the downward trend in price growth is back on track after the first quarter’s derailment. The July CPI report is likely to further the case that inflation is quieting down even if it has not yet returned to the Fed’s target.”

They say “gasoline prices rose a little over 1% during the month,” while “grocery store prices were likely little changed amid more stable input prices and rising promotional activity.”

“With core goods inflation already running below its pre-pandemic pace, more material cooling in services is needed to continue to drive core inflation lower,” they added.”

Currently the market is pricing in a 100% chance that the Fed cuts rates in its September meeting. But it’s a coin flip now on whether the cut will be 25 or 50 basis points.

On Saturday, Fed Governor Michelle Bowman warned about the Fed overreacting to any single data point. She called for gradual accommodation if inflation continues on its current path to 2%, but she possibly the most hawkish FOMC member.

While a softer-than-expected CPI print would swing the pendulum to a half-point cut, Seeking Alpha analyst Mott Capital warns that it could also bring back the equity bears.

Based on market-based data and various models, “the CPI data will likely confirm that the Fed rate-cutting cycle is about to start in earnest in September,” Mott Capital said. “As a result, one can expect rates to fall, leading to further yield curve steepening. More importantly, this will further deteriorate interest rate differentials, leading the USD/JPY to lower levels and further unwinding the carry trade, which is negative for equity markets.”

Along with the CPI, the July PPI is due on Tuesday, and Thursday brings July retail sales.

Walmart (WMT) highlights the earnings calendar this week as the retail reporting period begins.

The company heads into its earnings report on Thursday, August 15 with expectations running high following a 29% year-to-date rally.

The consensus is for revenue of $167.3 billion, EPS of $0.65 and U.S. comparable sales growth of 3.3%. The general view is that Walmart will continue to benefit as a defensive stock pick if the jittery trading in the global markets continues, but the retail sector as a whole is on watch to hear its take on the pulse of the U.S. consumer.

Morgan Stanley analyst Simeon Gutman says given “slow July retail data, the risks of a consumer slowdown rising and an upcoming election … we think retaining guidance should be acceptable with these uncertainties.”

Oppenheimer analyst Rupesh Parikh is slightly more cautious and says investors should be positioned to take advantage of any profit-taking should it materialize, instead of playing for a positive catalyst on the upcoming print.

On Seeking Alpha, analyst Uttam Dey thinks an increased mix of higher-margin digital ad revenue and membership growth should boost Walmart’s margin profile.

Other earnings this week include Barrick Gold (GOLD), monday.com (MNDY) and Rumble (RUM) on Monday.

Tuesday brings results from Home Depot (HD), Tencent Music (TME) and On Holding (ONON).

UBS (UBS), Cardinal Health (CAH), Brinker International (EAT) and Cisco (CSCO) weigh in on Wednesday.

And joining Walmart (WMT) on Thursday are Alibaba (BABA), Applied Materials (AMAT), Deere (DE), JD.com (JD) and Tapestry (TPR).

Looking to the crypto space, Ryan Wilday who runs Crypto Waves, will be on our Investing Experts podcast this week talking about recent volatility.

“I wrote a recent article in Seeking Alpha and it’s clear that sentiment actually is not very pumped on Bitcoin because classically on Seeing Alpha, I’d have a lot more interested parties in my articles, and they would be more positive at this stage.

So despite my caution in the market, I would say sentiment in Bitcoin is rather muted. Actually, there are quite a lot of people that were so negative on Bitcoin, I mean, they were really – I don’t want to say insulting the article, but they were kind of going there. And that just speaks to where we’re at in crypto.

I would say, don’t listen to those voices if you’re crypto curious as we say, again, like I said earlier, buy Bitcoin, just buy a little bit, keep it chill, and then learn to see how you handle it, just take it as a learning opportunity. And okay, maybe not 10%, maybe that makes you nervous, 5%, whatever, get to a comfortable level. And if you prefer the ETF, do that.

And then learn how to buy when it’s dropping and crashing and all of that, learn how to do that because that’s what makes crypto great actually on the wealth building side. I mean, it sounds crazy to some people, but you have to do it to understand.

It’s weird that we’re there not too far off all-time highs. That’s what’s really strange about this cycle. Yeah, I mean, people make cracking jokes, we just lost 30% of its value. I’m like, well, that’s about half of normal. This isn’t really bear market yet.

The standard in the stock market is 10%, right? 10% correction is the beginning of a bear market. I don’t like characterizing bulls and bears that way. But yeah, like 30% of Bitcoin certainly is not – it’s a normal actual correction within an uptrend right now. It’s a very different kind of market.

I’ve been in this space for a long time now since before 2016. I think most time I quote 2013, I think that’s pretty accurate. I wish I just kept Bitcoin since then. I can’t say I did that. I was still trying to learn the space up until really 2015. But yeah, you have to get used to it. And so don’t panic sell. And I think that’s a very simple thing is to say, okay, I’m going to have 10% exposure. And then if it’s dropping, that means I’m going to buy, so it gets back to 10%.

So they’re always buying lower, right? I think just something simple like that will keep you sane. And 10% usually, for most people, they can handle fluctuation. So if you have 10% of your portfolio in Bitcoin and it does another one of its 50% to 75% bear markets, which it should because that’s normal in it, then you’re buying a lot more at a very cheap price. But yeah, you’ve only lost like 5% to 7% of your portfolio’s value.

And that 5% to 7% loss will be given back to you, if patterns play out, will be given back to you 10x. When you’ve lost 7% of that 10%. If you bought then you would soon have Bitcoin at 40% of your portfolio at the end of the next bull market. It’s really insane, but that’s how it works.”

In the news this weekend, Disney (DIS) said a third film in its hit Pixar series “Incredibles” was in the works, and gave updates on several of its other franchises, such as “Moana,” “Avatar” and “The Mandalorian.”

The announcements came at Disney’s biannual D23 fan convention. The studio biz has been on a bit of a roll this year after a mixed post-pandemic box office performance. Pixar’s “Inside Out 2” and Marvel’s “Deadpool & Wolverine” have become the top highest grossing films of 2024.

Disney gave a sneak peek of “Moana 2,” which could join the billion-dollar club this year. It confirmed that “Incredibles 3” was in the works. Brad Bird, the director of the first two installments, will return to develop the film.

James Cameron revealed that “Avatar: Fire and Ash” will be the title of the third installment in the franchise, while the movie “The Mandalorian and Grogu” was also announced.

Disney also announced it will add four cruise ships to its fleet by 2031 and add park attractions such as a new villains land in Orlando, a new “Avatar”-themed attraction at California Adventure and a new land themed around “Monsters, Inc.” at its Hollywood Studios.

And WeRide (WRD), a Chinese company focused on autonomous driving technology, has filed for a U.S. IPO.

According to an SEC filing, WeRide plans to offer about 6.5 million American depositary shares at a price range of $15.50 to $18.50. With each ADS representing three ordinary shares, the transaction will value the company at $5 billion at the midpoint, raising $110 million.

The company also announced plans to raise $321 million in a private placement backed by investors, including Alliance Ventures, the venture capital fund of the Renault Nissan Mitsubishi Alliance.

After commencing operations in 2017, WeRide has launched its autonomous driving vehicles across 30 cities spanning seven countries in Asia, the Middle East, and Europe.

Companies such as Waymo (GOOG), Amazon’s (AMZN) Zoox, Baidu’s (BIDU) Apollo, General Motors’ (GM) Cruise, and Motional (APTV) (OTCPK:HYMTF) are all going down the autonomous vehicle road at varying paces. Just this week, Waymo expanded its robotaxi coverage in Los Angeles and San Francisco.

Tesla (TSLA) was originally scheduled to host a robotaxi event on August 8, but CEO Elon Musk later pushed the timing back to Oct. 10. Tesla has been talking about a robotaxi concept since 2016, but the event itself is supposed to give a clear indication of the shape and form of the autonomous vehicle business.

For income investors, Alcoa (AA) goes ex-dividend on Monday, with a payout date of August 29. Conoco Phillips (COP) goes ex-dividend the same day, paying out on Sept. 3.

On Thursday, Eli Lilly (LLY) and Diamondback Energh (FANG) go ex-dividend. Lilly pays out on Sept. 10 and Diamondback pays out on August 22.

And in the Wall Street Research Corner, following a roller-coaster week, BofA Securities analysts selected 42 S&P 500 low-beta, high-quality stocks “to help you sleep at night” as money managers de-risk.

Beta compares a stock’s volatility against its benchmark.

The analysts say a full-on bear market is unlikely, but are advising investors to get used to the volatility in the market.

The stocks have a five-year beta less than 1 and are all rated a Buy.

Among the names are Lockheed Martin (LMT), Procter & Gamble (PG), Kroger (KR), CMS Energy (CMS), PepsiCo (PEP), Essex Property Trust (ESS), Coca-Cola (KO), Domino’s (DPZ), Medtronic (MDT) and Costco (COST).