The following is an amended form of the Daily Contrarian briefing from July 20. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack.
Stocks put in a major rally yesterday. The Nasdaq gained more than 3% on the day and S&P 500 was up 2.8%.
The bounce is being attributed to earnings, but most of these were not that great and several companies also scaled back their outlook for the rest of the year. Then there was Netflix (NFLX), which rallied after hours despite announcing a loss of almost 1 million subscribers. The stock rallied because it had previously predicted a loss of 2 million. (Note to streaming companies: Just predict a huge loss of subscribers, more than twice what is likely then sit back and watch your stock rally).
Remember that markets hate uncertainty more than they hate bad news. The Federal Open Market Committee, or FOMC, meets next week to decide on interest rates. Talks of a 1% rate hike that spooked markets after last week’s inflation reading have given way to the far more likely reality of a 0.75% hike — and that is now being accepted as gospel. The source for this appears to be a speech by Fed governor Chris Waller, which has led the Wall Street Journal to all but declare the 1% hike to be off the table.