U.S. equities recorded strong gains last week, propelled by record earnings growth and a fall in rate hike expectations. Main reason for the market shifting to not expecting a rate hike in September was the weak jobs report that came out on Friday. While unemployment declined to 4.1%, the improvement was largely driven by lower labor force participation. Nonfarm payrolls also fell by 23,000 last month, while May and June were revised down by a combined 103,000 jobs. The weak jobs report and a pullback in rate hike expectations caused treasury yields across the whole curve to fall slightly. At the same time, the Fed remains divided on the path forward, and the market is still trying to understand the reaction function of new Fed Chair Warsh, which continues to create volatility in rates. On earnings, the season remains strong. With approximately 88% of S&P 500 companies having reported Q2 earnings, the earnings growth rate is coming in at 50% and the revenue growth rate is 15%. If you exclude Alphabet and Amazon which had unusual earnings growth due to AI investments, the earnings growth rate is roughly 32%. This week, all eyes will be on inflation on Wednesday to get a better sense of how the Fed may react. Then on Friday, retail sales will give us another read on the health of the consumer.
July Jobs Report
The July jobs report was notably weaker than expected, with nonfarm payrolls declined by 23k, below expectations for an 80k gain. Additionally, job growth in the prior two months was revised down by a combined 103k. This pushed the three-month average of job gains to just 20k, a sharp slowdown from earlier in the year. Some of July’s weakness may reflect seasonal distortion given a 50k decline in government education employment, but private payroll growth was also soft at just 30k. The unemployment rate unexpectedly fell to 4.1%, although the decline was again due to a drop in the labor force participation rate. Labor force participation dropped to 61.4%, its lowest level since the beginning months of the pandemic. Looking at it from the beginning of the year, the participation rate has dropped by a full percentage point. Wage pressures weakened as well, with average hourly earnings rising 0.1% for the month versus expectations of 0.3% increase, bringing the year-over-year rate down to 3.2%. Overall, the report points to a labor market that can be characterized as weak hiring rather than widespread layoffs. While seasonal factors warrant some caution in interpreting the July payroll decline, the combination of slowing payroll growth, downward revisions, and softer wages suggests labor-market momentum has weakened and supports the notion that the Federal Reserve can keep rates on hold for longer. Post-jobs report release, the market odds of a September rate hike declined, going from 55% on Thursday to 43% on Friday.
Tech Earnings Update: AMD & PLTR
Last week, technology giants AMD and Palantir reported earnings, giving markets a glimpse into the state of the hardware and software worlds. Starting with AMD, the company topped sales, growing 50% year over year (YoY), while earnings per share (EPS) similarly beat expectations, at $1.66 versus $1.62. Sales guidance is where some mild market tensions began to flare, as Mgmt guided Q3 revenue at $13 billion, well above the consensus sales guidance of $12.5 billion, but a bit shy of the most bullish expectations in the high $13 billion range. Underlying business operations remain healthy; data center revenue, the company’s largest sales segment, continues to benefit from increasing CAPEX spending, and the company’s CPU offerings continue gaining market share against Intel, in a market expected to reach $1.4 trillion by 2030. The continued resilience in their CPU sales is helping offset some of the margin weakness in the GPU segment, as the GPU segment is less mature than their core CPU offerings, yet, expansion into GPUs is helping foster relationships with AI giants such as OpenAI, Anthropic, and Meta. On the software side, PLTR, up until earnings, saw its shares dragged lower as anxieties over high valuation and competitive pressures from LLM labs loomed over the company, yet after earnings, some of those concerns eased. Results were impressive – with revenue 7% higher than anticipated, but US commercial growth of 150% YoY was one of the more important figures. This strength in US commercial gives less credence to the argument that anybody with a cutting-edge LLM will be able to build everything in-house, as businesses are slowly realizing that implementing AI in a business is more difficult than initially anticipated.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
