⏱️ Rate Cut Countdown?

+ McDonald's Q2 / tomorrow's earnings

Good afternoon! Despite their 400-horsepower engines, Ferrari ($RACE) found themselves barely escaping a deepfake scandal this month. An executive at the luxury carmaker received a phone call from what seemed to be CEO Benedetto Vigna’s voice, requesting a signature for a “big acquisition.” Although the call was “convincing,” the executive’s probing questions caused the scammer to abruptly end the call. Unfortunately, similar scams have deceived other companies, resulting in losses of $26M as fraudsters impersonated a CFO. In the fight against scammers, even Ferrari's executives can't afford to let their guard down.

MARKETS

*Stock Data as of market close, crypto data as of 4:30pm CST*

  • The S&P 500 and Nasdaq closed higher on Monday, boosted by anticipation around upcoming tech earnings. This optimism comes despite last week's selloff triggered by Tesla and Alphabet. Meanwhile, the Dow couldn't find its footing and ended the day in the red.

  • Treasury yields mostly held steady, dipping slightly before the session's end as investors await the Federal Reserve's announcement on Wednesday.

  • Oil prices plummeted again to start the week, with traders largely dismissing the intensifying conflict between Israel and Hezbollah.

  • Bitcoin surged over the weekend due to excitement from the Bitcoin Conference but dropped on Monday following news of the US government selling some seized bitcoin.

STOCKS
Winners & Losers

What’s up 📈

  • ON Semiconductor ($ON) soared 11.54% after smashing analyst estimates on both revenue and earnings last quarter.

  • Revvity ($RVTY) rocketed 9.14% following stellar results that beat analyst expectations.

  • Philips ($PHG) climbed 6.04% on strong earnings despite a sales dip in China.

  • Tesla ($TSLA) accelerated 5.60% after Morgan Stanley analysts named it a top pick, highlighting its robust cash flow post-cost-cutting measures.

What’s down 📉

  • Reckitt Benckiser ($RBGLY) plummeted 8.65% in sympathy with Abbott Laboratories' legal woes.

  • Heineken ($HEINY) tumbled 8.18% due to sluggish beer sales in key markets and poor performance from its investment in Chinese brewer CR Beer.

  • Arm Holdings ($ARM) slipped 5.07% after an HSBC analyst downgraded the stock, citing its high valuation.

  • 3M ($MMM) declined 1.56%, retreating after its best trading day last Friday.

  • Loews ($L) slid 1.47% following the announcement that CEO James Tisch will step down after 25 years.

  • Abbott Laboratories ($ABT) sank 0.45% after being ordered to pay $495 million in damages over risks to premature infants from its formula, far exceeding analyst expectations.

ECONOMY
Rate Cut Countdown — Will the Fed Finally Pull the Trigger?

Nope, the Fed isn’t cutting rates this week. But don’t snooze just yet—this meeting might be the prelude to the September spectacle. Inflation is behaving, and the job market isn’t overheating, setting the stage for a possible rate cut next month.

Fed Chair Jerome Powell is like the Goldilocks of monetary policy—he's searching for that "just right" balance. He's stuck between the fear of cutting rates too soon and the dread of waiting too long. In his own words to lawmakers, the mission to hit that 2% inflation target while keeping the job market robust is what keeps him up at night. Same, Jerome, same.

Inflation: Cooling Off

Inflation is on a downward slide, with core prices (excluding the wildcards of food and energy) dropping to 2.6% in June from last year’s 4.3%. New York Fed President John Williams is optimistic, brushing off concerns about the "last mile" of inflation reduction. The message? We’re on the right track, folks.

Unemployment has nudged up to 4.1%, not because jobs are vanishing but because it’s taking a bit longer to fill vacancies. Powell’s recent take? The labor market isn’t adding fuel to inflationary fires anymore. Fed Governor Christopher Waller calls it a “sweet spot”—balancing demand and job availability without igniting wage spirals.

Risk Management Reboot

With inflation easing and the labor market chilling out, the Fed’s risk calculus is shifting. The big question: Which is tougher to tackle—slightly elevated inflation or rising unemployment? The Fed’s past mistake of waiting too long to hike rates serves as a cautionary tale. But this time, they’re determined to act promptly to avoid a recession.

Some Fed officials, like Chicago Fed President Austan Goolsbee, argue that it’s time to ease off. Inflation has cooled, and the economy doesn’t seem overheated. Others, including San Francisco Fed President Mary Daly, urge caution. She warns against hasty moves, emphasizing the importance of achieving price stability first.

The Fed’s balancing act continues, with eyes set on the September meeting for potential rate cuts. The next FOMC meeting will be held July 30-31.

NEWS
Market Movements

EARNINGS
McDonald’s: The Golden Arches Stumble

By the Numbers

  • Revenue: $6.49 billion (missed $6.61 billion estimate)

  • Earnings per Share: $2.97 (missed $3.07 estimate)

  • Same-Store Sales: Down 1% (first decline since 2020)

  • U.S. Same-Store Sales: Down 0.7%

  • International Same-Store Sales: Down 1.1%

  • International Franchised Sales: Down 1.3%

McDonald's ($MCD) Q2 report was a real buzzkill, missing estimates across the board. Revenue clocked in at $6.49 billion, shy of the $6.61 billion expected, and earnings per share hit $2.97 instead of the forecasted $3.07. Same-store sales shrank 1%, a first since 2020. The U.S. saw a 0.7% dip, proving even the mighty Big Mac isn't immune to consumer belt-tightening.

Value Meals to the Rescue

The fast-food titan is leaning on value meals to bring back customers. The $5 meal deal, introduced in late June, has been extended beyond its original four-week run due to its popularity among lower-income diners. This deal saw foot traffic up 2.8% in early July, but it hasn’t translated into higher overall sales just yet.

Internationally, same-store sales slid 1.1% due to stiff pricing competition and consumer boycotts in places like France. China, a tough market, showed a 1.3% decline, with consumers hunting for deals in a weak economic climate. McDonald's is hustling to maintain its value leader status but admits the gap with competitors has shrunk.

Defying the Odds

Announcing a big Q2 earnings flop usually doesn't result in a 3.74% gain for the stock, but McDonald's defied the odds on Monday. The fast-food giant fell short across several metrics, with leadership admitting the company lost its edge in affordability by hiking prices. Inflation forced the chain to up prices, disrupting long-standing value programs and pushing consumers away.

Despite this, the company's stock is having its best post-earnings day performance in five years. The $5 meal deal, while not yet boosting overall sales, is seen as a key strategy for future growth. Analysts remain optimistic, with most rating the stock as a "buy" and none recommending a sell.

Looking Forward

The golden arches are taking a "forensic approach" to pricing, aiming to lure back customers with extended value offerings. The $5 meal deal, launched in June, is a cornerstone of this strategy. While immediate financial impacts aren't clear, McDonald's hopes these moves will restore its reputation for affordability and drive future sales.

So, while the numbers were a downer, the company's proactive steps have investors buying into McDonald's vision for the future.

Calendar
On The Horizon

Tomorrow

Economic Data and Earnings


This week is buzzing with key economic data, especially on the employment front. Tomorrow, we'll get the June JOLTS report, which stands for Job Openings and Labor Turnover Survey. This report measures job openings, hirings, and separations (like firings and retirements), offering a detailed snapshot of the U.S. job market. The May report surprised everyone with an unexpected increase in job openings, suggesting a stronger labor market. This might just be the signal the Fed needs to consider rate cuts sooner than expected.


Earnings season is heating up, and the first of the Magnificent Seven stocks reports tomorrow after the close.

Before Market Open

  • Corning ($GLW) has unexpectedly become an AI favorite this year. Investors believe the glass and screen maker will benefit from the tech upgrade cycle. However, Corning’s traditionally steady growth might not match these high expectations. If management doesn’t deliver impressive forecasts, a selloff could be on the horizon. Analysts are expecting $0.46 EPS and $3.54 billion in revenue.

  • Paypal ($PYPL) faced a setback when Apple introduced a competing payment service in June. Nonetheless, PayPal remains robust, thanks to its strong e-commerce presence, Venmo's popularity, and its new checkout system, Fastlane. Optimistic shareholders are hoping for an earnings beat. Consensus estimates are $0.89 EPS and $7.14 billion in revenue.

After Market Close

  • Microsoft ($MSFT) kicks off the Magnificent Seven earnings. Investors are eager to hear updates on its AI investments, Azure cloud computing business, and future plans. Wall Street is optimistic, with all analysts rating it a "buy." Expected figures are $2.93 EPS and $64.36 billion in revenue.

  • Advanced Micro Devices ($AMD), a key player in the semiconductor space, will reveal its full-year sales forecast, setting the tone for the industry. Confidence is high, with 30 out of 36 analysts rating it a "buy" and a price target 40% above current levels. Expected numbers are $0.68 EPS and $5.72 billion in revenue.