In this issue of the peel:

• Fed Chair Jerome “JPow” Powell took the stage and dazzled viewers with… a whole lotta nothin’. The Fed isn’t cutting rates yet, but gearing itself up for a September slashing like its Jason in Friday the 13th.

• Nvidia stole the gains from its main rival on the latter’s earnings. Meanwhile, my matches remain nonexistent, but the gains in Match Group are through the roof. The hipster recession continues and the Prince of Big Tech floundered.

• We’ll get the final word on the U.S. employment situation tomorrow, but for now, grab some popcorn and enjoy the previews below.

Market Snapshot

Banana Bits

• The VIX just had its largest monthly spike in over 2 years.

• Who knew? McDonald’s going back to its old ways of charging low prices commensurate with their food quality is working out.

• Same-store retail sales declined to a 4-month low last week.

• Boeing is ditching its finance nerd CEO for an actual nerd CEO in a much-needed turnaround.

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Macro Monkey Says

JPow Speaks

Now that the Kendrick/Drake beef is over, bringing plenty of casualties (mostly named Drake), all eyes are turning to the new hottest beef in Harris vs Trump.

But, the real beef is one we’ve been watching for a while: JPow vs the economy.

The Federal Open Markets Committee (FOMC) just dropped their latest diss track on the U.S. macro outlook. And, according to market reactions, Powell is taking the W… for now.

Let’s get into it.

What Happened?

Yesterday, the FOMC—the policy-setting arm of the Federal Reserve—held the target range of the Fed Funds rate steady at 5.25% - 5.50% for the 8th meeting in a row.

That means the Fed Funds rate, the underlying interest rate backing the entire U.S. and (kinda) global economy, has remained unchanged since July 26th, 2023, for more than a full year.

The story of yesterday’s central bank meeting was simple: inflation is chillin’, unemployment is starting to get rowdy, and rates are about to get cut in September.

Essentially, the FOMC decided to use this meeting as a setup for a cut(s) in exactly 7 weeks at their next meeting from Sept 17th - 18th.

As if he was ripping a keg stand in a frat basement on the 4th of July, the entire market started to chant his name and cheer “USA! USA! USA”... for about 5 seconds.

Equities popped in the immediate aftermath, but as he usually does, Powell made sure to kill the vibe in short order at the ensuing press conference.

Bond yields, however, dove to their lowest levels in months yesterday on the foreshadowed cut. The 10-year yield fell to a hair above 4% while the 2-year yield—which acts as a mechanism for bond market rate projections—fell to 4.25%.

So, the takeaway so far is this: markets love the idea of a rate cut, but they certainly do not love the reason why we’re getting them.

JPow and the FOMC may have stuck the soft landing better than Sully in the Hudson River, but now it’s time to de-plane. That process… we haven’t even started yet.

The Fed’s sessional statement indicated this pretty clearly. Compared to recent changes in the Fed’s official diss track on the economy, changes were abundant in July:

Shoutout to the WSJ for the absolutely GOATed tool above, their Statement Tracker. The crossed-out, red-highlighted text indicates verbiage present in their last statement but omitted and replaced by the green-highlighted text in the current statement.

These changes may seem small, but a few key takeaways here include:

• Moving from “remained strong” to “moderated” is the FOMC’s way of telling us they are concerned about employment trends.

• Replacing “moved toward better balance” with “continue to move into better balance” suggests the FOMC is pleased with progress on achieving its mandate of maximum employment and price stability (a.k.a., 2% annual inflation).

• The most significant of all, JPow and the gang changing “remain highly attentive to inflation risks” to “attentive to risks to both sides of its dual mandate” indicates that JPow is actively sh*tting himself with concern that policy is too tight.

Literal hedge funds have been built around these microscopic statement changes in the past. But, in Powell’s post-statement-release press conference, he dropped further nuggets of silver fox wisdom for us, including:

• “A reduction in the policy rate could be on the table as soon as the next meeting in September… We’re getting closer to the point at which it’ll be appropriate to reduce our policy rate, but we’re not quite at that point.”

• “What we’re seeing right now is better than last year… This is a broader disinflation.”

• I would not like to see material further cooling in the labor market… We’re watching really carefully for that.”

The Takeaway?

Markets are now pricing for three 25bp cuts—or their equivalent—by the end of the year. But we didn’t get the pop you may have expected in equities because the reason for those cuts is very much not the vibe.

Concerns over a broader macro slowdown triggered by weakening employment and corporate earnings pooped in the punchbowl JPow is in the middle of spiking with rate cuts.

It’s not always just the simple fact of cutting that matters, but why those cuts are occurring.

Luckily, we’re in the midst of an earnings szn now, and we’ll get updated jobs data tomorrow a few hours before most of you wake up. Stay tuned for that, but for now, check out the labor market previews below…

What's Ripe

Match Group (MTCH) 13.21%

• While my Hinge matches may have gone bankrupt (obv something wrong with the app), the company behind my nonexistent romance is killing it.

• Match Group crushed earnings, delivering EPS of $0.48/sh—right in line with estimates—on revenue of $864mn, a 0.9% beat. Hinge revenue grew 48%.

• Perhaps the most exciting part for investors was the possibility of Match itself to entering a committed, private, and very romantic relationship with a few PE suitors.

Nvidia (NVDA) 12.81%

• Like when you’d get praised for acing a test by copying off the glasses-wearer next to you, Nvidia is booming on AMD’s success… as if they need the help.

• AMD reported stellar earnings, delivering 115% annual growth in its Data Center segment, carrying revenue to a 2.1% beat. Net income grew nearly 10x.

• AMD’s client segment grew 49% annually, which includes PC sales. Overall, earnings came in at a very nice $0.69/sh against estimates for $0.68/sh.

• Guidance for Data Center revenue was raised 12.5% too. Despite all this, AMD’s success turned out more bullish for Mr. Market’s not-so-secret crush, Nvidia.

What's Rotten

Pinterest (PINS) 14.46%

• The recession facing hipsters across America is even worse than we thought—an apparent bear market in outfit inspiration is destroying Pinterest.

• The social media firm sank yesterday after announcing weak guidance alongside a beat on the top and bottom line, earning $0.29/sh vs the $0.28/sh estimate.

• Pinterest said it’s gaining market share among ad budgets of major corporations, but pullbacks from food and beverage makers hurt the most.

Microsoft (MSFT) 1.08%

• After beating estimates by a micro amount, the world’s second-most valuable company faces a soft day as Mr. Market said it wasn’t good enough.

• A miss on cloud revenue growth was the thorn in the side of this OG tech giant. But, the rest of Microsoft’s business remained on fire as usual.

• When valuations are in the clouds, growth better be too. With “just” a 19% annual increase in Intelligent Cloud revenue, shares were sent back to Earth.

Thought Banana

The Previews

Speaking of challenges in the labor market, this week, we got data from the Bureau of Labor Statistics (BLS) and one of the nation’s largest HR providers on exactly how challenging those challenges are.

Let’s check it out.

The Numbers

On Tuesday, the BLS released its June Job Openings and Labor Turnover Survey (JOLTS) report. A few key data points were:

• Openings remained unchanged at 8.2mn but down an enormous 941k from June 2023.

• Job separations remained unchanged at 5.1mn, down 544k from last year.

• Hires were unchanged at 5.3mn, down 554k from last June.

The Fed sought to quell labor demand, and boy, did they get the job done… maybe too well.

Employees seem to realize this as well. Quits were “little changed” in June but down 434k compared to last year.

Meanwhile, employment data from ADP—one of the largest payroll providers in the U.S.—came in softer than expected, with just 122k additions.

The good news is that job creation is back to its pre-pandemic trend. But the bad news is that we may start to move in the wrong direction.

The Takeaway?

Like Frodo in the Lord of the Rings, Fed Chair JPow is essentially saying, “I know what I must do, it's just... I'm afraid to do it.”

It’s time to cut rates and loosen policy once again. But don’t think the U.S. is getting back on a path to the ZIRP era again.

A 5.25% - 5.50% range for the Fed Funds rate is not historically considered “high.” But like everyone’s favorite Jeopardy category, it’s all relative. 

This is just a continuation of the normalization process of monetary policy after the rude interruption of C-19 back in 2020. JPow, as a trained lawyer, has been on the case so far, but we’ll see how he does in the post-pandemic era trial.

The Big Question: Will Friday’s jobs report show continued progress toward achieving the Fed’s dual mandate? What data would the Fed need to see to lock in a September cut?

Banana Brain Teaser

Previous

Becky rented a power tool from a rental shop. The rent for the tool was $12 for the first hour and $3 for each additional hour. If Becky paid a total of $27, excluding sales tax, to rent the tool, for how many hours did she rent it?

Answer: 6 hours

Today

Ada and Paul received their scores on three tests. On the first test, Ada’s score was 10 points higher than Paul’s score. If Paul’s average (arithmetic mean) score on the three tests was 3 points higher than Ada’s average score on the three tests, then Paul’s score on the third test was how many points higher than Ada’s score?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Jasper & Patrick

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