Snap Out Of It | Morning Express 05/24/22

Posted: May 24, 2022, 8:43 a.m.

E-mini S&P (June) / NQ (June)

S&P, yesterday’s close: Settled at 3971.75, up 72.25

NQ, yesterday’s close: Settled at 12,035.25, up 194.50

Fundamentals: A continued rebound from Friday’s hold of rare major four-star support in the S&P was halted when the then $36 billion market cap SNAP smacked it in the face with a 2x4. The company filed an 8-K and warned it will miss both revenue and earnings targets for the current quarter. In a letter to employees, it cited the “macro environment as having deteriorated further and faster than anticipated when releasing earnings last month.” The warning sent ripples through the social media industry and thus markets broadly; FB is -7% and GOOG -3.5% ahead of the bell. We find the timing of such announcement as unsavory, after market close in a thinly traded, algo-driven, and vulnerable environment. Backing out of the forest to see the trees, this is nothing new. What we see is a newer and less diverse business model that front loaded exuberant growth numbers during the pandemic, now coming back down to earth. The same has happened in names like Zoom, Peloton, and DocuSign. In fact, Zoom has fallen as much as 86% from its front-loaded pandemic peak but reported a surprisingly upbeat quarter with a better than expected outlook after the bell. This stock has gained as much as 15% before settling in +3-6%. Although, when compared to Zoom, we do admit SNAP’s statement is a bit more wide-reaching due to Apple’s new privacy settings and the impact that has had on advertising, the heart of the story is no different. Whether SNAP, Zoom, or another pandemic darling, they both brought disruption in a very short period. Analysts then overestimated the total addressable market, exacerbating the impact of disruption because a pandemic locked people in their homes.

Do not miss our daily Midday Market Minute from yesterday.

Also, check out our new feature, a charting walk through.

As we move on, the Federal Reserve is front and center with Fed Chair Powell speaking at 11:20 am CT. His comments will come after the influential Atlanta Fed President Bostic and Kansas City Fed President George, a 2022 voter, pointed to slowing rate hikes after reaching 2%. Market participants will look to Fed Chair Powell for a similar rhetoric, and we could see a risk-on response if so. This would mean that once the Fed hikes 50-basis points in each June and July, we could see a pause. This aligns perfectly with our Jackson Hole window. However, if inflation does not dissipate as we expect, there could be another Powell Pivot then, but a very hawkish one. Will Fed Chair Powell officially open that window today?

U.S. Flash PMIs are due at 8:45 am CT and followed by New Home Sales at 9:00 am CT, along with Richmond Fed Manufacturing. Flash PMIs from the Eurozone and the U.K. all missed earlier this morning, however, Germany’s Manufacturing beat.

Technicals Premium