You’ve got to go back a few generations to locate the origins of the phrase “the pig through the python,” but it comes to mind as we see economic machinations dampen our near-term rally on market indices today. Stemming almost completely from higher interest rates instilled by the Fed going back to early March of this year, the “pig,” in this case, is inflation and its tentacles into the global economy. The “python” is the domestic economy, digesting inflation slowly as higher rates create hazards elsewhere.
Thus, our giant snake’s GI tract closes its second day in the row marginally lower, after the previous three of four sessions strongly rebounded off year lows: the Dow, which had been +399 points at its session high and -150 at its low, finished -0.30%. The S&P 500 and the Nasdaq closed -0.80% and -0.61%, respectively. For the second-straight day, the small-cap Russell 2000 ended the trading day lower than the other major indices, -1.19%.
The 2-year bond yield today climbed to 4.6% — a half percentage point in just the past month alone — while the 10-year reached 4.235% today. These not only illustrate the effects of an aggressively raised Fed funds rate over the past seven months (with more expected in the final two Fed meetings in 2022), but they appear to represent where the market sees the Fed continuing rate hikes until they reach these heights.
Existing Home Sales for September have posted lower headlines every month this year since January, to 4.71 million from a downwardly revised 4.78 million in August. (January’s read was nearly 6.5 million seasonally adjusted, annualized units sold — a clear indication that homebuyers were advancing activity in the market ahead of predicted rate hikes.) Today’s print represents the lowest monthly Existing Home Sales figures since the first half of 2020; prior to that, you’d have to go back nearly a decade to our long climb out of the Great Recession.
We see the effects of these higher rates, and subsequent higher value of the U.S. dollar, in Q3 earnings reports: IBM IBM said it lost as much as $1 billion in revenues during the quarter to higher dollar values overseas. The Japanese yen’s weakness versus the dollar hasn’t been seen since 1990. So while we tend to focus on the domestic economy in terms of inflation, etc. ramifications for the pig through the python clearly has global consequences, as well.
After the closing bell, social media staple Snap Inc. SNAP reported Q3 earnings and saw its stock plummet more than -20% in late trading: earnings of +$0.08 cents per share swung from an expected -$0.01 (thought well off the +$0.17 we saw a year ago), on in-line revenues with the Zacks consensus of $1.13 billion. This is a harsh sell-off for a company that’s already 76%+ lower than it was at the start of the year.
While Daily Active Users (DAU) gained 16 million, higher than expected — now 363 million total DAU compared to the expected 358 million, but Average Revenue per User (ARPU) came in a dime short of expectations at $3.11. Also, full-year revenues are expected to come in flat, disappointing after-market investors. This company used to trade at 40x sales; now it’s 4x — and now with flat revenues expected for the year.
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