Apple and the Federal Reserve: This Is a Crunch Week Unlike Any Other

Apple reports earnings on Thursday.


AFP via Getty Images

Investors are often forced to trade without seeing the full picture, but this isn’t one of those weeks.

By Friday’s close, markets will be clear on the likelihood of a U.S. recession, confidence among major businesses in the face of inflation and the strong dollar, and consumers’ appetite to keep spending.

It says everything about this week that the Federal Reserve’s much-telegraphed 75-basis point interest-rate increase on Wednesday may not prove to be the most revealing moment.

For that, tune into the trading outlook as seen by



Apple
’s

Tim Cook,



Amazon.com
’s

Andy Jassy, and Pat Gelsinger at



Intel
.

In all, one-third of


S&P 500

constituents report.

So far this earnings season, corporates have been given the benefit of the doubt. The S&P is up 5% in July on relief that earnings haven’t been worse than expected.

But doubts remain. Last week’s downbeat assessment of the advertising market by



Snap

threatens to cast a shadow over social-media earnings in a sector where hiring curbs are already in evidence.

The strong dollar, a product of fast-rising rates, continues to hit every stock with an international focus, such as pharmaceuticals giant



Johnson & Johnson
,

which expects currency swings to cost it $4 billion in annual sales.

At the weekend, Treasury Secretary Janet Yellen struck an impossibly optimistic stance, saying the U.S. isn’t in a recession, citing the strong labor market. But some forecasters expect another negative reading for gross domestic product data on Thursday, following the 1.6% contraction reported in the first quarter.

The former Treasury Secretary Larry Summers said that a soft landing for the U.S. economy was “very unlikely,” but failing to get a grip on prices would be a bigger mistake than recession.

It all points to more volatility ahead, as Wall Street takes some time to digest so much potentially market-moving information.

James Ashton

*** Join Barron’s senior managing editor Lauren R. Rublin and deputy editor Ben Levisohn today at noon as they discuss the outlook for financial markets, industry sectors, and individual stocks. Sign up here.

***

Yellen Says It’s Not a Recession as More Data Await

Yellen said on Sunday the U.S. isn’t in a recession, pointing to the strong labor market and strong consumer spending trends even as economists brace for economic data to be released later this week, including the Fed’s interest-rate decision.

  • Many economists consider a recession to be two consecutive quarters of contracting gross domestic product. Preliminary second-quarter GDP data will be released Thursday, with analysts expecting growth of 1.6% after a first-quarter contraction of 1.6%.

  • While the economy is slowing, Yellen told NBC’s Meet the Press that it “isn’t an economy that’s in recession.” The Conference Board’s consumer confidence reading for July, due out Tuesday, is expected to be 97, which would be down from June’s 98.7.

  • The Fed will announce its next interest-rate move on Wednesday. Many economists expect it will raise its benchmark rate another 0.75 percentage point, as it did in June, though some are bracing for an even more drastic move higher of a full percentage point.

  • Yellen did say inflation remains “too high” but expects the Fed’s actions will address that. The administration is also trying to help by cutting the federal deficit and releasing oil from the Strategic Petroleum Reserve to bring down fuel prices.

What’s Next: Yellen said she’s not saying the U.S. will avoid a recession. The U.S. is likely to see a slowdown of job creation, but she said, “I think there is a path that keeps the labor market strong and brings inflation down.”

Liz Moyer

***

Boeing Workers at 3 Defense Locations Plan to Strike



Boeing

workers at three plants in the St. Louis area voted to reject a contract offer from the aerospace giant and plan to begin a strike on Aug. 1. The roughly 2,500 workers are represented by the International Association of Machinists and Aerospace Workers District 837.

  • The union members who plan to strike build military aircraft including the F-15, F-18, T-7A trainer, and the MQ-25 unmanned refueler. The three union plants are in St. Louis, St. Charles, Mo., and Mascoutah, Ill.

  • “We cannot accept a contract that is not fair and equitable, as this company continues to make billions of dollars each year off the backs of our hardworking members,” the union said.

  • Boeing told the Associated Press that it was disappointed in the vote, but will now use its “contingency plan to support continuity of operations in the event of a strike.”

What’s Next: Boeing has been recovering from problems with its 737 MAX jet and the Covid-19 pandemic, so industrial action will be unwelcome. The stock has declined more than 21% this year, but the plane maker should benefit from the resumption of 787 Dreamliner deliveries, which is expected to be announced soon.

Joe Woelfel

***

Wildfires Rage in California as Northeast Sets Heat Records

A wildfire in the Sierra Nevada foothills outside Yosemite National Park in California raged for a third day on Sunday, after burning more than 14,000 acres and forcing thousands of residents to flee. It is California’s largest fire this season.

  • Gov. Gavin Newsom has declared a state of emergency for Mariposa County after the flames forced more than 3,000 residents to evacuate, saying high temperatures, extreme drought, dry fuels, and winds had increased the fire’s intensity and spread.

  • California’s wildfires have been larger and deadlier as climate-related changes have made the West hotter and drier over the past 30 years. Scientists expect extreme weather and wildfires to become more frequent, destructive and unpredictable, according to the Associated Press.

  • More than 85 million people across the U.S. were under heat advisories or excessive heat warnings on Sunday, with record-breaking temperatures recorded in Boston, Newark, N.J., and elsewhere in the Northeast.

  • Scorching heat and extended drought are threatening U.S. corn, soybeans and other crops, as well as drying out pastures, posing risks to poultry, and forcing ranchers to spend more on feeding and caring for their cattle, The Wall Street Journal reported.

What’s Next: Former Vice President Al Gore told ABC’s This Week that global-warming emissions are trapping the heat equivalent of 600,000 Hiroshima-class atomic bombs, and that climate-caused heat, droughts, and fires are getting worse, requiring Congress to act to fight climate change.

Janet H. Cho

***

Lawmakers Try to Complete Chips Funding Bill Before Recess

The Senate is expected to hold another vote today on a bill to boost American semiconductor production, as well as fund research in water systems, technology and behavioral health, precision agriculture, and technology education, as part of a broader $280 billion package to beef up U.S. competitiveness.

  • The legislation includes $52 billion in subsidies for chip makers and $2 billion for a Department of Defense network of university-based prototyping and technologies to ensure the chips can one day be manufactured at scale. The Senate last week advanced the chip bill by a 64-to-34 vote.

  • The latest version is smaller than the House version that passed in February, which had included legislation to address economic inequality and climate change. The White House said it would seek to pass some of those measures separately in later bills.

  • Lawmakers are aiming to pass the semiconductor bill before leaving for their monthlong August recess, and before other countries lure chip manufacturers with their own incentives.

  • China leads the world in investing in new chip factories, building 31 major factories through 2024, as it seeks to curb its need for imports, according to the chip-industry group SEMI. Taiwan is building 19, and the U.S. is building 12, The Wall Street Journal reported.

What’s Next:



NXP Semiconductors

reports earnings today after the closing bell, kicking off earnings season for chip stocks.



Texas Instruments

reports on Tuesday,



Qualcomm

on Wednesday, and Intel on Thursday.

Janet H. Cho

***

Health Officials Cast a Worried Eye on Monkeypox Spread

The World Health Organization has declared monkeypox a public-health emergency of international concern, with Director-General Dr. Tedros Adhanom Ghebreyesus citing the rapid spread and the many unknowns. This is WHO’s first global health emergency since the Covid-19 pandemic in January 2020.

  • Rarely detected outside Africa before now, monkeypox has infected more than 16,000 people in 75 countries worldwide. The U.S. has 2,891 confirmed cases in 44 states, according to the Centers for Disease Control and Prevention.

  • Dr. Ashish Jha, the White House Covid-19 response coordinator, said the Biden administration is considering how declaring a public-health emergency here might help the response to the monkeypox outbreak.

  • Danish vaccine maker



    Bavarian Nordic

    said that the Committee for Medicinal Products for Human Use of the European Medicines Agency recommended that marketing authorization for its Imvanex smallpox vaccine be extended to include protection against monkeypox.

  • The U.S. and Canada have already approved Bavarian Nordic’s shot for use against monkeypox. The U.S. government earlier in July ordered another 2.5 million doses. The U.S. said on Friday it has shipped over 300,000 vaccine doses to states and cities.

What’s Next: President Joe Biden continues to recover from Covid-19. His physician, Dr. Kevin O’Connor, said that after three days on



Pfizer
’s

antiviral Paxlovid, his symptoms have diminished to a sore throat and occasional cough. Biden likely has the highly contagious BA. 5 subvariant and will remain isolated.

Janet H. Cho

***

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***

—Newsletter edited by Liz Moyer, Camilla Imperiali, Rupert Steiner

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