Catalyst Watch: FOMC Meeting, Apple Earnings Preview (Podcast)

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Catalyst watch for the week of April 30. Seeking Alpha Managing News Editor Kim Khan shines the spotlight on what to expect from the upcoming FOMC meeting. Seeking Alpha Associate News Editor Kevin Curran gives investors a preview of what to expect when Apple (NASDAQ:AAPL) reports earnings. Hot topic: The NFL draft is here but what about a stock draft? Kim and Kevin are telling us which stocks made their list.

This is an abridged transcript of the podcast.

Julie Morgan: So Kim, I usually start off by saying, what do you have for macro next week is really a no brainer.

Kim Khan: Well, it’s the Fed. That’s it. And it’s the most wonderful time of the year. If you’re into macro, it’s fed week. And that’s kind of what everything’s going to be revolving around.

And right now, there is an 85% chance that the Fed does one more quarter point hike when it announces next Wednesday. And those odds have gone up recently, as today, when we’re recording when Q1 GDP came out, that was lower than expected, and the annual rate of 1.1%.

But if you dug deeper into the price components, there was a lot of hotter inflation than the Fed might like. So that swung the odds even more to now an 85% chance of a hike. They had been as low as around 65-70%.

Earlier in the week, mainly because of the instability with First Republic shares and the sharp selling declines. It looks like the stock could go to zero if there wasn’t any intervention. But it has since seemed to stabilize. I’m saying that tentatively, as we record this, but it is back above $6 seems to be getting some buying interest and finding a floor. That means that a panic plan won’t be needed right away.

Julie: Now, there’s an article that you wrote, and you kind of just touched on a little bit of that. I noticed an article it says should the Fed surprise the markets with a strategic pause?

Kim: Yeah, and I wanted to highlight this note from Standard Chartered strategist Steve Englander, who was saying that there is a strategic reason why the Fed might want to pause, if not a kind of beta dependent reason.

But one is that really that if they pause, then they can get kind of get away from the narrative that as soon as the Fed pauses, then that’s it, they’re done. No more hikes and the cuts will start to begin somewhere down the road, which is really not what the Fed wants, if they pause, but say they still expect a hike later down the road, then that kind of keeps the market on its toes, they control the narrative a little more.

And if it’s really necessary, inflation wise to hike, that suddenly about a six weeks time lapse between the main and the June meeting, so it won’t have that much impact. They’ve certainly got, you know, tighter financial conditions.

You know, they wanted to help them pause if you look at the recent, you know, decline in the stock market. So I think that that’s a possibility, but it’s a remote one.

Julie: Okay. That’s what I was just about to ask you, I was about to ask you your opinion, what do you think is going to happen?

Kim: I think definitely, there’s going to be a quarter point hike. Because I don’t think that Howie really as shown, you know, any kind of swashbuckling Penshoppe. In his previous moves, he kind of likes to stick to his plan. And he’ll go off script a bit on the press conference and have everybody roll it back when they go out on the speaker circuit.

So I don’t see much difference there. So I’m gonna go with the majority in the end the futures pricing and say, Yeah, quarter point.

Julie: Is there a chance of something higher?

Kim: Higher would be really, it’s really off the table. And that would really jolt the markets.

I think he wants to avoid that it would really kind of dribble the bond markets as well. But you’re already having a kind of difficult time. If you’ve missed the very shortest end of the curve, especially the three months of treasury yield has been spiking, and its gap between the three months and the one month has never been wider.

And that’s mainly because people are pricing in some trouble when the X date so to speak X date for the debt ceiling rise. That’s enough trouble for the bond market as it is. I don’t think that Powell wants to toss another grenade in there.

Julie: Kevin, what do you have for us in terms of earnings? Yeah, so it’s no less busy in the week ahead. We have a number of names probably Apple’s going to be the headliner for the week just based upon being the headliner for pretty much anything it’s involved in, but we also have Ford, Starbucks, which will be the first report that will see a new CEO after Howard Schultz handed over the reins to Laxman Narasimhan in March.

Anheuser Busch is also on tap, so to speak with its ad controversies attracting a lot of attention as of late. Other than that we have a host of semiconductor reports from the likes of on Annex B, AMD and Qualcomm vaccine favorites moderna and Pfizer as well as a bunch of energy names and logic names, a lot of which will be highlighted by Marriott and Airbnb.

Julie: Alright, so let’s talk about the big one, Apple that you mentioned first.

Kevin: Yeah, so no surprise that that’s going to be the big one on Thursday. And we’re looking at some pretty positive reports ahead of it from analysts at least. I mean, the stock is up 30% to start 2023. So it’s certainly not coming in on a cold streak so you can be relatively unsurprised to see analysts optimistic on the rebound after sort of an auspicious close to 2022.

In terms of surveys as of late, some that I pointed out in my upcoming earnings week preview is that analysts show that there’s a still dominant demand for iPhones, globally among certain age groups. So even though we might be thinking that younger people might be changing and issuing things that their parents are buying, it certainly doesn’t seem to be the case with iPhones and Apple services, which of course feeds into their ecosystem.

There are certain exceptions in certain major markets, such as China and India, there’s a little bit more competition in those particular markets. But according to the Indian government, Apple is actually investing pretty significantly in India. So that’ll be interesting to see if they can pick up market share there where consumers are a little bit more price sensitive.

So any guidance on those types of markets that the market share is a little bit less dominant than the US might be interesting on the earnings call. And then other than that, I think we’ll be looking for a little bit of insight into the regulatory environment, because they’re subject to probes in both the US and particularly one that’s of interest is German antitrust regulators going after the company over its tracking of consumers.

So that’ll be kind of interesting to look at and see if they have any comments on that. That said, they did win a pretty big case, which is related to the Epic Games antitrust fight over their app store. And I’m sure that people will be happy to well, investors in Apple at least will be happy to see that their app store cash cow is not being cracked down upon, as they may have thought at the beginning of Epic Games that suit.

Julie: Now one of the things you just mentioned, you mentioned India, this is on the heels of them opening two stores in India, right?

Kevin: Yeah. So it’s a it’s not that surprising. I mean, India, the headlines, of course, even if you’re not following investing is that India is going to surpass China in terms of population, and they’re on different trajectories.

The consumer market, they’re being the largest in the world in the near term is obviously something that’s huge for a company that, you know, while there’s a lot more focus on services still has a huge component of consumer products. So it’s definitely going to be a race to see who can gain the market share.

And as I said, they’re competing with a lot of Chinese companies like Huawei and Xiaomi, for example, in handsets, and it’ll be interesting to see if Apple can establish more of a footprint there when its price point, as I said, is significantly higher than some of those Chinese competitors.

Julie: Already not totally switching gears, and we have to preface this and this next segment and say that this is not advice you need to, to speak to a financial advisor about this. But so the draft is tonight, the NFL Draft, we’re recording this on Thursday. This is the beginning of the NFL Draft. But what about the stock draft? What are your picks?

Kim: I’m gonna go Kevin, go first on this one. Who’s your Bryce Young?

Kevin: Oh, well, my Bryce Young I don’t know, that’s, that’s a tough to say, because I was gonna say, you know, it depends on what your team needs here. Does your portfolio need a bit more defense go a little bit more conservative, I think, if I’m looking at something that has a huge growth potential, and isn’t necessarily cheap, because you’re paying a big contract to a first round quarterback.

I think that META really impressed me with its earnings release recently. And it seems like they’ve kind of come to terms with focusing their expenses and will be able to manage the company without sinking billions of dollars into frivolous endeavors in the metaverse and I think that there’s a lot of upside there just based upon you look at it used to be, you know, a near trillion dollar company. And now it’s down to about 500 billion, there’s room for it to bounce back. And the valuation while not great, you know that a p for p of 20 is not super expensive for a big tech player like that, and certainly less expensive than many of the peers that you would see in the fang giants.

Kim: Yeah, I like that. I like that they were very impressive. And they were the stock that was least likely to do the best and big tech earnings according to our most recent Wall Street breakfast survey. So obviously surprised a lot of people. For my picks, I went for value in the later rounds. So I’m looking at kind of smaller names.

And so I went to Seeking Alpha tools and I went to the stock screener and filtered out a few things and when I filtered for was stocks that got a buy or a strong buy from both quant ratings on Seeking Alpha and Seeking Alpha analysts, but got a sell rating on Wall Street. And so a bit of kind of contrarian Wall Street pick now I have great respect for Wall Street sell side research, and I use it a lot, but they can be really late to the party. Case in point this week, Credit Suisse brought down their price target on first republic bank from 130 to $11dollars, it was trading around $15 When they brought it down, and it’s now trading around $6.

So, you know, maybe if you want to get ahead of the game, you’re gonna want to look at what Seeking Alpha likes before you’re looking at what how Wall Street changes its mind. Anyway, that screens popped up a few names and two of interest I saw first is Marcus and Millichap, its ticker symbol MMI. You may not be familiar with them, but they are provide financial services and brokerage services for the real estate market.

The fundamental reason to like them is that the revenues have remained strong through this Feds tightening period. And when we had our quarter point expected right next week, maybe that’s the terminal rate, rates start coming down, mortgage rates coming down, and real estate real estate activity picks up. So that would be definitely good for them.

The other name was Gannett and their ticker symbol GCI. Of course, the big publisher, lots of newspapers, lots of digital properties, moving more towards digital, they’ve struggled, both stocks actually have a trail have been down year to date, so trailed the broader market. So there’s room for upside later in the year.

But again, that struggled with a lot of input costs in ink and paper or higher inflation has been hitting them, but they’re moving strongly towards their loads of digital properties they had, and as a journalist that may pained me to say this, but you know, we’ve talked about it, but they probably will benefit a lot from a switch to AI, which could really jumpstart the stock.

Kevin: So you got to pick the Bryce Purdy while I got or the Brock Purdy I should say. And I had to go with the number one pick a little bit of a different strategy there. We jumped from the first to seventh round pretty rapidly.

Kim: Yeah, exactly. I don’t know what Mel Kiper would make it less but probably not impressed.

Julie: What Kim just mentioned, as far as picking a stock using the stock screener, all you got to do is go to our website seeking alpha.com On the left hand side, there is a link there that says stock screener, there’s also an ETF screener as well.

So Kim something else that you briefly mentioned the results from last week’s poll, what were they?

Kim: Yeah, we asked people what they thought the witch stock would do best among the big tech stocks, the reporting earnings. And the results were a majority of people thought Microsoft would do the best. And they weren’t wrong. They didn’t do as well as META. But they did jump pretty sharply. And everybody was impressed with Microsoft quarter. So that’s, that’s an impressive call from our audience. But we’ve still got Apple left to go, as Kevin says, so we’ll see what’s going on there.

But for next week, of course, we’re going to add the asking you something about the Fed, not sure what if another is gonna be whether this is the terminal rate, or if whether it’s Feds got some more work to do or whether we’ll see cuts by the end of the year, we’ll come up with some good questions.

Julie: Oh, that sounds good. And of course, that will appear in the Wall Street breakfast newsletter, our daily one page news summary that will appear there on Monday morning. And we’ll also talk about it here on the Wall Street breakfast podcast on Monday as well. Kim, Kevin, anything else?

Kim: Not for me?

Kevin: No, I think we’ll be all set and I’ll be keen to see what happens next week with the last really hurrah of earnings season upon us.

Julie: And you know, next week when we record it will be made the fourth

Kim: All right Star Wars conversation.

Kevin: Yeah, and we’ll get a nice Cinco de Mayo heading into the weekend, which is better for my morning after Cinco de Mayo.

Julie: I like it. Well, we’ll see you next time.

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