US Close – Stocks tumble after massive tech earnings, Oil surges, Gold rebounds as dollar rally exhausted, Bitcoin struggles

US stocks did not stand a chance after mega-cap tech earnings disappointed and a record quarterly gain for Fed Chair Powell’s closely watched employment cost index.  Rate hike bets continue to pile up ahead of next week’s FOMC decision.  Surging wage pressures could be what is needed to make the Fed even more aggressive with tightening at the June and July Fed meetings. 

Tech Earnings

Apple shares are under pressure as supply constraints could impact this quarter’s sales by up to $8 billion.  If it weren’t for China’s zero COVID policy, Apple’s earnings report was solid.  Headline beats with both the top and bottom line, with service, Mac, Products, and iPad revenue all beating analysts forecasts.  It is impossible for Apple to have a handle on supply constraints given all the uncertainty with commodities and China’s COVID situation. 

Amazon’s stock plunged as their massive warehouse expansion was met with weakening consumer demand.  Out of all the tech-giants, inflation seems to be having the biggest impact on Amazon.  Amazon shares are deeply in bear market territory after falling to the lowest level since June 2020. Amazon delivered a surprise earnings loss and had an uninspiring outlook for the second quarter.

Oil

Crude prices are rallying as the EU is close to announcing a phased embargo on Russian oil.  Energy traders are not expecting OPEC+ to bow to international pressure and raise output.  Oil seems like it is once again heading higher as the supply outlook won’t be increasing significantly anytime soon as US rig counts edge higher and after earnings from oil giants don’t suggest investments in new wells will lag and overall output will likely be flat. 

The fundamentals are mostly flashing green for oil and if China shows any progress in easing lockdowns, crude prices could rally another 5%. 

Gold

Gold prices are back above the $1900 level as the dollar rally takes a break.  A hot employment cost index sent Treasury yields and the dollar higher, but that was quickly faded.  Super aggressive tightening by the Fed of 75 basis points will drive concerns that they could very well send the economy to a recession much sooner than anyone was expecting.

Gold should start acting like a safe-haven as the dollar rally shows some signs of exhaustion.  Gold will likely consolidate around the $1900 level until the FOMC decision. 

Bitcoin

Bitcoin weakened as surging Fed rate hike expectations triggered a bloodbath for tech stocks and risky assets.  Bitcoin’s fundamentals are starting to weaken as crypto retail and institutional interest is waning.  Now that the $40,000 level seems like solid resistance for Bitcoin, crypto traders are anticipating a consolidation that could send prices towards the $37,5000 level.  

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Author: Ed Moya