June 25 – Stock mentions: MU, ROKU, NFLX, SNAP, RH

Michael Kramer and the clients of Mott Capital own NFLX

Stocks had a pretty awful June 25 all around with the S&P 500 falling by about 1%. Certainly a significant change from yesterday lack of excitement.

The move lower appears to coincide with some Fed speak about future rate cuts, blah, blah, blah. The Fed only met a week ago; I doubt they changed their minds that quickly. I can tell you the economic outlook didn’t change that much in a week that future rate cuts should suddenly be in question. The only thing in question is how many cuts in July. Was the market expecting a 50 bps reduction in July? Really? I can’t remember many times the Fed cut rates 50bps at one meeting, outside of something dire going on.  Sometimes I wonder where this stuff comes from?

Fed Fund Futures

Fed Funds future do not imply two rates cuts in July. They indicate no rate cut. That is likely because the next meeting does not conclude until July 31. However, the contracts for August suggest the Fed Funds rate falls to around 2.05%, which is about 35 basis points less than the current Fed Funds rate of 2.38%. However, a 25 basis points cut would take the Fed Funds target to 2 to 2.25%, from 2.25 to 2.5%. So by my book that only implies one rate cut. Fantasyland? Maybe.

The contracts for December indicate a rate of about 1.65%, about 70 basis points below the current rate. By my book that implies a range of 1.5 to 1.75%, or 3 rates cuts by year-end. Year-end! Not at the July meeting! Seriously, where does this stuff come from.

Yesterday, the CME rate watch tool was only showing a 40% chance of a 50 bps cut in July, today that fell to 30%. 

If that number said 60% then I could say, ok, the market is expecting it. But its not even a majority. Whatever.

2-Year and Dollar’s Non-Reaction

Anyway, the bond market and the dollar index hardly budged today. In fact, looking at the chart plainly of the 2-Year Treasury, you can’t even see the move down.

It is a little more visibly on the dollar index.

S&P 500 (SPY)

Well you can see it was very visible on the S&P 500 index. Over reaction? Well, every part of the market is telling you that today’s sell-off was an overreaction. It sure seems like it.

Micron (MU)

Micron reported better than expected earnings and revenue. The revenue guidance for fiscal 4Q was pretty much in line, but earnings guidance was well below estimates for $0.70, at $0.45.

Anyway, they noted on the call: “we anticipate robust bit demand growth for the
industry in the second half of the calendar year, compared to the weak demand levels in the first half where the industry saw sequential declines. ”

The stock is rising towards $36 in the after-hours were resistance sit. I had noted on June 18, that I thought the stock would pop after results and head towards $38, which it now has a good chance of doing. Micron May Surge Following Results. I guess we can move Micron over to the leaning right column on my Google spreadsheet.

Roku (ROKU)

Roku shares fell about 8% today, to $91.90. I had been expecting a drop to $94. Unfortunately, I do not think the selling is done. The market just woke up to the fact that there are other players that do what Roku does, amazing? Who would have thought Amazon had a streaming product. 

That has always been my biggest worry about Roku. There are already a number of competitors –namely: Amazon, Google, and Apple, just a few small players in the space.

The real risk for Roku is a gap fill all the way down at $64.

Netflix (NFLX)

You can look at NFLX and say: “Boy that was a bad day.” Or you can say: “Hey, the breakout held.” I have the point of view of the latter. The breakout held for NFLX, and I think that is important. We’ll see what tomorrow will bring.

SNAP (SNAP)

You have to like how Snap held in a bad market. That is why I continue to think it will go to $16.

 

RH (RH)

RH may very well start filling that gap, back to $85.

Good Night.  I think we may have another fun filled day in store tomorrow, so rest up!

-Mike