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Coffee With Greta: Recession Fears Pop On Q2 GDP Contraction


DJIA Futures: -70 (-0.2%)

SPX Futures: -10 (-0.2%)

NASDAQ Futures: -56 (-0.4%)

Good morning friends!

Futures are falling as recession fears pop on the release of new GDP data.

Let’s get right to it!

Recession Alarms Sound As Q2 GDP Contracts

Recession alarms are sounding after the U.S. economy contracted for a second straight quarter. 

The Commerce Department reported GDP contracted 0.9% year-over-year in the second quarter.

That missed expectations for 0.3% growth and was the second drop in a row after the 1.6% contraction in Q1.

This is the first back-to-back declines in GDP since the financial crisis.

The National Bureau of Economic Research is not expected to declare the U.S. officially in a recession at this point. 

But two consecutive quarters of contraction has long been considered a signal of a recession. 

Fed Chair Insists the U.S. Isn’t In a Recession Yet

Fed Chair Jerome Powell told reporters on Wednesday, “I do not think the U.S. is currently in a recession and the reason is there are too many areas of the economy that are performing too well.”

His comments came after the FOMC voted unanimously for its second straight 0.75% rate hike to tackle inflation.

The Federal Funds Rate is now in a range of 2.25% to 2.5%, the highest level since December 2018. 

Powell highlighted the strength of the labor market as reason to believe the U.S. economy is not yet in a recession. 

But he admitted risks remain and a recession is still possible in the near future.

Weekly Jobless Claims Fall Less Than Expected

Weekly jobless claims fell last week but still came in higher than expectations. 

The Labor Department reported 256,000 Americans filed initial claims for unemployment benefits. 

That was down 5,000 from the previous week but higher than expectations for a drop to 249,000. 

Continuing claims fell by 20,000 to 1.36 million in the week ending July 16.

Meta Tumbles On Q2 Miss, Weak Q3 Outlook

Meta Platforms (META) shares are down 4.1% ahead of the open after a weaker-than-expected second quarter and weak guidance for the third quarter. 

The Facebook parent company reported earnings of $2.46 per share on $28.82 billion in revenue. 

That was lower than analysts’ expectations for EPS of $2.59 on $28.94 billion in revenue. 

The Reality Labs unit, which is responsible for developing the metaverse, recorded a $2.8 billion loss in Q2.

Meta Platforms forecast Q3 revenue will drop further to a range between $26 billion and $28.5 billion.

That sharply missed analysts’ estimates for $30.5 billion. 

Meta said the Q3 decline will be due to a “continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty.”

The company also announced its CFO will become chief strategy officer on November 1.

The current vice president of finance will take over as CFO.

Ford Rallies On Strong Q2 Results

Ford (F) shares are up 6.8% in premarket trade after topping Q2 expectations. 

The automaker reported adjusted earnings of $0.68 per share on $37.91 billion in revenue. 

That topped analysts’ estimates for adjusted EPS of $0.12 on $34.32 billion in revenue. 

Adjusted operating income more than tripled year over year, while U.S. sales jumped 1.8% annually. 

That gain was driven by an 8% annual increase in SUV and crossover sales. 

Ford maintained its full-year guidance despite inflationary pressures.

Qualcomm Slips After Weak Forecast

Qualcomm (QCOM) shares are down 2.4% ahead of the open after topping fiscal Q3 expectations but releasing weak guidance. 

The chipmaker reported adjusted earnings of $2.96 per share on $10.93 billion in revenue. 

That was better than analysts’ expectations for adjusted EPS of $2.87 on $10.88 billion in revenue. 

Profits rose 53% year over year while sales jumped 37%.

But the stock is falling after weak fiscal Q4 guidance. 

Qualcomm said it expects EPS between $3 and $3.30 this quarter with revenue between $11 billion and $11.8 billion. 

Analysts were estimating $3.23 in Q4 EPS on $11.87 billion in sales.

Southwest Falls Despite Record Q2 Revenue

Southwest Airlines (LUV) shares are falling 5.9% in premarket trade as the market focuses on guidance over record sales in Q2.

The airline reported adjusted earnings of $1.30 per share on a record $6.7 billion in revenue.

That topped analysts’ expectations for adjusted EPS of $1.17 on $6.69 billion in revenue. 

But the stock is dropping as costs surged.

Southwest’s operating expenses jumped to $5.6 billion, up 12.7% from Q2 2019.

Cost per available seat mile (CASM) rose 13.1% due to surging labor rates and airport costs. 

Southwest forecast inflation-related headwinds will continue in Q3.

The airline expects revenue to rise 8% to 12% from Q3 2019 while while CASM is expected to be up 12% to 15%.

The company maintained its previous guidance for full-year CASM to rise to rise between 12% and 16%.

Spirit Terminates Frontier Merger, Agrees to JetBlue Acquisition

Spirit Airlines (SAVE) shares are up 3.7% ahead of the open after announcing it will be acquired by JetBlue (JBLU) for $3.8 billion. 

The deal comes after Spirit terminated its planned merger with Frontier (ULCC) on Wednesday.

Frontier shares are down 5.4% while JetBlue shares are up 0.8%.

Spirit ditched the Frontier deal due to a lack of shareholder support for the merger. 

JetBlue has agreed to pay $33.50 per share in cash for Spirit.

The deal must be approved by regulators, which Spirit’s board has expressed doubt about in the past.

Best Buy Slashes Forecast Due to Inflation

Best Buy (BBY) shares are down 2.7% ahead of the open after slashing its Q2 and full-year forecast. 

The electronics retailer now expects same-store sales to fall 13% in the second quarter.

Best Buy also expects same-store sales to decline 11% for the full year, up from the previous forecast for a 3% to 6% decline.

The company said, “in response to the current sales environment, the company will continue to actively assess further actions to manage profitability.”

The CEO said, “As high inflation has continued and consumer sentiment has deteriorated, customer demand within the consumer electronics industry has softened even further.”

Oil Prices Rise On U.S. Inventory Drop

Oil prices are rising again today after the U.S. reported a steep drop in inventories last week. 

West Texas Intermediate crude futures are up 2.1% to over $99 bbl while Brent crude futures are up 1.9% to over $108 bbl.

The Energy Information Administration reported Wednesday that U.S. crude inventories fell by 4.5 million barrels last week. 

That was sharply higher than expectations for a drop of 800,000 barrels.

Gasoline stockpiles fell by 3.3 million barrels vs the 1.1 million barrel decline expected.

Gas Prices Continue Pullback

U.S. gas prices fell for the 43rd day in a row today.

AAA shows the national average for regular gas fell more than 2 cents overnight to $4.278/gal.

The national average for diesel also fell more than 2 cents overnight to $5.341/gal.

In Case You Missed It

  • The National Association of Realtors reported pending home sales plunged 8.6% in June. That was steeper than expectations for a 1% drop, as mortgage rates jumped. Pending sales were down 20% compared to June 2021. This data represents contracts signed in June for purchases set to close in 30 to 60 days. The drop is a leading indicator for continued declines in existing home sales.

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