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Computer systems worldwide experience outage with CrowdStrike
CrowdStrike is a cybersecurity company used by many large companies and infrastructure systems, including governments, airports, and large corporations. Early this morning the entire system had an outage causing many systems to stop functioning
The error has been identified as a small Windows-related update and has been fixed
Stock faces heavy pressure as many customers ask:
Why can such a small error take down the entire system?
Are we too dependent on CrowdStrike products?
A few images from the day from a regular office to airports in Atlanta, Virginia, Singapore, Malaysia:":
Netflix: Paid User Growth Shatters All Expectations
Paid users +8 million in Q2, shattering Wall Street's +3.4 million expectation
Paid users on ad-supported tier +35% from previous quarter, this cheaper segment growing faster than forecast
Revenue +17% YoY to $9.6 billion, $30 million above expectations
Operating margin 27%, up from 22% YoY
Earnings $4.88/share, $0.14 above expectations
Q3 revenue guidance
Free cash flow $1.2 billion, 25% below forecast (bad)
Cut Q3 revenue forecast -0.8% (bad)
CEO: “Continue pushing into live sports streaming and international markets”
Netflix's financial report is an extremely good report with strong growth in the past quarter. However, cutting the Q3 revenue growth forecast is a mild concern for investors. The stock barely changed after the report, which is actually noteworthy when it has risen quite a bit over the past year, showing that with the new data, investors remain confident in the current valuation. - Steve
American Express: The Wealthy Start to Stop Spending
Earnings $3.49 per share higher than $3.26 forecast
Revenue: $16.33 billion lower than $16.59 billion expected
Raised full-year EPS guidance from $12.65 - $13.15 to $13.30 - 13.80
Q2 charge-offs up from $1.2 billion last year to $1.3 billion
Contrary to Discover American Express shows the opposite picture on spending trends between the rich and poor classes. Discover customers borrow more to spend, charge-offs increase but revenue compensates. American Express, being much harder to obtain a credit card, struggles to expand its customer base in the current market, with existing customers spending less impacting revenue. - Steve
Biden Resists Calls to Drop Out from Within the Democratic Party
After a major campaign from big figures in the Democratic Party like former House Speaker Nancy Pelosi and former President Barack Obama, it seemed Biden would halt his campaign and yield the seat to current Vice President Kamala Harris
No, this morning President Biden's campaign manager came forward to affirm that he will not drop out of the race, even though he is still recovering from COVID-19
China sells $42.6 billion in US bonds in May, the most in history
According to Treasury data, although in May the US still saw inflows but the figure was much lower, only $15 billion compared to the previous $64 billion
Not only that, the total net buy/sell difference for long-term bonds was negative -$54.6 billion. This is the first time foreigners have net sold US bonds since mid-2021 and the strongest sell-off since COVID.
Japan is also heavily selling US bonds, selling $22 billion yesterday and today to save the Yen after having sold $62 billion in May.
Market: SPX tries to defend 5500 on July OpEx day $2.7 trillion
This is the largest July OpEx in history but normal compared to end-of-quarter OpEx.
Options still heavily focused on calls but put hedge demand makes this OpEx quite balanced over the past week.
This July OpEx is quite similar to April OpEx, both are months after quarter-end with SPX down slightly ~5% but big tech stocks like NVDA breaking down hard ~20%. Largely, this is the market's “rebalancing” with trading strategies focused on Mag 7 stocks reversed and cash flows spread more reasonably to reduce risk ahead of earnings season.
Overall, the market was prepared for a “technical bounce” - a technical recovery this morning but fears over the CrowdStrike incident have become a big issue.
SPX after AM Expiration was pushed right down to the put wall at level 5500. Currently, this is still considered the gamma flip level, above 5500 is still bullish, below 5500 we will start to see risk-off with increasing volatility.
More fear lies in QQQ which is completely in negative gamma territory, with put wall 480 clearly breached making all the put hedge from the past 2 weeks ITM, plus VIX pushing up in recent days, forcing retails to start panicking. Although retail sentiment is better than yesterday afternoon, this positioning shows a clear change in thinking. Currently QQQ put wall has come down to 470. This is the level that needs to hold next week to stabilize cash flows.
IWM also seems to show that the small caps rally has reached its end. With the assessment that IWM calls had become extremely expensive and skewed two days ago, today IWM has returned to neutral territory. 215 is currently the point determining IWM's bias, below 210 is risk and above 220 is bull run continuing.
On internals everything is generally more stable. Selling volume decreased compared to yesterday, yields rising putting pressure on the market but the biggest fear still comes from VIX nearing 17. According to Steve's assessment, if SPX holds 5500, and Steve thinks it will, then the reallocation of cash flows will slow down this afternoon and next week, with tech and small caps starting to consolidate and the value block of SPX rallying back.
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