Goldman Sachs has been super-bullish on the global economy, but not anymore. Here’s why.

Goldman Sachs has been super-bullish on the global economy, but not anymore. Here’s why.

Goldman Sachs has prided itself on its bullish stance on the global economy, with its above-consensus takes doing better than many of its banking rivals to forecast just how resilient consumers and businesses have been.

The gross domestic product data released Thursday show the world’s largest economy, the U.S., has already surpassed its pre-pandemic peak, and Eurostat on Friday reported a stronger-than-forecast 13.7% year-over-year rise in the eurozone economy in the second quarter.

But…

Goldman Sachs economists Daan Struyven and Sid Bhushan explain the bank’s economics team has now become less enthusiastic. They’ve cut economic growth projections for the low-vaccination Asian economies including India and Australia but also the U.S. — even while upgrading Brazil and Mexico forecasts — taking their global growth forecast for this year to 6.4%, which is only 0.3% above the Wall Street consensus.

The more transmissible delta strain of coronavirus implies a slower recovery because of renewed outbreaks. The issue isn’t just government restrictions, but also the choices of individuals to limit high-contact services.

“The share of Americans reporting to ‘always avoid’ high-contact activities has decreased, but remains substantial at around 50% for public transportation and large events, and 30% for travel,” they said, citing YouGov data. “A further recovery will require not only rising vaccinations and related medical improvements, but also time for individuals to become more comfortable.”

Related: Here’s the good and bad news from the England ‘Freedom Day’ experiment

And the U.S. is grouped into one of the low-risk aversion countries, based on the restrictions imposed relative to fatalities. “China’s high risk aversion could keep quarantines and travel controls in place for longer, and delay the recovery in tourism economies such as Vietnam, Thailand, and Singapore,” they say.

The pessimism comes amid a new report from the Centers for Disease Control and Prevention, arguing the delta variant as as transmissible as chickenpox.

Amazon misses forecast

Amazon.com AMZN, -7.56% missed sales expectations as CFO Brian Olsavsky said people are going out more and doing things besides shopping. Amazon shares slumped 6% in premarket trade.

Pinterest PINS, -18.24% stock dived 20% in after-hours trade after reporting a decline in U.S. users and not providing third-quarter guidance. Like Amazon, Pinterest said there was an “unwinding of engagement” that had been seen when people were stuck at home.

The earnings slate for Friday includes oil producers Exxon Mobil XOM, -2.31% and Chevron CVX, -0.74% , as well as machinery maker Caterpillar CAT, -2.73% . Chevon topped earnings estimate as it said it’ll resume a stock buyback program, while Caterpillar shares traded lower after it topped earnings estimates.

The economics calendar includes the second-quarter employment cost index, the June reading of PCE price inflation and consumer spending, and Chicago PMI for July. St. Louis Fed President James Bullard is due to deliver a speech.

The first person convicted in Hong Kong under the new national-security law was sentenced to nine years in prison.

The markets

U.S. stock futures ES00, -0.38% NQ00, -0.47% pointed to an ugly start on the Amazon numbers, though the Amazon-free Dow industrials contract YM00, -0.31% outperformed. The yield on the 10-year Treasury TMUBMUSD10Y, 1.228% was 1.25%.

The Hang Seng HSI, -1.35% closed a turbulent week with a 1.4% decline. Property company Evergrande 3333, -9.15% sunk 9%.

The chart

This time it’s… actually pretty similar. Arbor Research examined the performance of bonds and the U.S. dollar during other economic recoveries. The blue lines indicate the current performance more or less tracks what’s happened in previous years. “This historical playbook suggests range-bound conditions over the months ahead,” said Arbor’s Ben Breitzholtz over Twitter.

Random reads

Brazilians revel in snow, though the unusual cold snap threatens key commodities.

An art dealer sold a giant yellow pumpkin made by famed Japanese artist Yayoi Kusama. The trouble is, the dealer never owned it.

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Pinterest Stock Crashes on Weak Earnings. Here’s Why I’m Still Bullish

In this video, I will be covering the good, the bad, and the ugly sides of Pinterest’s (NYSE:PINS) Q2 earnings report. The stock crashed 20% after the market closed as the company missed on user growth and didn’t provide guidance. However, revenue grew 125% year over year (YOY) and 26% quarter over quarter (QOQ) despite a decrease in monthly average users (MAUs). In the second quarter, MAUs on mobile apps grew in the U.S. and internationally, year over year, by more than 20%. You can find the video below.

What happened

Pinterest beat on earnings with second-quarter revenue of $613.2 million and earnings per share of 25 cents. However, Pinterest’s stock still tanked as the company reported MAU growth of just 9% to reach 454 million. Some further key numbers:

Global MAUs up 9%, down 5% quarter over quarter.

US MAUs down 5% YOY and quarter over quarter.

International MAUs up 13% but down 4.5% QOQ.

Average revenue per user (ARPU) globally up 89% year over year and 27% QOQ.

U.S. ARPU up 103% YOY and 27.32% QOQ.

International ARPU up 163% YOY and 38% QOQ.

The current expectation is that Q3 revenue will grow in the low 40% range year over year. The company expects Q3 operating expenses will grow modestly quarter over quarter as it continues to ramp up investments in long-term strategic priorities, with plans to resume brand marketing campaigns in early Q4. No guidance was given on MAUs.

So what

Every social media platform has gone through a rough period where user growth stagnated or even decreased. COVID affected Pinterest’s growth for the better and for the worse. Many people went on Pinterest during lockdown because they were looking to get inspired while stuck at home; now that the world is reopening, you see the opposite effect. So while the pandemic did increase Pinterest’s user base, some of those users aren’t the type that Pinterest usually attracts, and that’s why you see a decrease. On the flip side, those who do stay on the platform are getting monetized much better.

For the full insights, watch the video below.

*Stock prices used were the closing prices of July 29, 2021. The video was published on July 30, 2021.

Qualcomm (QCOM) Option Traders Increasingly Bullish Into Earnings

Investors and traders have kept the share prices of Qualcomm Incorporated (QCOM) range bound ahead of its fiscal third quarter earnings announcement. At first glance, it appears that option traders are positioned to anticipate a positive move, as there has been a growing number of call options in the open interest. This unusual option trading may create a strong downward trend if QCOM delivers a negative earnings surprise.

A growing collection of call options remain in the open interest for Qualcomm, and option premiums are unusually high right now. Trading volumes indicate that traders have been buying calls and selling puts in anticipation of a positive earnings announcement. Unwinding these bets could result in surprising downward pressure on the share price of QCOM.

Correctly predicting the direction a stock will move after earnings is challenging. However, a comparison of the price action between stock prices and option trading activity shows that, if the company delivers an unfavorable earnings report, QCOM share prices could decline significantly. This is possible because options are priced for a negligible move, but unexpected poor news could catch traders off guard and create a swift fall in the share price.

Key Takeaways Traders and investors have kept the price of shares in a relatively tight range headed into the announcement.

The price has been crossing its 20-day moving average but recently climbed above it.

Put and call pricing is predicting a stronger upwards move.

The volatility-based support and resistance levels allow for a move in either direction.

This setup creates an opportunity for traders to profit from an unexpected result.

Option trading represents the activities of investors who want to protect their positions or speculators who want to profit from accurately predicting unexpected moves in an underlying stock or index. That means option trading is literally a bet on market probabilities. By comparing the details of both stock and option price behavior, chart watchers can gain valuable insight, although it helps to understand the context in which this price behavior took place. The chart below depicts the price action for the QCOM share price as of Monday, July 26. This created the setup leading into the earnings report.

Current Trends

The one-month trend of the stock has the shares remaining in a fairly tight range. It is notable that, over the past month, the highest QCOM share price was near $145, in mid-July, and the lowest share price was roughly $135, in early July. The price closed in the middle region depicted by the technical studies on this chart.

The studies are formed by 20-day Keltner Channel indicators. These depict price levels that represent a multiple of the Average True Range (ATR) for the stock. This array helps to highlight the way the price has moved around but mostly held in an average range all month. This price move from QCOM shares implies that investors expect little change from the upcoming report. It is notable that, in the week before the earnings report is due to be announced, share prices are closing above QCOM’s 20-day moving average.

Tip The Average True Range (ATR) has become a standard tool for depicting historical volatility over time. The typical average length of time used in its calculation is 10 to 20 time periods, which includes two to four weeks of trading on a daily chart.

In this context where the price trend for QCOM has been holding in a middle range, chart watchers can recognize that traders and investors are expressing complacency going into earnings. In the week before earnings, the share price gradually rose, closing above the 20-day moving average. That makes it important for chart watchers to determine whether the move is reflecting investors' expectations for a favorable earnings report or not.

Option trading details can provide additional information to help chart watchers form an opinion about investor expectations. Recently, option trading volumes are favoring calls over puts by a nearly 3-1 margin. This suggests that traders are buying calls and selling puts, as the implied volatility is rising for call options. However, in this circumstance, traders appear to be expecting that QCOM will move higher after earnings.

Tip The Keltner Channel indicator displays a set of semi-parallel lines based on a 20-day simple moving average and an upper and lower line. Because the upper lines are drawn by adding a multiple of ATR to the average and the lower lines are drawn by subtracting a multiple of ATR from the average price, then this channel indicator makes for an excellent visualization tool when charting historical volatility.

Trading Activity

Option traders recognize that QCOM shares are average and have priced their options as a bet that the stock will close within one of the two boxes depicted in the chart between today and July 30, the Friday after the earnings report is released. The green-framed box represents the pricing that the call option sellers are offering. It implies a 37% chance that Qualcomm shares will close inside this range by the end of the week if prices go higher. The red box represents the pricing for put options with a 34% probability if prices go lower on the announcement.

It is important to note that the open interest featured over 341,000 call options active compared to roughly 388,000 put options, demonstrating the bias that option buyers had, as over half of the options are put options. This unusual amount normally implies that put option traders expect a decline in price. However, because the call box and the put box are relatively equal in size, it tells us that the higher percentage of put options traded has not skewed expectations lower. It Is notable that recent trading volumes have had more calls than puts and that implied volatility for puts is declining. This can mean that more put options are being sold. This circumstance implies a far more complacent outlook.

The purple lines on the chart are generated by a 10-day Keltner Channel study set at four times the ATR. This measure tends to create highly correlated regions of strong support and resistance in the price action. These regions show up when the channel lines make a noticeable turn within the previous three months.

The levels that the turns mark are annotated in the chart below. What is notable in this chart is that the call and put pricing are in such a close range with plenty of space on either side to run. This suggests option buyers don’t have a strong conviction about how the company will report, even though, by recent trading volumes, calls are being purchased over puts. Although investors and option traders do not expect it, a surprising report would push prices dramatically higher or lower.

These support and resistance levels show a large range of support and resistance for prices. As a result, it is possible that any news, surprisingly bad or good, will catch investors by surprise and could generate an unusually large move. After the previous earnings announcement, QCOM shares rose by 4.5% in the day following before dropping the following week. Investors may be expecting the same kind of move in price after this announcement. With lots of room in the volatility range, share prices could rise or fall more than expected.

Market Impact

QCOM shares typically make significant moves after earnings, so the results may move indexes directly. Regardless of what the report says, it will likely have a noticeable impact on stocks in the technology sector. A positive report could lift other stocks in the sector such as Nvidia Corporation (NVDA), Taiwan Semiconductor Manufacturing Company Limited (TSM), or Intel Corporation (INTC). It could also affect exchange-traded funds (ETFs) such as State Street’s Technology Sector Index ETF (XLK) and potentially Invesco’s QQQ Trust ETF (QQQ).