The week after the hike: two housing reads and Costco earnings... | Week-Ahead Brief #7

The week in one minute

The Fed raised rates a quarter point on Wednesday to 3.75%-4.00%, on a 12-0 vote. The dot plot pencilled in one more hike this year. Stocks ended the week close to flat, with the Dow down 1.7% and the Nasdaq up 0.7%.
This week has no Fed meeting, no CPI and no jobs report. The 10-year Treasury yield sits near 5%, its highest since 2007, and the 30-year mortgage is at 6.95%.
Tuesday, after the close: KB Home, the first builder to report earnings since the mortgage rate jumped.
Wednesday, 9:45am ET: S&P Global releases its preliminary September PMI surveys for the US economy.
Thursday, 10:00am ET: August new home sales release. After the close: Costco earnings, the week's only big name.
Thursday is also SpaceX's day-105 lock-up, about 319 million more shares.
Friday, 8:30am ET: August durable goods orders release.

The week, day by day

Every earnings report is on the earnings calendar. Each morning's running timetable is on /today.

Monday, Sep 21

No US data of note. The Chicago Fed's national activity index at 8:30am ET, and Chicago Fed President Goolsbee speaks.
Bloom Energy, Illumina and Everpure trade as S&P 500 members from the open. Molson Coors, The Trade Desk and Builders FirstSource are out. Index funds did the buying and selling in Friday's closing auction, so Monday itself should be quiet.

Tuesday, Sep 22

Earnings before the open: AutoZone (call 10:00am ET, implied move 9.6%), Thor Industries (11.0%), MillerKnoll.
10:00am ET: Richmond Fed survey. 10:20am: Fed Vice Chair Jefferson speaks on Treasury market functioning. 1:00pm: 2-year Treasury auction.
Earnings after the close: KB Home (implied 10.1%), Worthington Enterprises (10.8%).

Wednesday, Sep 23

9:45am ET: September flash PMIs (Purchasing Managers' Index) from S&P Global - the first broad read on the month.
Earnings before the open: Cintas (implied 4.6%), General Mills (8.8%), Paychex (7.6%), Cracker Barrel (15.5%).
10:05am ET: Fed Governor Barr speaks on housing affordability. 1:00pm: 5-year Treasury auction.
Earnings after the close: Stitch Fix (22.9%), H.B. Fuller.

Thursday, Sep 24

8:30am ET: weekly jobless claims and the Q2 current account. 10:00am: August new home sales. 11:00am: Kansas City Fed survey.
Before the open: Darden Restaurants (implied 7.6%), TD Synnex (9.2%), BlackBerry (12.8%).
SpaceX's day-105 lock-up: about 319 million more shares become sellable. More below, and on the lock-up calendar.
After the close: Costco (implied about 3.6%).

Friday, Sep 25

8:30am ET: August durable goods orders. 10:00am: the final September Michigan survey, with its inflation expectations. 1:00pm: Baker Hughes rig count.
No earnings of note.

The Fed raised rates and markets went up…then Warsh spoke.

The hike was expected and priced in. A quarter point to 3.75%-4.00%, voted 12-0 and already priced above 90% by Tuesday. Stocks rose into the statement and held their gains for about half an hour.

Then Warsh started speaking. "This summer's inflation readings do not tell me that underlying trends have meaningfully improved." The S&P 500 immediately gave back the morning's gains and closed down 0.45%. The Dow lost 1.2%.

The projections didn't help. June's median had the Fed at 3.8% by year-end, which Wednesday's hike satisfied. September's median changed that and now says 4.1%. That is one more quarter point, at either the October 28 or the December 9 meeting. The 2027 line moved from 3.6% to 4.1%, so the rate cut June's projections had planned for next year is gone.

The bond market behaved as you'd expect - given they compete with interest rates from banks (higher fed rate = less demand for bonds = gov must pay higher rates to sell bonds). The 10-year yield touched 5.02% on Tuesday, its highest since 2007, and was back above 5% at Friday's close.

The other two central banks went as expected. The Bank of England held at 3.75% on Thursday, 6-3, with three members voting for a rise. The Bank of Japan raised to 1.25% overnight into Friday, 7-2, its highest rate since 1995.

Last week, it was all about the hike and projections. This week the question is what a 5% ten-year does to housing - the sector most sensitive to it. That is why KB Home and new home sales are the reports to watch.

The Fed hub has the full timeline, the dot plot table and the close. The Fed meeting calendar has the schedule.

KB Home Tuesday, new home sales Thursday

Mortgage rates follow the 10-year. The 30-year fixed mortgage averaged 6.95% in the week to September 17, per Freddie Mac. That is up from 6.76% a week earlier and 6.26% a year ago. Nineteen basis points in seven days is a big move for a mortgage.

Builders were already struggling before that move. New-home sales fell 10.5% in July to a 607,000 annual rate, and unsold inventory reached 9.6 months of supply. Then Lennar reported on Wednesday, hours after the Fed. Earnings of $1.19 a share against $2.29 a year ago and the $1.30 analysts wanted. Orders down 9%. Incentives offered to attract buyers at around 12% of the sale price. The full-year delivery target cut for the second time, to 80,000-81,000 homes. The stock dropped ~4%.

KB Home is next, after Tuesday's close. Analysts want $0.90 EPS on about $1.3 billion revenue, against ~$1.6 billion a year ago. Revenue falls 20% and earnings fall by nearly half. The company already guided 2,600-2,800 deliveries, so the quarter itself should hold few surprises. The full-year guide is what will move the stock, and options price a 10% move.

Thursday's new home sales are the other half of housing this week. August is the first month measured with the mortgage rate close to 7%. July's 607,000 sales is the number to beat.

My read: If KB Home holds its guide and August sales beat July, that means incentives are absorbing most of the rate move. If both come in soft, the Fed is tightening into a housing market that's already rolling over. I lean toward the second, just based on Lennar's earnings last week. And the rate has gone up since then.

Costco: options price a 3.6% move, the stock usually moves 1.4%

Costco reports Thursday after the close. Analysts want about $6.55 a share on $94.9 billion of revenue, up roughly 12% and 10% YoY. The company has matched or beaten expectations for the last five quarters.

Options price a move of about 3.6%. Over its last eight reports the stock has averaged a 1.4% move, per TipRanks. The market is expecting more than double what Costco usually does.

There is a reason. Costco reports sales monthly, so revenue is rarely a surprise, and most of its profit is membership fees. What remains is margin. Oppenheimer thinks core earnings could land below consensus once tariff refunds are stripped out.

Myself, I think paying 3.6% for a stock that moves 1.4% is expensive. I wouldn't buy options in either direction. This view gets graded in the track record so our failures and successes are public.

SpaceX: the fourth lock-up tranche is Thursday

Thursday is SpaceX's day-105 lock-up, around 319 million more shares becoming sellable. It is the fourth tranche since the June IPO. The first three all did the same thing: a dip on the day the shares became eligible, then a recovery once they actually traded. August 6 actually rose 6% on the day. August 20 fell about 6.5%, then bounced. September 9 fell 3.9% and recovered within two sessions.

The stock has been steady into this one. SPCX traded around $153 on Friday, per Investing.com, back above where it sat before the day-90 tranche. Options market priced a 7.2% move for the week of the unlock, which is larger than either of the last two lockup days delivered.

My read: three uneventful unlocks have trained the market, and I expect a modest dip and a recovery again. The tranche that might break the pattern comes later. It is the 28% release tied to Q3 earnings, roughly four times any step so far, and it arrives with an earnings print attached. The lock-up hub keeps track of every date and share count.

Scorecard

Two calls reached their September 18 expiry this week, and both were right.

The Reddit put was the winner. Logged against the S&P 500 inclusion spike at $179.09 in August: a $160 put, bought for $4.55. Reddit closed Friday near $150.88. The put was worth $9.12 at expiry, a 100% return on the premium. The stock fell 15.8% against a 14.4% implied move.

The Nutanix pass (decision not to trade) was the other. This site passed on a $67.50 straddle priced at 14.9% of the stock. Nutanix closed at $69.81, up 4.8% from entry. The straddle would have lost about 77% of its premium.

The rule that helped with both trades: check whether a stock's recent realised moves have run ahead of or behind what the options chain prices.

Twenty-five positions stay open. The September 14 scorecard has both grades, and the track record has every row.

New on the site

The pre-market page is live: index futures, pre-market movers and the day's schedule on one URL for the 9am hour.

Push alerts introduced. Alerts fire twenty minutes before CPI, jobs reports, the Fed and any followed ticker's report (follow your watchlist!). The button sits on every calendar page and on /today.

Calendars across the site have been updated to allow all types of events to be displayed on the same downloadable weekly view - for a one glance weekly calendar.

Read this week

The full week-ahead piece, every figure sourced
The Fed hub: the hike, the dot plot and the close
The dot plot: what changed from June
SpaceX lock-up calendar
Sector heatmap, for where a 5% ten-year shows up first

Last thing

The next week is a big one. Micron reports fiscal Q4 after the close on Wednesday, September 30, with options pricing an 11% move. August PCE, the Fed's preferred inflation gauge, lands the same morning at 8:30am ET, alongside the third estimate of Q2 GDP. Then the September jobs report on Friday, October 2. Next Sunday's issue will cover it.

Know someone waiting on Costco? Forward this. New readers can subscribe at regardsofwallstreet.com, free, one email every Sunday.

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