Market Overview
It was a solid day in the stock market following a pleasing CPI report for June, but the S&P 500 (-0.9%) and Nasdaq Composite (-2.0%) didn't reflect that. Total CPI deflated 0.1% month-over-month, slowing the pace of growth to 3.0% on a year-over-year basis from 3.3% in May. Core-CPI, which excludes food and energy, decelerated to 3.3% on a year-over-year basis from 3.4%.
Impact on Market Rates
The report sent market rates lower, reflecting optimism about the path of inflation and Fed policy. The 10-yr note yield, which is most reactive to inflation expectations, declined nine basis points to 4.19%, and the 2-yr note yield, which is most responsive to changes in the fed fund rate, fell 12 basis points to 4.51%.
Fed Funds Futures Market
The fed funds futures market is pricing in a 92.7% probability of a rate cut at the June FOMC meeting, up from 73.4% yesterday.
Stock Market Performance
Many stocks participated in a broad rally today, except mega caps and semiconductor stocks. Money was rotating away from these areas of the market due to profit-taking activity after a big run of late.
- The Vanguard Mega Cap Growth ETF (MGK) logged a 2.3% decline.
- The PHLX Semiconductor Index (SOX) declined 3.5%.
This price action weighed on the S&P 500 and Nasdaq Composite while the Russell 2000 surged 3.6% and the S&P Mid Cap 400 logged a 2.5% gain. The equal-weighted S&P 500 registered a 1.2% gain.
Individual Stock Performance
Tesla (TSLA, Financial) was an influential laggard from the mega cap space on news that it's delaying its robotaxi plans until October, according to Bloomberg. The stock had been trading nearly 3% higher at its best level of the day.
Rate-Sensitive Areas
Rate-sensitive areas of the market benefited from the drop in rates. The S&P 500 real estate sector was a standout, jumping 2.7%. Homebuilder stocks also surged in response to the movement in market rates. The SPDR S&P Homebuilder ETF (XHB) logged a 5.9% gain.
Year-to-Date Performance
- Nasdaq Composite: +21.8% YTD
- S&P 500: +17.1% YTD
- Dow Jones Industrial Average: +5.5% YTD
- S&P Midcap 400: +7.7% YTD
- Russell 2000: +4.9% YTD
Economic Data Review
- Weekly Initial Claims: 222K (consensus 234K); Prior revised to 239K from 238K
- Weekly Continuing Claims: 1.852 million; Prior revised to 1.856 million from 1.858 million
The key takeaway is that initial claims continued backtracking from a high reached in June, suggesting that the labor market is holding up well despite restrictive policy from the Fed.
- June CPI: -0.1% (consensus 0.1%); Prior 0.0%
- June Core CPI: 0.1% (consensus 0.2%); Prior 0.2%
The key takeaway is that the market heard exactly what it hoped for, as CPI deflated slightly in June, contributing to additional disinflation on a year-over-year basis. The 3.0% year-over-year growth rate matched the low from 2023, which will be seen as supportive of a case for a rate cut from the FOMC.
Guru Stock Picks
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Today's News
Nvidia (NVDA, Financial) dropped 4% on Thursday, leading a broader decline among major tech companies. The drop, Nvidia's largest since June 24, saw its market cap fall to $3.17T from $3.32T. Other tech giants including Microsoft (MSFT, Financial), Google (GOOGL, Financial), Meta (META, Financial), Amazon (AMZN, Financial), and Apple (AAPL, Financial) also faced declines as investors rotated out of the sector. Meta fell 4%, Amazon nearly 3%, and Google, Apple, and Microsoft each slipped more than 2%. Semiconductor companies were hit as well, with Lam Research Corporation (LRCX, Financial) plunging 5%, Micron Technology (MU, Financial) down 3.5%, and Intel (INTC, Financial) dropping 3.7%. Cybersecurity stocks also suffered, with Palo Alto Networks (PANW) down 2% and CrowdStrike (CRWD), Fortinet (FTNT), and Zscaler (ZS) sliding 1% each.
Amazon (AMZN, Financial) Executive Chairman Jeff Bezos sold another $452.7M worth of stock, following sales earlier this week and nearly $5B earlier this month. The sales are part of a February disclosure allowing Bezos to sell up to 50M shares by early 2025. Despite the sell-off, Amazon shares closed at $195.05 on Thursday, marking a 30% increase year-to-date and nearly 52% over the past year.
Apple (AAPL, Financial) reached a settlement with European Union antitrust regulators, potentially opening its Near-Field-Communication (NFC) technology to third-party payment providers in the U.S., such as PayPal (PYPL, Financial). This could allow features like tap-to-pay with Venmo, which could significantly benefit PayPal. Apple dipped 2.1% in midafternoon trading, while PayPal advanced 1.5%.
Lucid Group (LCID, Financial) CEO Peter Rawlinson stated that the company's vision is to be a major player in the electric vehicle market, with production for the seven-seat Gravity SUV on track to begin this year. Rawlinson highlighted the importance of strategic capital raises and noted the strong partnership with the Saudi Arabia Public Investment Fund. He also mentioned that Lucid is open to partnerships that would utilize its advanced technology.
Tesla (TSLA, Financial) saw a decline after reports suggested that its robotaxi event scheduled for August 8 might be delayed until October. The delay is attributed to the need for more time to build autonomous vehicle prototypes. CEO Elon Musk has been discussing the robotaxi event since April, and the concept has been part of Tesla's Master Plan for at least eight years.
Costco Wholesale Corporation (COST) announced a membership fee increase, raising the Gold Star membership price to $65 from $60 and the Executive membership price to $130 from $120. The increases will take effect on September 1, affecting around 25 million Gold Star members and 27 million Executive members. Morgan Stanley estimates that the fee increase could be worth approximately $395 million or $0.65 of EBIT/EPS over two years.
Bernstein maintained its Outperform rating on Taiwan Semiconductor Manufacturing (TSM) and raised the price target to NT$900 ahead of the company's second-quarter earnings. TSM's stock climbed more than 3% in Taiwan, reaching a record NT$1,080. The company's revenue for the first half of 2024 increased by 28% compared to the same period in 2023, driven by demand for AI applications.
AMD (AMD) slipped fractionally despite Roth MKM and Wells Fargo boosting their price targets following AMD's acquisition of European AI lab Silo AI. Analysts believe the deal will help AMD close the gap with Nvidia (NVDA, Financial) in AI frameworks. Roth MKM raised its price target to $200 from $180, while Wells Fargo praised the acquisition for deepening AMD's AI software expertise.
Estée Lauder (EL) finance chief Tracey Travis will exit later this year, according to an internal memo. Travis has been with the company since 2012, overseeing global finance, accounting, investor relations, IT, strategy, and new business development. Jane Lauder and Stéphane de la Faverie have been named co-executive leaders of the company's new 'Profit Recovery and Growth Plan'.
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