Market Recovery
Stocks staged a recovery after yesterday's sharp declines. The major indices turned slightly lower ahead of the close, but still logged gains ranging from 0.8% to 1.2%. These gains are relatively muted compared to the declines registered yesterday.
The Dow Jones Industrial Average slumped more than 1,000 points yesterday and won back nearly 300 points today. The S&P 500 settled today's session nearly 100 points lower than Friday's close.
Currency and Volatility
Yesterday's retreat in equities was partially due to the yen's rapid strengthening against the dollar, which precipitated the plunge in Japan's Nikkei. The yen weakened slightly against the dollar today, acting as support for US equities and helping drive a 10% move higher in the Nikkei. The USD/JPY pair trade is +0.3% to 144.72.
Also, the CBOE Volatility Index, which spiked above 65.00 yesterday before returning to the 35.00 area, pulled back to 27.71 today.
Earnings and Fed Commentary
Positive responses to earnings news from Uber (UBER 64.87, +6.39, +10.9%), Caterpillar (CAT 326.44, +9.64, +3.0%), and others aided the upside bias. Additionally, San Francisco Fed President Daly (FOMC voter) noted that policy adjustments will be necessary in the coming quarter.
Treasury Yields
Treasuries retreated after the recent drop in market rates, which acted as additional support for equities, despite today's $58 billion 3-yr note auction meeting solid demand. The 10-yr note yield jumped ten basis points to 3.89%, and the 2-yr note yield settled ten basis points higher at 3.98%.
With today's action, the 10-yr yield is 25 basis points lower than last Tuesday's settlement. The 2-yr yield is 38 basis points lower than its level one week ago.
Year-to-Date Performance
- S&P 500: +9.9% YTD
- Nasdaq Composite: +9.0% YTD
- S&P Midcap 400: +4.2% YTD
- Dow Jones Industrial Average: +3.5% YTD
- Russell 2000: +1.8% YTD
Economic Data Review
June Trade Balance: -$73.1 billion (consensus -$72.8 billion); prior was revised to -$75.0 billion from -$75.1 billion.
The key takeaway from the report is that both exports and imports increased in June, which is a constructive trade dynamic for the global economy.
Today's News
Lawyers for Microsoft (MSFT, Financial) revealed that Delta Air Lines (DAL, Financial) repeatedly turned down offers of help after last month's outage caused by a failed update from CrowdStrike (CRWD, Financial), which led to thousands of canceled flights. Despite Microsoft’s proactive attempts, including personal outreach from CEO Satya Nadella, Delta did not respond. This incident highlights the critical nature of timely technical support in averting large-scale operational disruptions.
Intel (INTC, Financial) has been downgraded to Hold from Buy by Argus following its disappointing second-quarter financial results. The company posted revenue and EPS that missed consensus estimates, announced a significant restructuring plan, and suspended its dividend. Intel’s stock has plunged 34% in the five days since the earnings call, and its workforce will be reduced by about 15% as part of cost-cutting measures. Despite these challenges, Argus maintains a long-term Buy rating on Intel.
Rivian Automotive (RIVN, Financial) traded lower after reporting Q2 results that showed increased revenue but also higher gross profit losses year-over-year. The electric vehicle maker produced 9,612 vehicles and delivered 13,790 during the quarter. Despite these operational metrics aligning with company expectations, the stock faced pressure due to concerns over reduced average selling prices and increased operating expenses.
Super Micro Computer (SMCI, Financial) announced a 10-for-1 stock split and provided a mixed financial outlook. The company’s Q4 GAAP EPS missed estimates, while revenue beat expectations. Super Micro expects net sales of $6.0 billion to $7.0 billion for the first quarter of fiscal year 2025, a significant increase from the consensus estimate. The stock split is set to commence on October 1, 2024.
Amazon (AMZN, Financial) secured a deal for NBA telecast rights that Warner Bros. Discovery (WBD) couldn't match. The agreement includes several provisions related to Amazon's carriage of NFL games and ensures NBA games receive similar treatment. This deal underscores Amazon’s expanding influence in sports broadcasting.
Wells Fargo's Christopher P. Harvey noted that lower- and middle-tier consumers are becoming more value-oriented. Stocks like Walmart (WMT, Financial), Costco (COST, Financial), and The TJX Cos. (TJX, Financial) have outperformed, while discretionary names such as Target (TGT) and Kohl’s (KSS) have underperformed. This trend highlights a shift in consumer spending habits, especially among lower-income groups.
Nvidia (NVDA, Financial) saw a 3.2% rise in shares after New Street Research upgraded the semiconductor giant. Despite losing more than 20% of its value since June, the analyst views the decline as a healthy correction, presenting an opportunity for investors to gain more exposure. Nvidia is set to report quarterly results later this month, with analysts expecting strong performance.
Disney (DIS, Financial) announced price hikes for its Disney+, Hulu, and ESPN+ plans in the U.S., effective October 17. Disney+ with ads will now cost $9.99 per month, while the ad-free version will be $15.99 per month. Hulu and ESPN+ also saw price increases, reflecting Disney’s strategy to boost revenue amid rising content costs.
Organon (OGN, Financial) shares continued to drop following Q2 results that beat earnings forecasts but missed on revenue. The Merck spinoff reported flat revenue year-over-year and saw a decline in net income. The company’s sales in China fell due to procurement headwinds, while U.S. sales showed a modest improvement.
GuruFocus Stock Analysis
- Comparative Telecom Analysis: Verizon a Better Pick Than T-Mobile, AT&T by Akim Guerreiro
- CrowdStrike Is Significantly Undervalued Following Operational Crisis by OIliver Rodzianko
- Evaluating TKO: Is Now the Time to Buy? by Muslim Farooque
- The Great Rotation by Wade W. Slome, CFA, CFP
- The Sane Portfolio Cruises Into Its 23rd Year by John Dorfman
