Market Snapshot
briefing.com
| Dow | 34381.34 | +120.01 | (0.35%) | | Nasdaq | 13929.64 | +168.56 | (1.22%) | | SP 500 | 4477.86 | +37.33 | (0.84%) | | 10-yr Note | +31/32 | 3.86 |
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| | NYSE | Adv 2080 | Dec 783 | Vol 882 mln | | Nasdaq | Adv 2859 | Dec 1576 | Vol 5.2 bln |
Industry Watch
| Strong: Communication Services, Utilities, Materials, Information Technology |
| | Weak: Industrials, Health Care, Consumer Staples, Real Estate |
Moving the Market
-- Digesting the better than expected June CPI report that showed encouraging disinflation for both total and core CPI, helping to temper worries about the Fed raising rates after the July meeting
-- Broad based gains paced by mega cap stocks
-- Sharp decline in Treasury yields in response to the inflation data
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Closing Summary
12-Jul-23 16:25 ET
Dow +86.01 at 34347.34, Nasdaq +158.26 at 13919.34, S&P +32.90 at 4473.43
[BRIEFING.COM] The stock market reacted favorably to the June Consumer Price Index (CPI), leading the S&P 500 and Nasdaq Composite to hit new 52-week highs at their best levels of the day. Ultimately, the major indices pulled back from their intraday highs, but still closed with decent gains.
Total CPI and core CPI, which excludes food and energy, were both up a smaller-than-expected 0.2%, which left their year-over-year rates at 3.0% and 4.8%, respectively, versus 4.0% and 5.3% in May. That is the smallest 12-month increase in total CPI since March 2021.
Treasury yields took a sharp turn lower in response to the data, acting as another support factor for the stock market. The 2-yr note yield plunged 16 basis points to 4.73%. The 10-yr note yield dropped 12 basis points to 3.86%. Separately, today's $32 billion 10-yr note reopening met lukewarm demand. The U.S. Dollar Index, meanwhile, declined for the fifth consecutive day, falling 1.2% to 100.54.
Expectations of further rate hikes after the July FOMC meeting, which is expected to result in another a 25 basis points rate hike, declined in response to the CPI report. According to the CME FedWatch Tool, the probability of another 25 basis points rate hike is just 12.9% for the September meeting, 30.3% for the November meeting, and 24.2% for the December meeting.
Today's rally was fairly broad and featured the outperformance of mega cap stocks, which had been lagging over the last few sessions. The Vanguard Mega Cap Growth ETF (MGK) rose 1.3% while the Invesco S&P 500 Equal Weight ETF (RSP) rose by 0.5%. The market-cap weighted S&P 500 rose 0.7%.
Advancers led decliners by a 5-to-2 margin at the NYSE and a better than 3-to-2 margin at the Nasdaq. Volume was heavier than what was seen in Tuesday's trading, but was still below average at the NYSE.
Only two of the S&P 500 sectors declined -- health care (-0.3%) and industrials (-0.2%) -- while five of the remaining sectors rose by more than 1.0%. The communication services (+1.5%), utilities (+1.5%), and the materials (+1.3%) sectors closed at the top of the leaderboard.
- Nasdaq Composite: +33.0% YTD
- S&P 500: +16.5% YTD
- S&P Midcap 400: +10.5% YTD
- Russell 2000: +9.9% YTD
- Dow Jones Industrial Average: +3.6% YTD
Reviewing today's economic data:
- Total CPI for June was up 0.2% month-over-month (Briefing.com consensus 0.3%) with the index for shelter accounting for 70% of the increase. Core CPI, which excludes food and energy, was also up 0.2% month-over-month (Briefing.com consensus 0.3%), which was the smallest month-over-month change since August 2021.
- On a year-over-year basis, total CPI decelerated to 3.0% from 4.0% in May, marking its smallest increase since March 2021, while core CPI decelerated to 4.8% from 5.3% in May.
- The key takeaway from the report is that there is clear evidence of encouraging disinflation for both total and core CPI that should temper worries about the Fed raising rates again beyond its July FOMC meeting.
- Weekly EIA Crude Oil Inventories showed a build of 5.95 million barrels after a draw of 1.51 million barrels last week.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 247,000; prior 248,000), Continuing Claims (prior 1.720 mln), June PPI (Briefing.com consensus 0.2%; prior -0.3%), and Core PPI (Briefing.com consensus 0.2%; prior 0.2%)
- 10:30 ET: Weekly natural gas inventories (prior +72 bcf)
- 14:00 ET: June Treasury Budget (prior -$240.30 bln)
Treasuries settle with gains; economic data on Thursday
12-Jul-23 15:35 ET
Dow +100.54 at 34361.87, Nasdaq +166.65 at 13927.73, S&P +34.99 at 4475.52
[BRIEFING.COM] The market turned lower recently, leading the Dow Jones Industrial Average to hit a fresh session low.
Treasuries settled with gains across the curve following this morning's cooler than expected June CPI report. The 2-yr note yield fell 16 basis points to 4.73% and the 10-yr note yield fell 12 basis points to 3.86%.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 247,000; prior 248,000), Continuing Claims (prior 1.720 mln), June PPI (Briefing.com consensus 0.2%; prior -0.3%), and Core PPI (Briefing.com consensus 0.2%; prior 0.2%)
- 10:30 ET: Weekly natural gas inventories (prior +72 bcf)
- 14:00 ET: June Treasury Budget (prior -$240.30 bln)
Energy complex settles mixed
12-Jul-23 15:00 ET
Dow +120.01 at 34381.34, Nasdaq +168.56 at 13929.64, S&P +37.33 at 4477.86
[BRIEFING.COM] The major indices drifted somewhat lower over the last half hour. The Dow Jones Industrial Average trades near its worst level of the day.
The S&P 500 health care sector (-0.2%) slipped into negative territory recently.
Energy complex futures settled in mixed fashion. WTI crude oil futures rose 1.2% to $75.76/bbl while natural gas futures fell 3.8% to $2.60/mmbtu. On a related note, the S&P 500 energy sector (+0.9%) trades near the middle of the pack.
Overall economic activity increased slightly since late May, according to Beige Book
12-Jul-23 14:30 ET
Dow +149.89 at 34411.22, Nasdaq +183.95 at 13945.03, S&P +41.03 at 4481.56
[BRIEFING.COM] The major averages have moved modestly higher after the release of the Fed's latest Beige Book which showed that overall economic activity increased slightly since late May. Currently, the S&P 500 (+0.92%) is firmly in second place.
Other points of interest from the report included: Employment increased modestly this period, with most Districts experiencing some job growth. Labor demand remained healthy, though some contacts reported that hiring was getting more targeted and selective. Employers continued to have difficulty finding workers, particularly in health care, transportation, and hospitality, and for high-skilled positions in general.
Additionally, prices increased at a modest pace overall, and several Districts noted some slowing in the pace of increase. Consumer prices generally increased, though reports differed in the extent to which firms were able to pass along input cost increases. Contacts in some Districts noted reluctance to raise prices because consumers had grown more sensitive to prices, while others reported that solid demand allowed firms to maintain margins.
Overall economic expectations for the coming months generally continued to call for slow growth.
Gold higher amid shrinking inflation
12-Jul-23 13:55 ET
Dow +135.43 at 34396.76, Nasdaq +169.60 at 13930.68, S&P +37.95 at 4478.48
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (+1.23%) remains the top performing major average; market participants await the Fed's July Beige Book which is on tap for the top of the hour.
Gold futures settled $24.60 higher (+1.3%) to $1,961.70/oz, allowed higher by this morning's CPI readings.
Meanwhile, the U.S. Dollar Index is down about -1.1% to $100.60.
June CPI report quiets inflation fear and rate-hike worries
Leading up to the release of the June Consumer Price Index (CPI) today, there was no fear in the market of what it might see in that report. How do we know? The answer is in the price action.
Before today's release, the yield on the 2-yr note was down nine basis points for the week, the yield on the inflation-sensitive 10-yr note was down 10 basis points, the U.S. Dollar Index was down 0.8% to 101.50, the Russell 2000 was up 2.6%, and the Invesco S&P 500 Equal-Weight ETF (RSP) was up 2.0%.
Granted the trading volume behind the gains in the equity market wasn't all that heavy; nonetheless, stocks can go down big on light volume, too, yet the default disposition among market participants was to push stocks higher.
The lighter volume suggested there was some hesitancy before the June CPI release, but to reiterate, the prevailing price action did not suggest there was any fear. Rather, there was optimism that the June CPI report would produce a friendly inflation reading that, in turn, would temper rate-hike expectations.
That optimism, it turns out, was well founded.
Total CPI for June was up 0.2% month-over-month (Briefing.com consensus 0.3%) with the index for shelter accounting for 70% of the increase. Core CPI, which excludes food and energy, was also up 0.2% month-over-month (Briefing.com consensus 0.3%), which was the smallest month-over-month change since August 2021.
On a year-over-year basis, total CPI decelerated to 3.0% from 4.0% in May, marking its smallest increase since March 2021, while core CPI decelerated to 4.8% from 5.3% in May.
The key takeaway from the report is that there is clear evidence of encouraging disinflation for both total and core CPI that should temper worries about the Fed raising rates again beyond its July FOMC meeting.
The markets look to be appreciating that idea. The 2-yr note yield, at 4.84% just before the 8:30 a.m. ET release, is at 4.75%, down 14 basis points from yesterday's settlement. The 10-yr note yield, at 3.95% just before the release, is at 3.90%, down eight basis points from yesterday's settlement.
According to the CME Fed Watch Tool, there is a 91.1% probability of a 25-basis points rate hike at the July meeting (versus 92.4% in front of the CPI report), whereas the probability of a second rate hike at either the September, November, or December FOMC meetings is just 12.8%, 28.3%, and 23.9%, respectively, versus 18.5%, 36.4%, and 32.8% in front of the report.
The drop in market rates and rate-hike expectations simultaneously flowed through to the equity futures market, which spiked following the CPI report.
Currently, the S&P 500 futures are up 28 points and are trading 0.7% above fair value, the Nasdaq 100 futures are up 129 points and are trading 0.9% above fair value, and the Dow Jones Industrial Average futures are up 160 points and are trading 0.5% above fair value.
Recall that Fundstrat's Tom Lee said on Monday that he thought the S&P 500 could add as many as 100 points in the near term if core CPI was 0.2% or less, as that friendly reading would drive a rally in the 2-yr note that, in turn, would drive a rally in stocks predicated on the thinking that the Fed is succeeding in its inflation fight.
Mr. Lee's view should resonate on trading floors -- certainly at today's open, which won't reflect any disruptive fear of inflation but might reflect a fear of missing out on further gains.
-- Patrick J. O'Hare, Briefing.com
Beyond Meat remains hot as its Beyond Steak product rolls out to additional retailers (BYND)
Beyond Meat (BYND +10%) continues to sizzle today after announcing it will expand the distribution of Beyond Steak to multiple retailers following success at existing partners' locations. The plant-based meat supplier noted that distribution will include Whole Foods Market, Wegmans, Meijer, and a couple of others, joining existing availability of the product at Kroger (KR), Walmart (WMT), Target (TGT), and a few other major retailers. BYND has been making some waves lately, announcing additional items at Costco (COST) in late June, which followed the announcement of a new iteration of Beyond Sausage two weeks prior.
Given that today's news spans smaller grocers, it is not moving the needle as much as past announcements. With short interest at a significant 42%, these announcements can still trigger meaningful swings in intra-day prices, keeping the possibility of a larger swing in future trading sessions open.
BYND has been amid a solid recovery lately, soaring over 55% since selling off on lackluster Q1 results on May 11. Although shares still trade nearly 60% below 52-week highs set in August 2022, the company has steadily progressed toward many of its long-term goals.
- Stimulating restoration of growth at some long-term strategic partners is one of BYND's long-term goals. Given that the company noted that today's expansion of Beyond Steak followed a successful initial rollout at existing partners, it may be safe to say that the company is making healthy progress on this goal. Furthermore, management commented in May that Beyond Steak quickly rose to the number two SKU in frozen plant-based meat at a key retail customer, laying the groundwork for further expansion. We should have additional details on how growth restoration is faring after BYND releases Q2 earnings, possibly early next month.
- Margin expansion is another one of BYND's long-term strategies. The company has been targeting OpEx reduction, cash flow accretive inventory management, and near-term growth opportunities to enhance its margin profile. Q1 figures already showcased tangible progress on this front, with gross margins growing to 6.7% after a dismal (18)% figure just two quarters earlier. It will be vital to see margins continue trending in the right direction in Q2.
- Matching the taste of animal protein will still likely be the most critical component of BYND's long-term success. Even though plant-based protein can offer health advantages over its animal-protein counterpart, many consumers will probably stay away if taste and texture are noticeably different. It is unclear if and when BYND may cross over the chasm from early adopters to mainstream consumers, but it will likely never get there without continuous advances in taste and texture and ongoing marketing efforts highlighting health benefits.
Bottom line, broadening where Beyond Steak is offered is an encouraging development as it hits on BYND's long-term goal of growth restoration amongst its strategic partners. Today's relatively mild response stems from the BYND expanding the offering to smaller retailers, which may not have much material effect on its bottom line over the near term.
Domino's Pizza delivering some nice gains following surprising partnership with Uber (DPZ)
Domino's Pizza (DPZ +11%) is sharply higher today after announcing a deal with Uber (UBER). Basically, the agreement allows US customers to order Domino's food through the Uber Eats and Postmates apps. Delivery will still be handled by Domino's drivers.
The idea is that this partnership will help Domino's reach a new segment of customers and what it believes will be a meaningful amount of incremental delivery orders once it's widely available. The initial US rollout will begin this fall in four pilot markets, with nationwide ordering expected to be enabled across the country by the end of 2023. Uber Eats will be the exclusive third-party platform for Domino's in the US until at least 2024.
Why is the stock reacting so strongly?
- There has been a notable divergence in recent quarters, namely that its carryout comps have been quite strong but delivery comps have been weak. DPZ has cited a migration of demand from the delivery channel to the sit-down channel as the reversion to pre-pandemic consumer behavior continues. Also, constrained budgets are prompting people to avoid delivery fees/tips and shift to cooking at home more. This deal hopefully sparks some more orders on the delivery side.
- The news is also pretty shocking from a strategic viewpoint. Unlike its main rival Papa John's (PZZA) which has used DoorDash since 2019, DPZ has been steadfastly opposed to farming out delivery to third party delivery aggregators, even when there was a shortage of drivers in 2H22. Domino's is very protective of its brand and it's known for providing a quality delivery service. Clearly, investors are pleased to see them bend a bit on this.
- Domino's drivers will still be making the deliveries. However, we were surprised to see DPZ take this step. It's clear they want to shore up their delivery business. Also, we think this deal could expand to Uber drivers making deliveries down the road. We think this deal likely builds an infrastructure, wherein DPZ could perhaps shift some delivery capacity to Uber if DPZ faces another driver shortage in the future. Also, Uber Eats' exclusivity window (at least 2024) is not very long, so maybe DPZ will expand to other services like DoorDash in the future.
We were quite surprised to see Domino's make this move. We remember being on earnings calls in 2020-22 when the pizza giant was adamant that it would not use third party delivery aggregators. However, several quarters of weak delivery comps appear to have changed some thinking. Also, we think this strikes the right balance where DPZ will still use its own drivers, but they are still able to tap into Uber's huge customer base. Investors are clearly happy to see this shift in strategy.
NVIDIA looks to turbocharge its AI exposure by becoming anchor investor in Arm's IPO (NVDA)
In February 2022, NVIDIA (NVDA) abandoned its $40 bln bid to acquire semiconductor company Arm Ltd. after it became clear that regulators would never approve the deal due to antitrust concerns. However, even though NVDA scrapped its acquisition plans, its interest in Arm hasn't faded as the leading GPU maker reportedly considers making a substantial investment in Arm's upcoming IPO.
- According to Financial Times, NVDA is in discussions with Softbank-backed Arm to become an anchor investor in its IPO, potentially joining competitor Intel (INTC) in this venture.
- About one month ago, Bloomberg reported that INTC was in line to become a strategic investor in Arm's IPO, which would expand INTC's exposure to AI as the chip maker continues to struggle through a major transition of building out its manufacturing base.
Of course, the story for NVDA is much different.
- When the company issued its spectacular beat-and-raise earnings report on May 25, which featured Q2 revenue guidance that crushed expectations, it solidified its leadership position among chip makers that are driving this AI boom.
- By investing in Arm's IPO, NVDA will turbocharge its AI capabilities -- albeit, from a distance that's more acceptable to regulators.
- Although Arm may not be as familiar as NVDA or INTC to U.S. investors, it's a dominant force in the semiconductor industry with its chip designs powering the technology behind devices and products from Apple (AAPL), Samsung (SSNLF), Qualcomm (QCOM), among others.
- Unlike INTC or NVDA, the company is not a manufacturing company. Rather, it's more of a neutral designer of chips that licenses its technology to a wide variety of companies.
- Arm has ramped up its AI technology in recent years. In fact, Arm's portfolio of AI-ready chips is a major reason why NVDA was willing to shell out tens of billions of dollars to acquire the company. Arm's AI-optimized platform architecture is at the center of its GPU, CPU, and NPU product families.
It's easy to understand why NVDA and INTC would be interested in becoming anchor investors in Arm's IPO, but the question of valuation still looms.
- According to reports, NVDA believes Arm's valuation should be in the $35-$40 bln range, while Arm is seeking a valuation closer to $80 bln.
- Since NVDA tried to acquire Arm for $40 bln in 2020, though, it seems likely that the valuation will land somewhere closer to Arm's expectation.
There are also major implications for the IPO market. While a specific date for Arm's IPO isn't set yet, it seems that September or October is the target timeframe. There have been some promising moments for the IPO market so far this year, including successful debuts from CAVA Group (CAVA), Structure Therapeutics (GPCR), Nextracker (NXT), and Kenvue (KVUE). However, none of these deals have opened the floodgates for the IPO market. A strong pricing and opening from Arm could be the game changer that the IPO market has been waiting for. With NVDA, INTC, and possibly a few other large companies backing the deal, a strong showing from Arm would seem very probable.
Alphabet gapping up nicely today despite ditching an AI-powered mobile app (GOOG)
Alphabet (GOOG +2%) is enjoying a solid gap up today as a cooler-than-expected CPI report provided a jolt to the broader markets, including mega-caps. However, long after the close, an interesting story popped up last night. According to CNBC, Google quietly scrapped its plans to develop an AI-powered mobile chatbot application that features interactive characters, targeting Generation Z users.
- Although the move seems relatively minor, it highlights the hurdles tech firms must overcome to monetize large-language models (LLMs), such as ChatGPT and Google's Bard, especially with open-source LLMs capable of performing similar tasks. To separate itself from open-source models, Google will need to rely on what it does best. This may be why Google ditched its mobile chatbot application, maintaining focus on how to maintain its edge over top rivals, like Microsoft (MSFT), which implemented a chatbot into Bing.
- Google still commands a giant lead in search engine market share, with most reports showing Google at over 90% while Bing is a distant second at around 2-3%. Still, with ChatGPT and LLMs, in general, being able to provide instant answers to user queries, Google's search dominance may be threatened, similar to how many other tech companies operating in their respective spaces have had to respond to concerns regarding LLMs potentially eating their lunch.
- For example, Wix.com (WIX) addressed concerns about AI, noting that even if AI could code a fully functional e-commerce site, which is currently not possible, the site would still need to be deployed, managed, and maintained, features WIX handles. Adobe (ADBE) also comes to mind, given its portfolio of creative applications, like Photoshop.
- However, firms like WIX and ADBE are not sitting idly by. Instead, they have attached AI features to their applications to maintain a competitive market position. Already taking advantage of AI long before ChatGPT launched for public use in November, WIX has AI features in place and is working on creating an AI layer acting as an assistant for users. Meanwhile, ADBE recently launched Firefly, its family of creative generative AI models, which already saw over 500 mln generations since its March launch.
- These examples show how companies are packaging open-source technology, such as LLMs, into their current offerings to attract users, effectively monetizing AI. With Google already being synonymous with search and reportedly boasting over 60% share of the browser market with Chrome, it has a solid footing to monetize Bard by attracting users to search and selling the API to enterprises to integrate it into Chrome.
Bottom line, after a brief stumble by Google's Bard in early February, its AI-powered chatbot has helped kindle an impressive stock run, appreciating over 35% since late February. There will likely be plenty of speedbumps Google will encounter with AI. However, given its market positioning, we think it will ultimately outcompete open-source threats and successfully monetize AI.
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