US stocks rallied on Wednesday amid a tech revival that sent the Nasdaq surging, as investors prepared for the Federal Reserve’s decision on whether to cut interest rates.
The S&P 500 (^GSPC) rose by 1.7% while the tech-heavy Nasdaq Composite (^IXIC) soared more than 2.6%. The Dow Jones Industrial Average (^DJI) rose a more modest 0.5%.
Tech stocks are in the ascent again after taking a battering in recent days. The first earnings from “Magnificent Seven” megacaps stirred fears the AI boost would prove a bust, after falling short of high hopes.
A swath of positive news is spurring a comeback for chip stocks, with AMD (AMD) shares getting a boost from an AI-driven earnings beat. Nvidia (NVDA) climbed over 11%, regaining ground lost in a steep drop on Tuesday in the halo of the results.
Also on Wednesday, Morgan Stanley noted that the recent 25% drawdown in Nvidia stock presented a “good entry point,” marking a sentiment shift in what’s been an otherwise tough July for the AI leader.
Elsewhere, Dutch chip gear giant ASML’s (ASML, ASML.AS) stock surged about 6% after Reuters reported the US will exempt some foreign allies from new China curbs.
As that pressure eases, the spotlight is turning to the Fed, which is expected to hold interest rates steady but signal a cut is in the pipeline when it ends its July policy meeting later Wednesday.
Read more: 32 charts that tell the story of markets and the economy right now
The market is overwhelmingly convinced a Fed pivot is coming in September — the debate now is whether rates will go down by 0.25% or 0.5%, according to the CME FedWatch tool. Chair Jerome Powell’s post-meeting comments will be closely followed for hints that recent inflation and labor data could support a deeper cut.
Meanwhile, more earnings are set to roll in, Meta’s (META) results due later will be scrutinized for signs that the Facebook parent’s AI spending is paying off — the big question for megacaps this season.
In commodities, oil jumped after the killing of Hamas’ political leader in an airstrike stoked geopolitical tensions. Brent crude (BZ=F) futures, the global benchmark, rose just under 3% to top $80 a barrel. US benchmark West Intermediate crude futures (CL=F) climbed to $77 a barrel, a 3% gain.
Live12 updates
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Wage growth drops for job switchers amid labor market cooldown
The pay gap between job stayers and job changers narrowed in July in the latest sign that the US labor market is cooling.
New data from ADP released Wednesday showed that the median year-over-year pay increase for job switchers fell to 7.2% in July, down from the 7.7% increase seen in June. Meanwhile, pay for workers who stay in the same job rose 4.8%, its slowest rate of increase since July 2021.
The gap between the two numbers is slimming, indicating the benefits workers saw from leaving their jobs during the post-lockdown hiring boom continue to erode.
“The payoff from switching jobs has dropped tremendously,” ADP chief economist Nela Richardson said on a call with reporters Wednesday morning.
While it may be a less attractive outcome for workers, Richardson added the easing in wage growth is a welcome sign for the Federal Reserve in its fight against inflation.
“Wages and pay are the bridge from the labor market to the inflation data, and we are certain, after three years of looking at these numbers, that if inflation picks up — and no one thinks that’s likely right now — it won’t be because of labor,” Richardson said. “We’re seeing continued steady declines in wage growth that fits with the overall inflation picture also cooling, along with the labor market.”
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Oil surges 3% amid concerns of widening Middle East conflict
Oil surged on Wednesday amid concerns of a widening war in the Middle East following the assassination of a Hamas leader in Iran.
West Texas Intermediate (CL=F) jumped more than 3% just north of $76 per barrel. Brent (BZ=F) the international benchmark price, gained more than 2% to hover above $80 per barrel.
The jump came after Hamas leader Ismail Haniyeh was killed in Tehran, flaring ongoing tensions and raising concerns over the risk of a supply disruption in the region. Iran produces roughly 3 million barrels of oil a day.
“I think over the near term prices continue to be stuck in a range with Brent crude oil around $80 per barrel and WTI a few dollars less,” Andy Lipow, president of Lipow Oil Associates told Yahoo Finance on Wednesday.
Prices were also supported by the latest US government data showing a fifth straight week of inventory declines.
OPEC+ will hold an online meeting on Thursday. Traders are assessing whether the oil alliance led by Saudi Arabia will move forward with previously announced plans to unwind some of its voluntary cuts starting in October.
“If OPEC meets tomorrow and continues to look toward re-releasing crude from 4Q 2024 on, we’ll see a sharp drop in the last 120 days of the year,” OPIS global head of energy analysis Tom Kloza told Yahoo Finance.
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Small caps quiet ahead of Fed decision
Stocks are roaring on Wednesday, but a recent hot trade on Wall Street isn’t fully a part of the party.
The small-cap Russell 2000 index (^RUT), which has rallied nearly 10% in the past month as investors have grown more optimistic about Fed rate cuts, is up a more modest 0.8% on Wednesday.
This compares to the roughly 1.6% gain in the S&P 500 (^GSPC) and a 2.5% surge in the Nasdaq Composite (^IXIC).
The rally in large-cap tech is largely attributable to renewed faith in the AI trade, and comes counter recent market action in which the Russell 2000’s year-to-date gains had nearly caught up to the Nasdaq 100’s.
Movement in small caps will be particularly in focus after Federal Reserve chair Jerome Powell’s press conference Wednesday afternoon as investors will look to see if a dovish Powell furthers the rotation toward areas outside of tech.
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Nvidia soars 10% after strong AMD results, bullish call from Morgan Stanley
Nvidia (NVDA) stock rallied more than 10% on Wednesday following better than expected guidance from peer AMD (AMD) and a bullish call from analysts at Morgan Stanley following a more than 20% drop in the stock.
AMD’s quarterly results out late Tuesday quelled some concerns that AI trade may have run its course as investors rotated out of Big Tech over the past month, as the company beat expectations on the top and bottom line and posted a better than expected outlook for the third quarter.
AMD stock rose as much as 6% in early trading.
Chip peers including Broadcom (AVGO), Micron (MU), Taiwan Semiconductor (TSM), ASML (ASML), and Super Micro (SMCI) were also rallying on Wednesday.
Nvidia stock was also boosted on Wednesday by a note out from Morgan Stanley analysts led by Joseph Moore, who moved the stock to a ‘Top Pick’ after shares after a recent pullback from record highs reached in June.
The firm wrote the roughly 25% in Nvidia stock “selloff presents a good entry point as we continue to hear strong data points short term and long term, with overblown competitive concerns.”
Read more here.
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Tech is having its best day since February
The Nasdaq Composite (^IXIC) is up more than 2.4% on Wednesday and pacing for its best day since February.
The revival in tech stocks began late Tuesday night after chip giant AMD (AMD) surprised Wall Street to the upside with its second quarter earnings showing stronger-than-expected revenue, largely driven by the company’s AI efforts. Shares in AMD rose more than 7% in early trade Wednesday.
The report sparked a rally among chip stocks. The PHLX Semiconductor index (^SOX) rose more than 5%. The largest chip stock, Nvidia, rallied more than 10% following the report as Morgan Stanley released fresh research noting the recent 25% drawdown in the stock presents “a good entry point,” and listed the stock is a “top pick.”
Source: Yahoo Finance -
Pending homes sales jump in June
Rising inventory is shifting the housing market in buyers’ favor.
Pending home sales, a forward-looking indicator of home sales based on contract signings, rose 4.8% in June from the month prior, according to the National Association of Realtors. Economists polled by Bloomberg had expected a 1.5% monthly increase.
“The rise in housing inventory is beginning to lead to more contract signings,” NAR chief economist Lawrence Yun said in a press statement. “Multiple offers are less intense, and buyers are in a more favorable position.”
The jump in buyer activity suggests that more is likely to follow.
“Even more inventory is expected to come onto the housing market in the upcoming months ahead of the normal, seasonal declines in the winter,” added Yun. “The Northeast’s small gain in contract signings is due to the ongoing housing shortage situation in that region, leading to stronger home price gains. It is a good time to list.”
Mortgage rates have been a point of distress for homeowners to sell, as many were locked in at ultra-low rate during the pandemic. But rates have come down since they topped 7% earlier this summer.
However, some buyers are still waiting on the sidelines as home prices reach new highs. Applications for a mortgage to purchase a home fell 2% from the prior week on a seasonally adjusted basis, the Mortgage Bankers Association reported Wednesday.
“Borrowers may be waiting for signs that mortgage rates will drift lower as the Federal Reserve begins to cut short-term rates,” Mike Fratantoni, MBA’s SVP and chief economist, wrote in a statement.
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Nvidia roars at the open amid broader tech rally
US stocks rallied on Wednesday amid a tech revival that sent the Nasdaq surging, as investors prepared for the Federal Reserve’s decision on whether to cut interest rates.
The S&P 500 (^GSPC) rose by 1.5% while the tech-heavy Nasdaq Composite (^IXIC) soared more than 1.8%. The Dow Jones Industrial Average (^DJI) rose about 0.1%.
Tech stocks are in the ascent again after taking a battering in recent days. The first earnings from “Magnificent Seven” megacaps stirred fears the AI boost would prove a bust, after falling short of high hopes.
A swathe of positive news is spurring a pre-market comeback for chip stocks, with AMD (AMD) shares getting a boost from an AI-driven earnings beat.
Nvidia (NVDA) climbed over 7%, regaining ground lost in a steep drop on Tuesday, in the halo of the results. Also, on Wednesday, Morgan Stanley noted that the recent 25% drawdown in Nvidia stock presented a “good entry point,” marking a sentiment shift in what’s been an otherwise tough July for the AI-leader.
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ADP employment falls short of expectations
The US economy added fewer private payroll jobs than expected in July.
The latest data from ADP showed 122,000 private payroll jobs were added in July, falling short of consensus expectations for 150,000 additions.
Also out Wednesday morning, ADP’s latest pay insights showed that the median year-over-year pay increase for job switchers fell to 7.2% in July, down from 7.7% in June. Pay gains for job stayers grew at a 4.8% pace in July, its lowest late in about three years, per ADP’s chief economist Nela Richardson.
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Keep an eye on the tax discussion
I would be paying attention to how CEOs and CFOs discuss the outlook for taxes on their earnings calls for the balance of the year.
Taxes play an integral part in if companies undertake a project, a deal or more hiring. Best believe management teams and boards are running through scenarios if the Trump tax cuts aren’t extended in 2025.
Here’s Procter & Gamble (PG) chair and CEO to me on Yahoo Finance yesterday on the 2017 Trump tax cuts:
On their impact: The tax cuts have been “incredibly impactful. And you know, that element of the dialogue is going to increase as we get through the election and start talking about 2025 when some of the tax provisions that were passed in 2017 sunset. But if you just look at our investment in the US pre- and post- the 2017 act, it’s up significantly, our employment is up significantly, and, importantly, our taxes — the taxes we’re paying to the US government — are up significantly. So it’s really led to significant economic activity in this country.”
On if the tax cuts aren’t extended: “It will certainly have an impact. Every decision that we make is based on the present value of discounted cash flow. And that’s on an after-tax basis. And so it begins favoring on a comparative basis, other locations for investment. So yes, it will have an impact.”
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Key post-earnings call out on AMD
Shares of Advanced Micro Devices (AMD) are back in the good graces of Wall Street this morning after earnings last night, with the stock up 9% in the pre-market.
I think the Street is locking in on AMD’s upwardly revised guidance on demand for its new AI chip.
A key call-out by Citi analyst Chris Danely:
“AMD raised its MI300 sales guidance from over $4.0 billion to over $4.5 billion in calendar year 2024 given demand strength. We continue to expect more upside throughout the year and would note Microsoft (MSFT), AMD’s largest AI customer, raised its capex forecast.”
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A good point on Microsoft
Microsoft (MSFT) shares are rallying back a bit in the pre-market after initially dropping 6% last night following earnings, in part because of a surprise slowdown in Azure growth. As of this writing, shares are down about 3%.
The company guided to another quarter of slower Azure growth, but then things improving over the next twelve months.
Good point by Guggenheim analyst John Diffucci on this rosy Azure outlook:
“We understand that this management team has earned investors’ (and our) respect over time, but we believe investors should ask themselves a simple question: How can they trust management to predict what will happen 6-12 months from now if they have trouble forecasting the next 0-2 months (given F4Q Azure came in at the low end of the range)?”
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Why Starbucks stock is rising after a dreadful quarter
Starbucks (SBUX) shares are up 3% pre-market post a horrendous quarter last night.
To illustrate how horrendous:
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US same-store sales down 2%, with transactions down 6% (Citi is calling this “alarming”).
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China same-store sales plunged 14%, and missed consensus.
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International same-store sales fell 7%.
So why the stock pop?
Well, Starbucks CEO Laxman Narasimhan hopped on his earnings call and shared a bunch of obscure stats suggesting sales and margin trends would improve in a few quarters. He also teased a potential cost-savings action in China, likely through inking a joint venture deal.
Be careful chasing any Starbucks enthusiasm. This is a management team with a credibility problem with investors, and is dealing with deeply rooted issues such as unions and poor value perception among customers. The end-game on the new battle with activist Elliott Management is also wildly unknown.
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