Micron’s Mega Move; Banks’ Clean Bill of Health; Wendy’s … Wow!
Micron blows away expectations, boosting storage trade; banks pass stress test, Lockheed locks up defense deal and, wow, Wendy’s!
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At least we now know why the major U.S. equity indexes, despite having peaked about 10 days ago and then trending lower, simply refused to put anything together that could technically resemble a “Day One” bearish reversal of trend. Obviously, these indexes never came close to technically confirming anything bearish at all. It would appear that what the markets suffered from was a bout of pre-Micron (MU) earnings profit-taking and the sector rotation that this entailed as the memory/storage trade had become the key component of the flow of capital involved in the artificial intelligence and high-tech trade.
I watched those Micron Technology earnings cross the tape on financial television with bated breath on Wednesday evening. I had just come off of TV myself, having appeared on the Fox Business Network with Charles Payne. I was the Micron bull vs. a colleague who was bearish (not long-term) on the market reaction to Micron’s earnings. I had not only money riding on the outcome, but a little reputational pride, as I had told Charles on national television that he could “bet his tail” that I was going into Micron earnings long the stock. Huzzah!
Long story short, Micron simply blew away expectations and in doing so, not only rallied (up 16% through the wee hours) itself, but carried our basket and Nasdaq futures in general, sharply higher. Concerning our memory/storage basket, as we traverse the zero-dark hours, SanDisk (SNDK) is up 12%, Western Digital (WDC) is up almost 11% and Seagate Technology (STX) is up 7.5%. Yes, the Sarge-folio is gaining some ground early this morning as the snakes slither and the raccoons make repeated attempts at getting into our garbage pails. By the way, Micron’s results also carried the shares of South Korean competitor SK Hynix, which is soon coming to the U.S. nearly 12% higher in Asian trade. The Kospi Index itself moved more than 5% higher.
Standing Ovation
Consider this. Micron grew revenues 345% year over year to $41.46 billion and net income by 138% to $28.2 billion. The company guided current quarter sales towards a range spanning from $50 billion to $52 billion. Wall Street was looking for something close to $43.5 billion. Micron guided current quarter adjusted earnings per share toward a range spanning from $30 to $32. Wall Street was expecting something like $25.50. In football lingo, these are “video game” numbers.
What Could Possibly Go Wrong?
Huge macroeconomic day ahead. See below.
Sizzling Wendy’s
Anyone else notice that former “dog of the Sarge-folio” Wendy’s (WEN) has reached “meme” stock status? The struggling fast-food company ran 25.7% on Wednesday and is up an additional 11.8% overnight. This is why we sometimes take small stakes in stocks where a large percentage (in this case, 37%) of the float is held in short positions. Yes, we’ll be taking some profits in this name after publication. I said “some” not “all” as we can’t know if this surge fizzles out or if the real squeeze is yet to begin.
Marketplace
Price discovery on Wednesday continued to be a little sloppy, despite that crude oil prices continued to drop (WTI Crude is now trading with a $69 handle) and Treasury debt security yields continued their plummet. There was good news on the U.S. / Iran peace talk front. Apparently, Iran is not closing the Strait of Hormuz nor will Iran be collecting shipping tolls any time soon. Hence the precipitous drop in market prices for oil.
The S&P 500 barely moved on Wednesday, giving up just 0.1% for the session as the Nasdaq Composite and Nasdaq 100 both gave back 0.43%. The Dow Transports were down small as were the Philly Semiconductors and the KBW Banks. There was some green on the screen as all of the small to mid-cap indices ended the day in the win column.
Six of the 11 S&P sector SPDRs closed out the day above where they went out on Tuesday evening. Markets were led by the Industrials (XLI) and the Discretionaries (XLY) as cyclical sectors regained the upper hand over more defensive sectors. Growth still had a tough day. That will change in a big way this morning. Energy (XLE) obviously rode out the Wednesday session in the caboose.
Winners beat losers at the NYSE (for a second straight day) by a rough six-to-five margin, while losers beat winners at the Nasdaq by just a smidgen. Advancing volume, though, took a 46.5% share of composite NYSE-listed trade and just a 36.3% share of composite Nasdaq-listed activity. Aggregate trade did increase on a day-over-day basis across the listings of both exchanges as well as across the membership of the S&P 500, but as we can see in the breakdown of winners vs. losers, this was not meaningful.
Stressed Out?
Not really. The Federal Reserve released the results of its annual “stress tests” for the nation’s 32 largest banks on Wednesday evening. All 32 banks received passing grades, though in the central bank’s simulation, they did lose a rough $708 billion in aggregate during a doomsday scenario. That said, they also, as a group, managed to remain above regulatory capital requirements.
Passing these tests will allow several lenders to increase returns to shareholders. This year’s scenario included a global recession, 10% national unemployment and a 30% drop in home prices. Simulated damage included $200 billion from unpaid credit card balances, $75 billion in commercial real estate losses, and more than $150 billion in delinquent corporate debt.
On these results, Fed Gov. Michelle Bowman, who is vice-chair for banking supervision, said “Today’s results underscore the strength of the banking system.”
That said, as U.S. banks are already enjoying the benefits of less stringent capital rules and spent a record amount on share repurchase programs during Q1 2026, the Fed is freezing capital buffers where they were last year. Last year’s buffers will now remain in place into 2027.
A Really Big Deal
Lockheed Martin (LMT) has secured a multi-year procurement sole-source, fixed-price incentive, undefined contract for the production of THAAD (Terminal High Altitude Area Defense) interceptors. The deal is valued at jaw-dropping $35.33 billion and will run through June 2032. The work will be done domestically, in Dallas, Texas; Sunnyvale, Calif.; Troy, Alabama; and Camden, Arkansas. The Missile Defense Agency in Huntsville, Alabama is the contracting activity hirer.
THAAD, for those who do not know, is an anti-ballistic missile defense system that travels at a speed of Mach 8.2 and is capable of shooting down enemy or oncoming offensive hypersonic missiles. THAAD is capable of intercepting short-, medium- and intermediate-range ballistic missiles both inside and outside of the Earth’s atmosphere. The system is now combat-proven. In my opinion, this is perhaps the most important defense contract that will be or has been awarded anytime soon or recently. Yes, I have been buying Lockheed in anticipation of this deal. No, I am not done. RTX (RTX) is perhaps the key technical subcontractor on this project. Other subcontractors include L3Harris (LHX), Boeing (BA), Honeywell (HON) and Oshkosh (OSK).
Economics (All Times Eastern)
08:30 – Initial Jobless Claims (Weekly): Expecting 225K, Last 226K.
08:30 – Continuing Claims (Weekly): Last 1.81M.
08:30 – Personal Income (May): Expecting 0.4% m/m, Last 0.0% m/m.
08:30 – Consumer Spending (May): Expecting 0.6% m/m, Last 0.5% m/m.
08:30 – PCE Price Index (May): Expecting 0.4% m/m, Last 0.4% m/m.
08:30 – Core PCE Price Index (May): Expecting 0.3% m/m, Last 0.2% m/m.
08:30 – PCE Price Index (May): Expecting 3.9% y/y, Last 3.8% y/y.
08:30 – Core PCE Price Index (May): Expecting 3.3% y/y, Last 3.3% y/y.
08:30 – Durable Goods Orders (May): Expecting -4.8% m/m, Last 7.9% m/m.
08:30 – ex-Transportation (May): Expecting 0.5% m/m, Last 1.1% m/m.
08:30 – ex-Defense (May): Expecting -3.9% m/m, Last 8.1% m/m.
08:30 – Core Capital Goods (May): Expecting -0.4% m/m, Last -1.1% m/m.
08:30 – GDP Growth Rate (Q1-F): Flashed 1.6% q/q, SAAR.
10:30 – Natural Gas Inventories (Weekly): Last +73B cf.
11:00 – Kansas City Fed Manufacturing Index (June): Expecting 7, Last 9.
The Fed (All Times Eastern)
3:40 p.m. – Speaker: New York Fed Pres. John Williams.
6:30 – Speaker: Chicago Fed Pres. Austan Goolsbee.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: AYI (5.19), DRI (3.64), MKC (.70), SNX (4.12)
At the time of publication, Guilfoyle was long MU, SNDK, WDC, STX, WEN, LMT equity.
