Tech Tumbles, SpaceX Soars, Warsh-Era Begins
Let’s examine what to expect from the FOMC, look at post-IPO SpaceX, and peer down at Marvell, Intel and KLA Corp.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Enter Sandman
Hush, little baby, don’t say a word
And never mind that noise you heard
It’s just the beasts under your bed
In your closet, in your head
– Hetfield, Ulrich, Hammett (Metallica), 1991
A New Day Dawns…
The Federal Reserve’s Federal Open Market Committee will wrap up a two-day policy setting meeting this afternoon at 2 p.m. ET. Not a lot of change is expected just yet, as new Chair Kevin Warsh gets his feet wet in his new role, though I think it’s obvious that change is on the way, as one Chair with a different theoretical economic school replaces another. The FOMC’s updated quarterly economic projections will be released alongside the official policy statement at 2 p.m. Then, a half hour later, the new chair will hold his first press conference as the most powerful central banker in the world.
It is key to note that Pres. Trump has not gained an ally in the composition of this Fed’s policy setting committee. As former Fed Chair Jerome Powell had elected to continue serving on the Fed’s Board of Governors, in order to make room for Warsh (who was already a former governor) on that board, Stephen Miran had to exit the group. So, Powell, who was anything but a Trump-ally stays on, while Warsh, hand-selected by the president, replaces Miran, also hand-selected. It might be said, actually, as Warsh is seen as less political than Miran and seen as more driven by economics than Miran, that the president may actually have less policy-targeting type support at this time.
Changes
Ch-ch-ch-ch-changes
Turn and face the strange
Ch-ch-changes
Ooh, look out, you rock ‘n’ rollers
Ch-ch-ch-ch-changes
Turn and face the strange
Ch-ch-changes
Pretty soon now you’re gonna get older
Time may change me
But I can’t trace time
I said that time may change me
But I can’t trace time
– David Bowie, 1971
What’s to Come?
I don’t think anyone expects the FOMC to vote to change targets for short-term interest rates this afternoon. As I write this morning, Fed Funds futures markets trading in Chicago are pricing in a 99.6% probability for no change to be made today from the Fed’s current 3.5% to 3.75% range for the overnight Fed Funds Rate.
There is, at this time, a 59% probability being priced into these markets that the central bank votes to increase that overnight range by a quarter-percentage point this coming December. My thought on that is this, if the peace deal between the U.S. and Iran holds, then the supply shock that had forced consumer- and producer-level inflation higher in 2026 has been removed.
If there is no need to fight inflation through demand diminishment and if the economy is not overheating, then raising interest rates will only harm economic activity broadly and labor market health specifically, without accomplishing anything positive. There is time for this group to get their heads screwed on right. Let’s hope Warsh can get these career academics to understand that interest rates are not the policy key to controlling everything economically.
The way that the Fed transmits forward guidance to the public will probably have to evolve. Warsh is known to be no fan of the ridiculous dot plot. Neither is your author today. The dot plot is released four times a year as part of the FOMC’s quarterly economic projections. There are 19 dots, each representing either a Fed Governor or a regional Fed district president, not just those bearing policy voting rights for the current calendar year.
These dots are placed by each member of the committee where they individually see that overnight Fed Funds Rate at year’s end. Stephen Miran had been consistently well below the median rate for year’s end, which in March stood at 3.4% (which would be one quarter-percentage point rate cut). At that time, no members had expected to see a rate increase, while eleven of the nineteen had expected at least a small rate cut.
I would expect at least three dots to move into the rate hike column today (likely Beth Hammack of Cleveland, Lorie Logan of Dallas and Jeffrey Schmid of Kansas City). If we see more than these three “hawks” looking to raise rates, Warsh is going to have his work cut out for him as he looks to either replace or improve this “tool” which since its inception, has never been very accurate in providing its intended guidance.
I would also think that in light of recent developments, the policy statement, which had become something of a “cut and paste” job under both Janet Yellen and Jerome Powell’s leadership, will have to become more of a “living” document. Look for April’s “Inflation is elevated, in part reflecting the recent increase in global energy prices” to change now that energy prices are in something close to freefall. This line… “Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook. The Committee is attentive to the risks to both sides of its dual mandate” will also have to be updated as that uncertainty has likely been eliminated.
Tuesday’s Child
Full of grace? Not exactly. More like the market’s focus finally shifted from the advent of peace in the Middle East to the development of monetary Policy in Washington, D.C. and took selected profits ahead of the Federal Open Market Committee release this afternoon. We did warn in Tuesday’s Market Recon column that after confirming the bullish trend on Monday that U.S. markets could try to add a handle on Tuesday via a controlled selloff. That is, technically, exactly what happened.
On Tuesday, there was no bloodbath, outside of tech that is. Oil prices continued to fall as did yields across the Treasury curve. That said, profits were taken across the world of tech. As the S&P 500 surrendered 0.67% for the session, the Nasdaq Composite and Nasdaq 100 gave up 1.15% and 1.89% respectively.
Within those indexes, The Philadelphia Semiconductor Index lost 5.71%, the Dow Jones U.S. Semiconductor Index was hit for a loss of 4.27% and the Dow Jones U.S. Software Index lost 1.48%. Among semis getting roasted were Marvell Technology (MRVL), Intel (INTC) and KLA Corp (KLAC). Those three names gave back 9.8%, 8.5% and 7.4% respectively.
Among other more narrow indexes, the Dow Transports gave back 0.7% while all of the small-to- mid-cap indexes lost between 0.32% and 0.87%. The banks did have a nice day.
Breadth
Breadth, while not exactly minty fresh on Tuesday, really was not very weak at all for what was seen by most as a negative day. For one, winners actually beat losers by a smidgen at the NYSE, while losers beat winners by a seven-to-five margin at the tech-laden Nasdaq. Advancing volume landed at a better than anemic 46.4% share of composite Nasdaq-listed trade and at a 42.3% share of composite NYSE-listed activity.
Additionally, seven of the 11 S&P SPDR ETFs closed out the day in the green, led by those financials (XLF) and followed by the utilities (XLU) and the Industrials (XLI). We already know that technology (XLK) was where the pain was on Tuesday. Overall, though growth faltered, cyclical sectors outperformed defensive sectors, which is hardly a market or economic cry for help.
While on a day-over-day basis, aggregate trade across Nasdaq-listings was 5.1% higher, which lent some substance to the selloff in technology stocks, trade was lower (-6.8%) across NYSE-listings and notably lower across the membership of the S&P 500. This does make Tuesday’s selling pressure somewhat less meaningful, at least technically as professional participation ebbed.
SpaceX Options Run Wild
On Tuesday on its first day of trading, SpaceX (SPCX) options traded exceedingly heavily. Almost a million call contracts traded as SpaceX was the fifth most heavily traded name in U.S. options markets for the day. Yes, that’s despite that weekly options in that name haven’t even traded yet. SpaceX weeklies will start trading tomorrow. Just imagine what the retail participation will be like in this name once those options start trading. SpaceX closed at $201.80 on Tuesday. The last sale I’ve seen this morning stands at $208.21, which is up 54.2% from the IPO pricing at $135 per.
Economics (All Times Eastern)
07:00 – MBA 30 Year Mortgage Rate (Weekly): Last 6.6%.
07:00 – MBA Mortgage Applications (Weekly): Last 10.8% w/w.
08:30 – Retail Sales (May): Expecting 0.5% m/m, Last 0.5% m/m.
08:30 – Core Retail Sales (May): Expecting 0.5% m/m, Last 0.7% m/m.
10:00 – Business Inventories (Apr): Expecting 0.6% m/m, Last 0.9% m/m.
10:00 – Pending Home Sales (May): Expecting 1.1% m/m, Last 1.4% m/m.
10:30 – Oil Inventories (Weekly): Last -7.228M.
10:30 – Gasoline Stocks (Weekly): Last +186K.
The Fed (All Times Eastern)
2:00 p.m. – FOMC Policy Decision.
2:00 – FOMC Economic Projections.
2:30 – FOMC Press Conference.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: KMX (.97), JBL (3.12)
At the time of publication, Guilfoyle was long INTC equity.
