Will the CPI Shift the Market's Current?
After the flood of buying rose all stock indexes on Wednesday, let's see what the consumer price index washes up today. Also: updates on Apple, Tesla, Costco.
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Twas the CPI Morning ...
Twas the CPI Morning When All Through the Place
Not a trader was stirring, though all seemed ready to race;
The mostly "buy" orders were still unsent, but were readied with care,
In hopes that St. Jerome of the Fed soon would be there;
Investors had slept all snug in their beds
While visions of lower short-term interest rates had danced in their heads...
How Did We Get Here? Body Surfing
You never know. You think you know what you're doing. Sometimes you do. Sometimes you don't. I have always been a strong swimmer. I have always loved going to the beach, not for the fun and the sun, but because I liked to swim in the sea. As an amphibious infantryman, that came in handy. I easily qualified as a swimmer as a boot and in all the lifesaving techniques taught for lasting quite a while in open water when necessary.
I have been caught in riptides. No fun, at least for the minute or so it takes to figure out what just happened. I have had to swim way out (I mean way out) to go get my brother (whom I could barely see from the beach) when we were young, as he had ended up too far from shore to figure out which way to get back. Getting the two of us back to shore alive was absolutely one of the toughest things I have ever done. When it's your brother, you decide that either you both live or you both die.
I have seen fish bigger than myself up close, and birds that seemed startled by my presence. Oh, and I have experienced sharks' intent on checking me out. The first time I was hit by a shark, I did not see it coming. I thought I got hit in the stomach by driftwood, only there was no driftwood. Took me a few seconds to realize that whatever had just knocked me for a loop must have been alive. The second time, I saw the fish coming, a lemon shark. Maybe four feet. He hit me hard in roughly three feet of water. I went down hard. Neither time, fortunately, was I bitten or left with more than a story to tell my wife.
The other 99.99% of the times I have gone swimming without other human beings present, nothing has happened. Float on my back for a bit. Nothing. Have to make sure I don't drift off to sleep, never mind too far from shore to see land. That you never want to do. I have found through the years that body surfing is probably as much fun as open water swimming. Just catch a wave and glide in as far as you can. Sometimes the water is too rough to do so without risking a broken neck. Other times, the waves are not even strong enough to bring you in.
The consumer price index is due today - just as equity markets have behaved as if they had been body surfing for a number of days now. The S&P 500 and Nasdaq Composite have both posted seven consecutive "up" days. How many days in a row have these two indexes set all-time high record closes? So many that nobody is counting anymore. Something changed on Wednesday, though. The unloved finally joined in. The small caps indexes, the mid-caps, the transports ... all rallied, setting in some cases, their July highs. It was as if... somebody knew something. That can't be though, because that wouldn't be fair.
A Trickle Turns Into a Torrent
It had started to rain cash earlier this summer. The rotation out of mega-cap tech and into everything else largely failed, and re-rotated. Bank of America BAC reported earlier this week that the bank's customers had been net buyers of equities last week for the first week in three and that those clients had posted their fifth largest weekly flow from cash into U.S. stocks since 2008. That's 16 years, dudes. I was a considerably younger man.
On Wednesday, there was no doubt, and no divergence, in performance. The public bought stocks. All stocks. The public bought U.S. sovereign debt. The U.S. Treasury brought $39 billion worth of new Ten-Year paper to auction on Wednesday. The high yield awarded (4.276%) stopped through the "when issued" for a second month in a row for this series. Foreign accounts took down more than their recent norms as domestic accounts took down their largest aggregate share since October. Dealers took home just 11.5% of this auction, almost their smallest slice of the pie in a year.
The S&P 500, Nasdaq Composite, Nasdaq 100, Russell 2000, S&P SmallCap 600, S&P MidCap 400, Dow Industrials, and KBW Bank Index all gained between 1.01% and 1.21% for the regular session on Wednesday. The Philly Semiconductors did what they do best, and led equities, up 2.42%. Even the Dow Transports were up 0.7%. The Transports and the S&P 600 are the only two major or mid-major equity indexes still in the red year to date.
Solid Breadth
This is something that we have not seen a lot of this spring / summer. All 11 S&P sector SPDR exchange-traded funds closed out Wednesday in the green. Technology XLK and Materials XLB, two sectors that do not necessarily move together, led the way, at up 1.45% and 1.31% respectively. The Financials finished the day in last place on the daily performance tables, but still closed up 0.38%.
Winners beat losers by a 3-to-1 margin at the New York Stock Exchange and by 9-to-5 at the Nasdaq. Advancing volume took a commanding 76.2% share of composite NYSE-listed trade and a 70.7% share of composite Nasdaq-listed volume. Most interesting, and this is something we have not seen of late, until Wednesday, was the higher aggregate trading volume across the board. Trade across NYSE-listings were up small day over day, while trade across Nasdaq-listings was up 0.8% day over day as well.
Activity was also up across the memberships of the S&P 500 and Nasdaq Composite. This Is reflective of increased institutional participation. In other words, the pros put cash to work just ahead of Thursday morning's June CPI report.
I Thought Good Was Bad?
It is true that the Atlanta Fed revised its real-time model for second-quarter gross domestic product on Wednesday from growth of 1.5% to growth of 2% (q/q, seasonally adjusted annual rate). So, why did this not hurt equity market performance on Wednesday? The revision was due to a final print for May Wholesale Inventories that showed month over month growth of 0.6%. That was in line with expectations and with the preliminary release of that data-point. Atlanta tweaked significantly upward its input for gross private domestic investment.
Not only was this print already priced in by markets, and inventory growth is supportive of overall GDP growth, but the fact is that robust inventory growth at the wholesale level is quite deflationary, or at least disinflationary unless demand is there at the next (retail) level. We already know that retail sales have disappointed badly for April and May, so this inventory growth and Atlanta's revised estimate do nothing to impact investor perception that the Federal Open Market Committee has become much more likely to cut short-term interest rates ahead of the election.
Key News
- Apple AAPL has apparently told suppliers such as Taiwan Semiconductor TSM, Micron MU and Qorvo QRVO that the tech giant is targeting 10% growth in shipments of its new iPhone 16s for the second half of this year. That comes to about 90 million units compared to the 81 million iPhone 15s shipped during the second half of last year.
- Tesla TSLA shares have now been up 11 consecutive trading sessions, outperforming even the major large-cap indexes. The stock is up 44.2% over that time frame. Interestingly, despite this move that was kicked off when Tesla reported its quarterly deliveries, Cox Automotive is reporting that Tesla's share of the U.S. electric vehicle market dropped below 50% for the first time ever in the second quarter.
- Costco COST finally pulled the trigger. On top of June sales that showed 7.4% year over year growth from last June, Costco announced an increase in membership fees for the first time since 2017. US and Canadian members will get hit with the increased fee this September. The cost of a regular membership will rise from $60 to $65 per year, while the price of a premium membership rises from $120 to $130. The stock is up 3% overnight.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 238K, Last 239K.
08:30 - Continuing Claims (Weekly): Last 1.858M.
08:30 - CPI (Jun): Expecting 0.1% m/m, Last 0.0% m/m.
08:30 - Core CPI (Jun): Expecting 0.2% m/m, Last 0.2% m/m.
08:30 - CPI (Jun): Expecting 3.1% y/y, Last 3.3% y/y.
08:30 - Core CPI (Jun): Expecting 3.4% y/y, Last 3.4% y/y.
10:30 - Natural Gas Inventories (Weekly): Last +32B cf.
13:00 - Thirty Year Bond Auction: $22B.
14:00 - Federal Budget Statement (Jun): Last $-347B.
The Fed (All Times Eastern)
11:30 - Speaker: Atlanta Fed Pres. Raphael Bostic.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: DAL (2.37), PEP (2.16)
At the time of publication, Guilfoyle was long MU equity. Long TSLA puts.
