The market is on edge awaiting tomorrow's CPI data, which is expected to show a slight rise from last month in headline inflation but continued progress in the core data. Oracle is down 10% after earnings, hurting other tech stocks, and crude rose to new 10-month highs.
Apple steps into spotlight with expected introduction of new iPhones scheduled
Oracle drops sharply after slight miss on revenue expectations, perhaps weighing on tech
Crude edges above $88 per barrel, a new 10-month high, and 10-year yield flirts with 4.3%
(Tuesday market open) The countdown is on to Wednesday morning’s critical Consumer Price Index (CPI) data, but before that investors get a roadshow today from Apple (AAPL). Stocks edged lower in premarket trading after starting the week with a charge.
All but two S&P 500® Index (SPX) sectors finished in the green Monday, extending the broader market’s winning streak to two days for the first time this month. The market is still down a smidge in September, and weakness this morning appears related to jitters ahead of CPI, rising crude prices, and disappointing guidance from Oracle (ORCL) that’s hurting tech stocks in general.
Apple will try to generate positive vibes with the announcement of its iPhone 15, though analysts generally expect evolutionary, not revolutionary, development. One big change could be the introduction of USB-C charging to Apple’s smartphones, which could streamline the charging process across various devices and brands.
The 10-year Treasury note yield flirted again with 4.3%, near the 2023 high. It traded just below that early Tuesday. However, investors don’t seem as concerned as when this happened last month, judging by the stock market’s collective shoulder shrug yesterday.
Crucial data is crammed into the middle of the week, with August CPI tomorrow morning followed by Thursday’s August Producer Price Index (PPI) and August Retail Sales. Together, those could influence the Federal Reserve’s thinking ahead of its meeting next week.
Expectations for CPI, according to Trading Economics:
If the data are near expectations, the question is how the market interprets that simultaneous rise in headline inflation and slowdown in core inflation growth (which strips out volatile food and energy prices). The Fed is sensitive to any sign that inflation’s downward trend might be reversing, but investors might shrug off the August headline number as a one-timer due to the rising price of gasoline.
That said, there’s no sign of gas retreating in September, and if energy prices stay high enough for long enough, they often creep into core readings. That’s unlikely to escape the Fed’s notice.
Better Breadth: Yesterday featured a nice mix of leading sectors, as consumer discretionary, communication services, health care and consumer staples topped the leader board. The first two are considered growth sectors and the second two are defensive. This speaks to what could be a healthy broadening of gains beyond just a couple sectors, though one day isn’t a trend. Energy, which had dominated over the past month, finished last on Monday.
iPhone rings: USB-C charging, updated chips and better cameras are among the refinements Apple might roll out today, but the question is how many customers will pay more for them. Apple’s been struggling to grow revenue for some time.
Cloud Burst: Shares of Oracle (ORCL) took it on the chin in premarket trading after the software and cloud computing firm reported earnings that appeared to disappoint investors. The company beat Wall Street’s average earnings per share estimate, but its revenue came up just shy of some analyst expectations. The stock was up more than 50% year-to-date heading into Monday’s report, so some of the selling might reflect ideas that good news was already priced in. But the company’s cautious comments on future cloud revenue also appears to help trigger today’s sell-off. Watch for potential negative impact on shares of competing cloud companies like Alphabet (GOOGL), Amazon (AMZN), and Microsoft (MSFT). Shares of Adobe (ADBE), due to report Thursday, also fell.
Strike countdown: Ford (F), General Motors (GM), and Stellantis (STLA), the parent company of Jeep, face expiration of their contracts with the United Auto Workers (UAW) Thursday (see more below). Talks continue between the opposing camps, the Wall Street Journal reported this morning, with wages the main sticking point. Major work stoppages that put thousands of employees on the sidelines generally aren’t positive for the economy, so lack of progress could weigh on investor sentiment.
As of this morning, the probability that the Federal Open Market Committee (FOMC) will maintain current rates after its September 19–20 meeting is 93%, according to the CME FedWatch Tool. The tool pegs the probability of rates being higher after the November meeting at around 47%, up slightly from yesterday.
Talking technicals: The charts look a little brighter after the SPX clawed back to close above its 50-day moving average near 4,476 yesterday. The SPX has been trading on both sides of that key psychological level for a month now after spending most of the summer well above it. Still, the premium is narrow and we’re not out of the woods yet. Technical resistance remains near 4,600, a level the market has toyed with several times but not traded above since early 2022.
CHART OF THE DAY: LINE DANCE. The S&P 500 Index (SPX—candlesticks) has been toying with its 50-day moving average (blue line) for the past month and closed just above it Monday, a positive sign from a technical standpoint. Still, the recent dip of the 20-day moving average (green line) below the 50-day is technically bearish. Long-term resistance is seen at 4,600, but a downward trendline from the summer highs (red line) that now stands just above 4,500 might be a near-term level to watch. Data source: S&P Dow Jones Indices.Chart source: thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
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Shot in the “Arm” for banks? Initial public offerings (IPOs) have been slow this year, due in part to high interest rates. This could be slowly changing, perhaps to the benefit of the largest investment banks. The expected pricing this week of chip designer Arm Holdings Plc, owned by SoftBank, is front and center as the company seeks a valuation above $50 billion, according to analysts. About 28 banks, including JPMorgan Chase (JPM) and Bank of America (BAC), are in on the deal, Bloomberg reports. InstaCart also is having its IPO this month. Persistent inflation and signs of a slowing U.S. economy could threaten the nascent IPO recovery, keeping bank stocks on the defensive.
Trip to Europe: The ECB’s meeting this week won’t lack for drama. Policy makers face an “uncertain decision,” says Michelle Gibley, Schwab’s director of international research, because inflation has been slow to ease even as economic growth ebbs. “The ECB’s assessment of the balance of inflation risks, as well as updated inflation forecasts, could prompt a rate hike as ‘insurance’ to maintain downward pressure on inflation,” Gibley says. The Eurozone emerged from the pandemic after the United States, so inflation crept higher later, and therefore rate hikes also started later as well. The ECB’s inflation target, like the Fed’s, is 2%. The preliminary Eurozone Consumer Price Index (CPI) held steady at 5.3% year-over-year in August. Food and energy costs contributed to that, but core inflation, which strips out those two elements, also rose 5.3%, staying relatively sticky.
UAW downstream: We’re near the final 48 hours before United Auto Workers (UAW) potentially walk off their jobs Thursday night at the big-three U.S. automakers. The impact of a strike wouldn’t just be on the big three, their workers and customers, but also on companies that supply parts to automakers. For example, Texas Instruments (TXN), a large U.S. semiconductor supplier for auto companies, and Taiwan Semiconductor (TSM), the world’s largest semiconductor foundry, might be worth watching for impact if a strike grows prolonged. Depending on how long a strike lasts, certain vehicles could become more difficult to find on the market, and used car demand could perk up, raising prices again. Watch shares of CarMax (KMX) and Carvana (CVNA) if there’s a prolonged strike. They’re near respective 2023 highs.
Sept. 13: August Consumer Price Index (CPI).Sept. 14: August Producer Price Index (PPI), August Retail Sales, and expected earnings from Adobe (ADBE) and Lennar (LEN).
Sept. 15: August Import and Export Prices, September Empire State Manufacturing, August Industrial Production, and Preliminary September University of Michigan Consumer Sentiment.
Sept. 18: No major earnings or economic data.
Sept. 19: August Housing Starts and Building Permits and expected earnings from AutoZone (AZO).
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