Lam Research Share News (LRCX.US)

U.S. equity indexes end down sharply

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All S&P sector indexes lose, led down by consumer discret

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Dollar gains; bitcoin, gold, crude fall

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U.S. 10-Year Treasury yield last ~4.02%

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WALL STREET ENDS VOLATILE WEEK ON SERIOUS DOWN NOTE (1610 EDT/2010 GMT)

Wall Street ended sharply down on Friday, polishing off another volatile week as investors worried that the Federal Reserve's aggressive interest rate hikes may throw the economy into a major downturn.

So far this year, the S&P 500 has recorded 37 days when it gained or lost 2% or more, compared to seven such days in all of 2021.

Tech-related heavyweight stocks led the way lower, with Tesla dropping over almost 8% and Amazon losing 5%. Apple, the world's most valuable company now at $2.2 trillion, lost 3.2%.

Worries that the global semiconductor industry is heading for a revenue downturn sent the Philadelphia semiconductor index tumbling 4.5% to near two-year lows.

Data from he University of Michigan

showed

consumer sentiment improved in October but inflation expectations worsened as gas prices moved higher. That came a day after a reading on consumer prices showed inflation remains stubbornly high, adding to fears that the Fed will not be able to slash decades-high inflation without seriously hurting the economy.

With Friday's drop, the S&P 500 is now down 25% in 2022, and the Nasdaq has slumped 34%.

Here is your final snapshot:

MARKET TURMOIL GIVES HEDGE FUND MANAGERS A CHANCE TO SHINE (1415 EDT/1815 GMT)

With asset classes facing turmoil across the board in September - with perhaps the exception of the U.S. dollar - hedge fund managers had an opportunity to test their mettle.

Some managers shone brighter than others.

According to data provider PivotalPath, high levels of dispersion created "massive differences" in fund manager performance in September.

The dispersion of fund performance is at its highest since the 2008 financial crisis, PivotalPath said, with dispersion between the 75th percentile and the 25th percentile of its Composite Index at 23% in September.

That's nearly double the ten-year annual average of 12.3%.

Larger hedge funds, with more capital to withstand downturns, have also outperformed their smaller counterparts, the report found.

"Large funds typically need to deploy more capital to medium and long-term trend following ... these funds have done well due to these restrictions from their large capital base-while smaller funds, which often benefit from nimbleness, have been less successful," PivotalPath's report says.

Overall, hedge funds fared better than the U.S. stock market.

PivotalPath's Hedge Fund Composite Index, which includes the performance of over 2,500 funds, lost 1.2% in September versus the S&P 500's 9.3% drop and the Nasdaq's 10% slide.

The Composite Index's spread above the S&P 500 is now at 24% for the year, the largest nine month outperformance since June 2009.

Within specific fund strategies, managed futures and global macro funds were up 4% and 1.8% respectively in September, while equity diversified lost 3.7%.

INVESTORS ABANDON SINKING CHIPS (1345 EDT/1745 GMT)

Chip stocks are leading Wall Street's selloff on Friday, with the Philadelphia semiconductor index eyeing two-year lows as investors reel from a trio of worries about interest rates, capex cuts at TSMC and recent U.S. export controls aimed at China.

The chip index tumbled 3.4% as of mid-day and was on track to close at its lowest since September 2020.

Wall Street sold off across the board and Treasury yields rose as investors continued to digest a red-hot U.S. inflation print from the prior day that has increased expectations of more aggressive Fed rate hikes. Higher rates particularly hurt shares of chip makers and other companies with high forward earnings valuations.

Investors for months have worried that the global chip industry may be heading for its first revenue downturn since 2019, and TSMC, the world's largest contract chipmaker, on Thursday predicted just that, cutting its annual investment budget by at least 10% for 2022.

Shares of companies that make chip manufacturing equipment had shrugged off TSMC's warning and gained on Thursday amid a broad stock market rally. But they dropped hard on Friday, with Lam Research, Applied Materials, ASML Holding and KLA Corp all slumping more than 4%.

TSMC's prediction comes after the Biden administration published a sweeping set of export controls last week, including a measure to cut China off from certain semiconductors made anywhere in the world with U.S. equipment, its

latest step

aimed at slowing Beijing's technological and military advances.

"This means that not only will chip equipment companies lose much of their biggest market, China but also see their largest customer, TSMC, cut spending at the same time," Semiconductor Advisors LLC wrote in a client note on Thursday.

Shares of Nvidia, the most valuable U.S. chipmaker, dropped 5.2% on Friday, while rival Advanced Micro Devices lost 3.6%.

With Friday's drop, the Philadelphia chip index is down 45% in 2022, just shy of its 48% loss in 2008.

FED CAN’T HIT 2% TARGET WITHOUT A RECESSION - LAVORGNA (1230 EDT/1630 GMT)

After data on Thursday showed that consumer price pressures were higher than expected in September, many investors are worried about how the Federal Reserve will be able to bring core inflation down to its annual target of 2%.

Joseph Lavorgna, chief U.S. economist at SMBC Capital Markets, says the Fed is unlikely to reach its inflation target without kicking off a recession. “All prior high inflationary episodes such as the one the US economy is currently experiencing ended only after the economy began shrinking,” Lavorgna said. “This time should be no different especially with the Federal Reserve raising interest rates at near record fast pace and admitting a recession may be necessary to correct today’s demand and supply imbalances.”

Treasury yields on Friday edged higher after Thursday's inflation print as the market comes to terms with the likelihood interest rates will stay higher for longer. Lavorgna looked at periods when core inflation was well above 2%, including downturns around 1969-'70, 1973-'75, 1980, 1981-'82 and 1990-'91. In each of those times, “core inflation had been steadily rising during the business cycle and only topped out after the economy was already in recession,” Lavorgna said.

With the exception of the 1981-'82 downturn, the peak in core inflation also occurred at the end of the recession, and in the 1969-'70 downturn it peaked one month after the recession ended. “This tells us that an acceptable inflation rate is likely sometime away and only once the economy has begun shrinking,” Lavorgna said.

TRICKS AND TREATS: RETAIL SALES, UMICH, ET AL (1140 EDT/1540 GMT)

Market participants raced through a haunted house of indicators on Friday morning, most of which seemed to show economic resilience as investors contend with hot inflation, cooling demand and an unswervingly hawkish Fed.

Receipts at U.S. retailers fell short of consensus by remaining stubbornly flat last month instead of inching 0.2% higher as expected.

The number reflects cooling demand as consumers curb their spending in order to contend with the fact that consumer price growth remains hotter than wage growth.

While the August print was upwardly revised, it should be noted that the series is not adjusted for inflation.

"Overall, households continue to spend, supported by strong job growth and rising nominal incomes," writes Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "But higher borrowing costs and elevated inflation - that is not yet showing any sign of easing - will remain headwinds for spending going forward."

Line-by-line, a 1.4% drop in gasoline station receipts - reflecting easing energy prices - and dips in spending on big-ticket items such as cars and appliances, helped keep the headline number unchanged.

"Core" retail sales - which excludes autos, gasoline, food services and building materials, and is most closely associated with the personal consumption element of GDP - rose by 0.4%, beating economist projections and standing on the shoulders of an upwardly-revised August number.

The graphic below shows the total dollar amount of retail sales against year-on-year headline CPI and one-year inflation expectations, courtesy of the University of Michigan:

Speaking of the devil, despite inflation pressures and worries over the looming possibility of recession, the mood of the American consumer has actually brightened this month.

The University of Michigan's Consumer Sentiment index gained 1.2 points, blasting past the meager 0.4-point gain analysts predicted.

The advance was driven by a significant improvement in the "current conditions" component, which more than offset continued deterioration in near-term expectations.

Still, the director of UMich's consumer surveys, Joanne Hsu, warns against uncorking the champagne just yet.

"Sentiment is now 9.8 points above the all-time low reached in June, but this improvement remains tentative," Hsu says. "Continued uncertainty over the future trajectory of prices, economies, and financial markets around the world indicate a bumpy road ahead for consumers."

Indeed, one-year and five-year inflation expectations gained altitude, heating up to 5.1% and 2.9%, respectively:

And that provides a tidy segue to the next indicator.

The cost of goods and services imported to the United States bucked the trend by easing significantly, according to the Labor Department.

Import prices notched a steeper-than-expected 1.2% monthly decline, while they notched by a hefty 1.8 percentage point year-on-year cool-down to an even 6%.

"After the discouraging signs offered by this week's PPI and CPI reports, September's import price data show some slowing of inflation pressures in the economy," says Matthew Martin, U.S. economist at Oxford Economics. "Slowing global trade flows, higher rates, and waning domestic demand will continue to support lower import prices, barring any further unexpected shocks to supply chains."

Even so, the metric - along with other major indicators - continues to cruise well above Powell & Co's average annual inflation target, all but assuring the central bank will continue its hawkish barrage of interest rate hikes for the foreseeable future:

Finally, the value of goods stacked in the store rooms of U.S. companies grew by 0.8% in August, 0.1 percentage point shy of consensus, according to the Labor Department.

Increased inventories in the era of Fed tightening is a double-edged sword. While it could be a sign that the hobbled global supply chain is finally beginning to right-size, it could also reflect softening demand as businesses struggle to move product from store room to shelves.

Still, business inventories have now logged 17 straight months in the gains column, a fact which bodes well for the U.S. economy.

Here we have monthly change in business inventories juxtaposed with the private inventories contribution to economic growth. In the second quarter, inventories subtracted a net 1.9 percentage points from topline GDP:

Wall Street appears to have overcome its initial indecision in morning trading, with all three major U.S. stock indexes dipping well into the red.

Energy and chips were down most, while market-moving megacaps were also heavy burdens.

STOCKS MIXED, 'BIG LOW' MAY REMAIN ELUSIVE (1000 EDT/1400 GMT)

Major U.S. stock indexes were mixed on Friday, after gaining earlier as Russian President Vladimir Putin eased geopolitical worries by saying there were no plans for a further military mobilization in Russia.

Putin said there was no need for massive new strikes on Ukraine and that Russia was not looking to destroy the country. He added that his call-up of Russian reservists would be over within two weeks and there were no plans for a further mobilization.

Investors are also focused on political events in the United Kingdom as British Prime Minister Liz Truss fired her finance minister Kwasi Kwarteng and is expected to scrap parts of their economic package in a desperate bid to survive the market and political turmoil gripping the country.

U.S. stocks rebounded from a sharp drop early on Thursday after data showed that inflation rose more than expected in September, raising fears that the Federal Reserve will maintain its aggressive pace of rate hikes.

Much of the rebound is seen as due to short covering, however, and due to oversold conditions.

“It was simply so oversold,” Bank of America analysts led by Michael Hartnett said in a report.

Bank of America added, however, that Thursday’s drop will not be the ultimate low, noting that the labor market and ISM are not weak enough, while credit spreads are not yet showing enough stress.

“Fed panic always a necessary and often sufficient condition for the Big Low; it's coming but not enough macro/market pain yet,” the bank said.

The Dow Jones Industrial Average was the best performer among major indexes, whille the Nasdaq Composite slipped.

Sector wise, financials and real estate were the best performers, while energy and materials were the laggards.

Here is a snapshot of where markets stood in early trading:

OPTIMISM DROPS, ONE OF 60 LOWEST READINGS IN HISTORY - AAII (0900 EDT/1300 GMT)

Individual investor optimism over the short-term direction of the U.S. stock market recorded one of its 60 lowest readings in history in the latest American Association of Individual Investors (AAII) Sentiment Survey, while pessimism rose slightly.

AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, fell by 3.6 percentage points to 20.4%. Optimism is below its historical average of 38.0% for the 47th consecutive week. It is also "unusually low for the seventh consecutive week and the 30th time in 41 weeks."

Bearish sentiment, or expectations that stock prices will fall over the next six months, rose by 1.2 percentage points to 55.9%. Pessimism is above its historical average of 30.5% for the 46th time out of the past 47 weeks and is at "an unusually high level for the 31st time out of the last 39 weeks."

Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, increased by 2.4 percentage points to 23.7%. It is below its historical average of 31.5% for the 23rd time in 25 weeks.

With these changes, the bull-bear spread expanded to -35.6 percentage points from -30.8 percentage points last week, and “ranks among the most negative in the survey’s history.”

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