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U.S. STOCKS SLOUCH ACROSS THE FINISH LINE, INFLATION DATA EYED (1605 EDT/2005 GMT)
Wall Street skulked to a mixed close on Monday as the sugar rush of Friday's blockbuster employment report wore off by noon, and an early rally crashed into indecision ahead of this week's inflation data.
The S&P 500 and the Nasdaq ended the session nominally lower, while the blue-chip Dow was pale green at close.
Investor sentiment continues to teeter-totter over whether or not the economy is sturdy enough to withstand the Fed's interest rate hikes to curb inflation and how long inflation will hover near four-decade highs.
A revenue warning from chipmaker Nvidia pulled its stock down 6.3%, and weighed on the Philadelphia SE Semiconductor index and S&P 500 tech sector, down 1.6% and 0.9%, respectively.
But second quarter earnings season is entering its final act, with 432 of the companies in the S&P 500 having reported as of Friday. Of those, 78% have beaten Street estimates, according to Refinitiv.
Analysts now see aggregate second-quarter S&P 500 earnings growth of 9.2% year-over-year, up significantly from the 5.6% growth seen at the end of the quarter, per Refinitiv.
The U.S. Senate passed the $430 billion Inflation Reduction Act, aimed at addressing climate change, curbing drug prices and penalizing share buybacks, among other measures.
Clean energy companies, such as Clean Energy Fuels and First Solar , along with electric automakers Tesla and Rivian Automotive gained on the day.
Catalysts this week include consumer and producer price indexes and import prices, all three of which will frame a clearer picture of July inflation and solidify expectations for further rate hikes from Powell & Co.
Here is your closing snapshot:
(Stephen Culp)
LONG ARM OF THE LAW: INFLATION REDUCTION ACT WINNERS AND LOSERS (1345 EDT/1345 GMT)
Over the weekend, the U.S. Senate passed its wide-reaching $430 billion Inflation Reduction Act, which is designed to reduce carbon emissions and cut drug costs, and imposes a new tax on share buybacks.
So who are the winners and losers?
Clean energy firms are the most obvious beneficiaries.
A note from Jefferies says if signed into law, it "could be the governmental push needed for Carbon Capture, Utilization and Storage (CCUS) and Direct Air Capture (DAC) to scale up."
The bill also includes incentives to purchase electric cars and invest in wind and solar power generation aimed to double the United States' clean energy generation capacity in two years, according to modeling by Princeton University.
Clean Energy Fuels was up 5.7% on Monday, while electric automakers Tesla and Rivian Automotive jumped 4.0% and 6.6%, respectively.
First Solar surged 6.8% to hit a nine-month high and the iShares Clean Energy ETF gained 1.1%.
On the losing end, the 1% tax on buybacks could weigh on banks.
In a note from Cowen Washington Research group, analyst Jaret Seiberg writes that taxing buybacks "will now become an easy way to raise additional money when Congress is looking to offset new spending," thereby increasing systemic risk in the sector.
The S&P Banking index was last off 0.2%.
Additionally, the legislation would allow Medicare to negotiate some drug prices with pharmaceutical companies starting in 2026 and will penalize drugmakers for hiking drug costs faster than inflation.
The S&P 1500 Pharmaceuticals, Biotech and Life Sciences index was most recently down 0.2%, while the Arca Pharmaceutical index was last off 0.2%.
(Stephen Culp)
MIGHT THE FED PIVOT-TALK PUSH PETER OUT? (1258 EDT/1658 GMT)
Stocks and bonds have both seen strong rebounds since mid-June on hints that inflation may be in the process of peaking, and therefore, central banks can dial back the pace of rate hikes.
In his latest "Deliberations," Bob Doll, chief investment officer at Crossmark Global Investments, says that stocks and bonds were deeply oversold at their June lows and due for a bounce.
Although he believes that the global economy still faces challenges, he does not think a recession is either imminent or inevitable. However, Doll thinks underlying domestic demand growth will be muted over the balance of the year as employment gains eventually moderate.
With this, Doll says that the Fed must balance competing objectives - "it will be determined to prevent a recession, but it is anxious not to allow financial conditions to ease significantly."
Doll argues this view coincides with a "neutral" view on global equities, although he says the significant de-rating of stocks this year already factors in moderate earnings downgrades, while improving their valuation case.
Crossmark recommends an overweight stance on cash, "whose yield in many markets is only slightly below that of longer-term government bonds, but which provides flexibility amidst elevated economic uncertainty and bond market volatility."
As for bonds, Crossmark recommends an underweight. Bonds "offer low or negative real yields and are discounting interest rate cuts next year and an unduly optimistic view on medium- and longer-term inflation."
Doll expects equity markets to remain choppy in the near term given high levels of uncertainty about global economic growth.
"Our mildly constructive economic outlook, however, implies that equity prices should be higher on a 6-12 month basis."
(Terence Gabriel)
SEMIS SINK AFTER NVIDIA WARNS OF WEAK GAMING DEMAND (1232 EDT/1632 GMT)
Chip stocks are tanking on Monday after a dire warning from industry heavyweight Nvidia about weak demand for its videogame graphics processors.
Nvidia's stock is down more than 8% after the most valuable U.S. chipmaker issued preliminary quarterly results for the July fiscal quarter, saying https://nvidianews.nvidia.com/news/nvidia-announces-preliminary-financial-resultsfor-second-quarter-fiscal-2023 its revenue would tumble 19% from the prior quarter.
Shares of Advanced Micro Devices, which also sells graphics chips, dropped over 3%. Its quarterly revenue forecast last week was slightly below analysts' expectations.
In a press release, Nvidia blamed "macroeconomic headwinds", and it said it "took actions with our Gaming partners to adjust channel prices and inventory."
With those price cuts, Nvidia now sees quarterly non-GAAP gross margins dropping to about 46.1% from it previous guidance of about 67.1%.
The Silicon Valley company's warning comes as retail prices for graphics cards for personal computers plummet back to earth after two years of bare store shelves and scalpers charging videogame enthusiasts exorbitant prices.
High-end gaming cards are now selling at an 11% premium to MSRP, on average, down from a premium of 160% last year, BofA Global Research said in a report on Monday.
Graphics cards are used in cryptocurrency mining, and with the prices of most cryptocurrencies plummeting in recent months, demand from miners has dropped off, in addition to demand from gamers.
The Philadelphia semiconductor index is dropping 2.8%, down for a second straight session. Following a hefty rebound since the start of July, the SOX remains off 24% in 2022, with many investors speculating the chip industry is heading for its first revenue downturn since 2019.
Nvidia's warning comes after Xbox-maker Microsoft recently reported a slump in gaming revenue, while PlayStation maker Sony trimmed its forecast due to waning consumer interest as a lack of new games and easing of COVID-19 constraints hit gaming demand.
"Clearly, NVDA’s gaming business received a strong boost to growth during the pandemic, and as the world has become much more normalized in 2022, gaming demand has declined substantially," FBN Securities analyst Shebly Seyrafi wrote in a client note.
Seyrafi described Nvidia's warning as a "large reset" that "may be what many investors were waiting for before buying shares in NVDA."
(Noel Randewich)
SOMETHING'S GOT TO GIVE: STRATEGISTS MULL UNCERTAINTIES AND X-FACTORS (1115 EDT/1515 GMT)
Markets always face uncertainty, but this appears to be an especially difficult time to get a handle on what may be coming next.
Philip Palumbo, founder, CEO, and chief investment officer, at Palumbo Wealth Management, says that "there doesn't appear to be much middle ground. The extremes have diverged so violently, you'd think we were talking about politics, not economics and markets."
However, like a stretched rubber band, at some point, Palumbo says something's got to give. The question is, what's going to snap?
"Inflation? The Economy?, Europe? Taiwan? Housing?"
Palumbo says "take your pick or come up with your own suggestion, but the plain fact is much of the data is conflicting."
Still, he remains fundamentally bearish.
As Palumbo sees it, nothing about the last two years has been normal. There's been a pandemic induced supply shock followed by a demand shock largely due to the response to the pandemic. The pendulum is swinging back and forth, but he doesn't believe we have returned to normal yet.
"The globalized world didn't work well the last two years and now political tensions are exacerbating the problem."
According to Palumbo, those tensions will make taming inflation more difficult with the implication being that the deflationary impact of globilization is now in the rear view mirror.
Another observation he makes is that over the past 25+ years, the Fed has reacted with greater and greater speed and authority to address economic turmoil.
At the moment, Palumbo thinks Wall Street clearly envisions a re-run of the same Fed game plan. However, the difference this time is inflation, which is something that should (and, in his view, will) prevent the Fed from acting quickly.
"If the Fed reacts too quickly, it risks a failure to tame inflation. They have clearly and repeatedly stated they do not intend to do that. We believe them."
Meanwhile, Jay Woods, chief market strategist at DriveWealth, will be watching this week's CPI data closely for its implications on just how aggressive the Fed may need to be at their September meeting.
He's also keeping a close eye on the China/Taiwan situation:
"That fear quickly and somewhat surprisingly faded. To me it's still the biggest X-factor that could lead the markets lower."
(Terence Gabriel)
DOG DAY MORNING: WALL STREET STARTS THE WEEK GREEN (1015 EDT/1415 GMT)
U.S. stocks shot out of the starting gate on Monday with a broad rally, as investor optimism cruised along on the fumes of Friday's blow-out jobs report and as the finish line for second quarter earnings season came into view.
All three major U.S. stock indexes are advancing following a week in which the S&P 500 and the Nasdaq notched their third consecutive weekly gains, a week that was punctuated by an employment report that suggested the U.S. economy is healthy enough to withstand whatever hawkishness the Fed throws its way.
Economic data due to be released this week is dominated by inflation indicators, with consumer prices, producer prices and import prices expected to shine a light on whether Powell & Co's interest rate hikes are having the desired cooling effect on price growth.
While every major sector is green, the chip sector is an outlier. The Philadelphia SE Semiconductor index was most recently down more than 1% even after Washington lawmakers passed CHIPS and Science act.
Pfizer is inching up 0.2% after the drugmaker announced it would buy Global Blood Therapeutics in a $5.4 billion deal.
GBT is up 4.3%.
Pfizer's COVID vaccine developing partner BioNTEch SE is plunging 8.3% after drops in second-quarter profit and revenue.
Tyson is sliding 9.5% after the packaged food company's EPS missed consensus.
Travel related companies Norwegian Cruise Line, Wynn Resorts will be up at bat on Tuesday.
Second quarter reporting season is approaching the final stretch, with 432 of the companies in the S&P 500 having reported as of Friday. Of those, 78% have beaten Street expectations, according to Refinitiv data.
Here's is an early trade snapshot:
(Stephen Culp)
NASDAQ COMPOSITE: THE TROOPS FACE A TEST (0900 EDT/1300 GMT)
The Nasdaq Composite has been leading the market's charge off the June lows. Upward momentum in the index may be critical if the market is going to sustain its recent bullish turn.
Meanwhile, a measure of the Composite's internal strength is about to do battle with an important barrier:
The tech-laden index is boasting a 19% rise off its June low on a closing basis vs 13% gain for the S&P 500, and 10% rise for the Dow. Additionally, the IXIC is the only one of the three main U.S. indexes to take out its early-June highs.
Recent strength is coming along with a constructive push in the Nasdaq New High/New Low (NH/NL) index.
In mid May, this measure bottomed at 3.8%, which was its lowest reading since March 26, 2020, or just three trading days after the market's pandemic-crash low. It has now risen to 39.5%, or its highest level since April 5.
Of note, since this measure broke below 45% in late-November of last year, just two trading days after the Nasdaq's record close, it has failed to rise above this barrier.
In fact, it's now been 176 straight trading days (tds) that it has ended below 45%. That's its longest such streak since a 362 td run from late-October 2007 to early-April 2009, amid the Great Financial Crisis.
More recently, the NH/NL index flirted with 45% in late March and early April which was around the tail-end of what was at the time, the Nasdaq's biggest counter-trend bounce in an on-going bear trend. The measure peaked at 42% on April 4.
Thus, traders will be watching to see if the NH/NL index can clear this barrier in order to add confidence in the sustainability of the Nasdaq's rise.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)