The stock market had a big rotation Thursday, away from megacaps and chips and toward small caps, homebuilders and other parts of the market. A soft CPI inflation report put Fed chief Jerome Powell's latest testimony in a more-dovish light, raising the odds of a September rate cut. JPMorgan Chase, Wells Fargo and Citigroup kicked off bank earnings, with Wells' skidding on weak net interest income. Taiwan Semiconductor Manufacturing reported strong June sales. Tesla snapped a huge win streak on reports that a robotaxi day will be pushed back.
Stock Market Rotates
The S&P 500 and Nasdaq fell back from record highs amid a Thursday sell-off, but still rose for the week. The Nasdaq had been significantly extended. The Dow Jones had a solid week, moving toward record highs. The small-cap Russell 2000 surged to a multiyear high thanks to tame inflation data. Housing and construction stocks jumped along with regional banks. Treasury yields fell as rate-cut expectations improved.
Economic Data Points To Rate Cuts
Everything is suddenly going the Fed's way. Chair Jerome Powell said as much in testimony to Congress, and that was before the consumer price index and producer price index confirmed that the disinflationary trend is back. Thursday's CPI unexpectedly showed that prices declined outright in June, dipping 0.1% vs. +0.1% forecasts. That lowered the 12-month inflation rate to 3% from 3.3%. The core CPI rose just 0.06%, the smallest increase since January 2021. Housing costs rose 0.3%, the least since August 2021. Goods prices fell 0.1% on the month and 1.8% from a year ago. Prices for new vehicles are down 0.9% over 12 months, the biggest drop since 2018. Friday's PPI surprised on the upside, but mainly due to a jump in distributors' margins, which should fade. On Tuesday, Powell said the labor market "appears to be fully back in balance" and no longer a source of inflationary pressure. The implication is that any further cooling of the labor market would be unwanted and could speed up the pace of rate cuts.
Big Banks Miss On Interest Income
Big banks kicked off Q2 earnings Friday as JPMorgan Chase, Wells Fargo and Citigroup topped profit and revenue forecasts, but missed on a key metric. JPMorgan's net interest income rose 4%, but fell short of the 6.5% growth expected. The bank guided 2024 net interest income to reach $91 billion, just shy of views of $91.1 billion. Wells Fargo also missed NII forecasts with a 9% decline in Q2. Wells sees 2024 NII falling 7% to 9% and raised its noninterest expense outlook by $1.4 billion. Citi reported a 2.9% decrease in NII, just short of estimates for $13.5 billion, and guided a modest year-over-year decline in 2024 core NII. JPMorgan and Citi both increased their provisions for credit losses from last year, while Wells lowered its allocation. JPM stock fell slightly Friday, around a buy point, while Citi edged up in a buy zone. WFC stock tumbled from near a buy point.
Chip Foundry Gets AI Boost
Taiwan Semiconductor Manufacturing beat sales estimates for the month of June, boding well for its full second-quarter results due July 18. The contract chipmaker, known as TSMC, said its monthly sales rose 33% year over year in local currency to the equivalent of $6.42 billion, topping views for $5.73 billion. Production of data center AI chips for Nvidia and others fueled TSMC's sales growth. TSMC also likely benefited from production of next-generation chips for the upcoming Apple iPhone 16.
Eli Lilly Rises On M&A, Weight Loss
Eli Lilly will pay $3.2 billion for Morphic Holding, which has a lead drug candidate for both ulcerative colitis and Crohn's disease. Meanwhile patients taking Lilly's diabetes drug Mounjaro lost 15.3% of their body weight after 12 months vs. 8.3% for Novo Nordisk diabetes fighter Ozempic. Meanwhile, Amgen said it will move forward with trials for a once-daily oral weight-loss drug. LLY rose for a 12th straight week, hitting a fresh high. Novo stock was up factionally for the week, continuing to trade tightly within a buy zone.
Delta Tumbles On Earnings, Outlook
Kicking off earnings for the airlines group, Delta Air Lines earnings fell 12% while revenue climbed 5% to $15.4 billion, both slightly missing. Delta, which hiked its quarterly dividend 50%, guided lower on Q3 EPS. Shares fell solidly, with other airline stocks falling.
News In Brief
BYD will build a $1 billion electric-vehicle factory in Turkey, highlighting the threat to Western carmakers from low-cost Chinese rivals. Most of BYD's EVs are still sold in China but overseas sales are booming, with the EV and battery giant opening a plant in Thailand earlier this month. The Turkey factory, along with an already-planned site in Hungary, would help BYD avoid or lower steep new EU tariffs on imported Chinese cars. BYD stock rose to a 2024 high.
Tesla tumbled Thursday, snapping a huge 11-day run after Bloomberg reported the EV giant is pushing out its "robotaxi" reveal event from Aug. 8 to October, allowing more time to build prototypes. Until Tesla achieves self-driving, an EV without a steering wheel isn't going anywhere.
Costco Wholesale will hike membership fees, which account for the bulk of the retailer's net income, for the first time since 2017. The base membership fee in the U.S. and Canada will rise by $5, to $65 a year, as of Sept. 1. The higher-end Executive Membership will climb $10, to $130 a year. But shares fell solidly on the news.
Lantheus skyrocketed after the Centers for Medicare and Medicaid Services published a proposed rule that would hike the reimbursement rate for some diagnostic radiopharmaceuticals. This could benefit Lantheus' Pylarify, a diagnostic imaging agent for prostate cancer.
HubSpot tumbled Wednesday on a report that Google parent Alphabet had ended never-confirmed talks to buy the marketing software maker.
