Stocks Fall on Semi-Conductor Rout and Middle East Conflict; Bonds Mixed
Good morning,
The Dow (-0.9%), NASDAQ (-2.9%), S&P 500 (-1.6%), and EAFE (-0.8%) all slipped for the week. Bonds were mixed, as taxable bonds gained 0.1% while tax-free municipal bonds fell 0.4%. The 10-year Treasury yield was relatively flat, falling 0.01% to 4.55%.
In economic news, two key inflation data points - the Consumer Price Index (CPI) and Producer Price Index (PPI) - were reported week, and were extremely favorable. The CPI rose 3.5% in June, down from 4.3% in May and well below expectations of 3.8%. Similarly, PPI was reported 0.3% lower than expected, and the May PPI reading was corrected from 1.1% to 0.6%. Core CPI and PPI reading were also lower than expected. It is certainly understandable that headline CPI and PPI were down because they include the energy prices, as gasoline and oil prices fell in June. However, for core inflation to fall below expectations was a pleasant surprise to investors. That said, this positive economic data is being squashed, as the Iran conflict is picking up steam as fighting has resumed because the cease fire now seems to have dissipated. This war in Iran is dominating the headlines of the markets, as the strained flow of oil out of the Strait of Hormuz has a rippling effect on the global economy.
Corporate earnings season has begun with the big banks reporting their earnings, and they were terrific, as JP Morgan reported its best earnings ever. Earnings will take on greater importance, as we are now experiencing a correction in semiconductor stocks, which led the rally in the past few months. At this point, it’s unclear whether the recent and sudden drop to these stocks is from profit taking, or is there a concern with spending in the AI space. We hope that there will be more clarity as key companies will be reporting their earnings over the next few weeks, particularly those from Google, Tesla, and Intel this week. In the end, it’s about corporate earnings, so we are keenly interested in how the next few weeks play out in that area, but we also cannot ignore the conflict in the Middle East taking over the headlines.
Have a great day and terrific week!
Source: Yahoo Finance
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