A trader works, as a screen displays a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 31, 2024.
Brendan McDermid | Reuters
This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Wall Street retreats U.S. stocks lost ground on Monday and Treasury yields rose amid lingering concerns that the Federal Reserve may not cut rates as much as expected. The blue-chip Dow fell over 200 points. The S&P 500 also slumped after hitting a record high last week. The Nasdaq Composite also dropped 0.2%.
Oil’s supply crunch The oil market faces a supply crunch by the end of 2025 as the world is not replacing crude reserves fast enough, according to Occidental CEO Vicki Hollub. About 97% of the oil produced today was discovered in the 20th century, she told CNBC.
Palantir surges Shares of Palantir spiked 19%in extended trading after the company reported revenue that topped analysts’ estimates. In a letter to shareholders, Palantir CEO Alex Karp said demand for large language models in the U.S. “continues to be unrelenting.”
Red Sea tensions Higher shipping costs due to tensions in the Red Sea could hinder the global fight against inflation, said the Organisation for Economic Co-operation and Development. Clare Lombardelli, chief economist at the OECD, told CNBC that shipping-driven inflation pressures remain a risk rather than its base case.
[PRO] Banking allure The banking sector offers attractive opportunities despite an increase in volatility, according to fund manager Cole Smead. “It’s the banks that made bad decisions that are making [other] banks look attractive in pricing,” Smead told CNBC, who picked two bank stocks that are in play.
Investors are once again getting ahead of themselves on the Fed’s next move.
Markets were rattled after Federal Reserve Chair Jerome Powell reiterated the central bank is unlikely to rush to lower interest rates.
Wall Street has been parsing his hawkish comments, yet in essence what Powell said over the weekend was no different than what he shared at Wednesday’s press conference: that he wants to see more evidence that inflation is coming down to a sustainable level.
Still, the debate over the timing of rate cuts unsettled Fed watchers.
This sparked a sell-off spurred by higher bond yields. The yield on the 10-year Treasury spiked for a second day, trading around 4.163%. Typically, higher yields tend to indicate investors think the Fed will take longer to cut rates.
Fresh data out Monday also didn’t help. A new survey showed the U.S. services sector expand at a faster-than-expected clip in January.
This on top of the booming jobs report released Friday, fueled investor worries that rates may stay elevated for much longer.
Wall Street will now look ahead to the swath of Fed speakers this week. Perhaps they will shed more light on the path for rate cuts.
Market Movers rounded up the latest reactions to 3M ‘s stock moves from the pros, including Jim Cramer , after the company reported third-quarter beats on the top and bottom lines Tuesday. Mike Roman, CEO of 3M, joined CNBC’s ” Squawk on the Street ” to break down the company’s weaker sales volumes, but said higher selling prices were a factor in the quarter’s strong performance. 3M’s stock closed the trading session up 5.3%.
Gasoline prices for full serve and self serve are displayed at the Union 76 gas station ahead of the Labor Day weekend on August 28, 2023 in Beverly Hills, California.
Mario Tama | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Biggest monthly jump this year The U.S. consumer price index for August rose 3.7% from a year ago and a seasonally adjusted0.6% for the month, mostly in line with the expected 3.6% and 0.6%, respectively. Though expected, it’s still the biggest month-on-month increase in prices this year. Energy prices, which soared on the month, were mostly to blame. Core inflation, which excludes food and energy prices, was up 4.3% on the year and 0.3% on the month.
Optimistic markets U.S. markets were mixed Wednesday, with the Dow Jones Industrial Average the only major index to fall. Asia-Pacific stocks mostly rose Thursday. Japan’s Nikkei 225 climbed 1.47% even as shares of Softbank slipped slightly. Australia’s S&P/ASX 200 added around 0.55% as data showed unemployment rate in the country holding steady at 3.7% in August.
The risks of shadow banks in China The difficulties faced by China’s real estate sector recently have highlighted, once again, the risks of shadow banking — a term that refers to financial services offered outside the highly regulated banking system. Chinese developers “were able to borrow liberally from shadow banks,” a researcher said, which pushed up land prices and housing costs. That contributed to the developers’ huge debt today.
Taiwan is ‘not for sale’ At the All-In Summit, a conference on technology and markets, Elon Musk commented that China probably views Taiwan as “analogous to Hawaii or something like that, like an integral part of China that is arbitrarily not part of China.” It drew a swift rebuke from Taiwan’s Ministry of Foreign Affairs, which said Taiwan is “not part of the PRC and certainly not for sale!”
At first glance, August’s CPI report seems bad news. The month-over-month jump in prices is the highest in a year. And even core inflation came in hotter than expected. But look more closely and you’ll find things aren’t as terrifying as they seem.
The headline number was pushed up by rising oil prices, which have been steadily increasing in recent weeks, as we’ve talked about. Gasoline prices soared 10.6% in August, the largest contributor to inflation last month, according to the U.S. Bureau of Labor Statistics.
But it’s likely gasoline prices will fall after a month or two, according to Andrew Hunter, deputy chief U.S. economist at Capital Economics. And gasoline prices have actually retreated 3.3% from a year ago, suggesting that they’re still on a downward trend in the long run.
Excluding volatile energy prices, monthly core inflation was up 0.3% against the expected 0.2%. Here, shelter costs were the main culprit for the hotter-than-expected increase. “Housing continues to contribute an outsized share to the inflation measures,” said Lisa Sturtevant, chief economist at Bright MLS.
But, Sturtevant added, “rent growth has slowed considerably and median rents nationally fell year-over-year in August.” That slowdown in prices will show up in future reports, meaning that August’s core CPI numbers is just “a little bump in the road,” as Kayla Bruun, senior economist at Morning Consult, put it.
“It doesn’t mean it’s turning around and going in the other direction,” Bruun said. “Overall, most of the pieces are headed in the right direction.” Indeed, the annual measure of core CPI still dropped from 4.7% in July to 4.3% in August.
Markets took the numbers in their stride. The Dow was the only major index to fall, losing 0.2% as shares of 3M and Caterpillar sank. The S&P 500 added 0.12% and the Nasdaq Composite rose 0.29%, helped by gains in Tesla and Amazon. And traders are still betting the Federal Reserve won’t raise rates next week, according to the CME FedWatch Tool.
Markets can act in irrational ways sometimes. But sometimes, the crowd psychology of markets manifests as collective wisdom.
— CNBC’s Jeff Cox and Greg Iacurci contributed to this report
A view of a gas station as gas prices are at the highest level from last year in Virginia, on August 16, 2023.
Celal Gunes | Anadolu Agency | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Biggest monthly jump this year The U.S. consumer price index for August rose 3.7% from a year ago and a seasonally adjusted0.6% for the month, mostly in line with the expected 3.6% and 0.6%, respectively. Though expected, it’s still the biggest month-on-month increase in prices this year. Energy prices, which soared on the month, were mostly to blame. Core inflation, which excludes food and energy prices, was up 4.3% on the year and 0.3% on the month.
An Arm and a leg Arm is pricing its initial public offering at $51 per share, the top of its expected price range. That values the company at over $54 billion, giving it a price-to-earnings multiple of about 104. By comparison, Apple’s multiple is around 30, Tesla’s is 77 and Nvidia’s is 110 for the previous 12 months. Softbank, Arm’s current towner, will control about 90% of the company’s outstanding shares.
Rebuilding Citi Citigroup CEO Jane Fraser reorganized the firm, dividing it into five main business lines that report directly to her. Previously, the bank had only two main divisions. The corporate shuffling will include job cuts, though the number is yet to be decided. Shares of Citigroup have declined about 40% since Fraser assumed the top job in March 2021, and trades for the lowest valuation among U.S. big banks.
[PRO] Joining the Tesla party On Monday, Morgan Stanley published a note asserting Tesla could rally 60%. But that’s nothing compared to the call made by Ron Baron, the billionaire investor who founded Baron Capital in 1982. Baron thinks Tesla could grow to as much as five times its current stock market capitalization — here’s what he has to say about the electric vehicle manufacturer and Elon Musk’s other companies.
At first glance, August’s CPI report seems bad news. The month-over-month jump in prices is the highest in a year. And even core inflation came in hotter than expected. But look more closely and you’ll find things aren’t as terrifying as they seem.
The headline number was pushed up by rising oil prices, which have been steadily increasing in recent weeks, as we’ve talked about. Gasoline prices soared 10.6% in August, the largest contributor to inflation last month, according to the U.S. Bureau of Labor Statistics.
But it’s likely gasoline prices will fall after a month or two, according to Andrew Hunter, deputy chief U.S. economist at Capital Economics. And gasoline prices have actually retreated 3.3% from a year ago, suggesting that they’re still on a downward trend in the long run.
Excluding volatile energy prices, monthly core inflation was up 0.3% against the expected 0.2%. Here, shelter costs were the main culprit for the hotter-than-expected increase. “Housing continues to contribute an outsized share to the inflation measures,” said Lisa Sturtevant, chief economist at Bright MLS.
But, Sturtevant added, “rent growth has slowed considerably and median rents nationally fell year-over-year in August.” That slowdown in prices will show up in future reports, meaning that August’s core CPI numbers is just “a little bump in the road,” as Kayla Bruun, senior economist at Morning Consult, put it.
“It doesn’t mean it’s turning around and going in the other direction,” Bruun said. “Overall, most of the pieces are headed in the right direction.” Indeed, the annual measure of core CPI still dropped from 4.7% in July to 4.3% in August.
Markets took the numbers in their stride. The Dow was the only major index to fall, losing 0.2% as shares of 3M and Caterpillar sank. The S&P 500 added 0.12% and the Nasdaq Composite rose 0.29%, helped by gains in Tesla and Amazon. And traders are still betting the Federal Reserve won’t raise rates next week, according to the CME FedWatch Tool.
Markets can act in irrational ways sometimes. But sometimes, the crowd psychology of markets manifests as collective wisdom.
— CNBC’s Jeff Cox and Greg Iacurci contributed to this report
Check out the companies making headlines in midday trading.
Best Buy — Shares popped nearly 6% after the retailer’s fiscal second-quarter earnings beat on both the top and bottom lines. Adjusted earnings per share came in at $1.22, versus the $1.06 expected from analysts polled by Refintiv. Revenue was $9.58 billion, topping the consensus estimate of $9.52 billion. However, Best Buy lowered the top end of its revenue outlook for the year.
Big Lots — The discount retailer surged 26.7% after its earnings report came in better than analysts expected. Big Lots lost $3.24 per share, on an adjusted basis, less than the $4.11 forecasted by analysts surveyed by FactSet. Revenue exceeded the consensus estimate of $1.1 billion, coming in at $1.14 billion.
Coinbase, Marathon Digital, Riot Platforms — Stocks tied to the cryptocurrency industry soared after a court ruled against the Securities and Exchange Commission in a lawsuit about spot bitcoin ETFs. Shares of Coinbase, which is named as a custodial partner in several proposed bitcoin ETFs, jumped 13%. Bitcoin mining stocks also rose, with Marathon Digital surging 24% and Riot Platforms climbing 15%.
3M — Shares gained 2.6% after the company agreed to settle lawsuits regarding potentially defective U.S. military earplugs for $6.01 billion. The deal had grown into the largest mass tort litigation in U.S. history.
Heico — The engine and aircraft part maker retreated 3.1%. Despite beating expectations for revenue in the quarter, the company said its operating margin fell when compared with the same quarter a year ago.
Nvidia — The artificial intelligence stock rallied 4%, part of a broader ascent among technology stocks in Tuesday’s session. Morgan Stanley reiterated its overweight rating on the stock, noting its strong earnings report last week can be a positive signal for the AI supply chain.
PDD Holdings — U.S.-listed shares jumped 17.8%. The Chinese e-commerce company beat Wall Street expectations when reporting second-quarter earnings. It noted a positive shift in consumer sentiment during the quarter.
Oracle — Software giant Oracle climbed 2.9% following an upgrade from UBS to buy from neutral. UBS said the stock could have upside ahead due to tailwinds tied to artificial intelligence.
AT&T, Verizon — The telecommunication giants each added 2.3% on the back of a Citi upgrade to buy. The firm cited stabilization in the wireless environment and said the stocks’ valuations may be over-discounting potential costs tied to mitigating lead-covered cables.
Alphabet, General Motors — Google Cloud and General Motors said Tuesday they’re working together to explore artificial intelligence opportunities across the automaker’s business. Following the announcement, shares of Google Cloud’s parent company Alphabet and General Motors rose 3.5% and 0.6%, respectively, during midday trading.
Catalent — Catalent jumped more than 5% after the biotech company issued a solid revenue outlook and announced a deal with activist investor Elliott Investment Management. For fiscal 2024, Catalent forecasted revenue in the range of $4.30 billion to 4.50 billion, far above the $4.19 billion expected by analysts polled by FactSet. Additionally, Catalent agreed to name four new independent directors to its board, two of whom will be nominated by Elliott. It also agreed to a review of its business and strategy.
Ginkgo Bioworks — The biotechnology company’s stock popped more than 18% after announcing a five-year cloud and AI partnership with Google Cloud. As part of the deal, Ginkgo Bioworks will work to create new large language models for biology and biosecurity uses. Alphabet shares were last up more than 3%.
Rockwell Automation — The industrial stock gained nearly 2% after Wells Fargo upgraded the stock to equal weight from underweight. The Wall Street firm said it’s bullish on Rockwell’s earnings growth potential.
Airbnb — The vacation booking platform climbed 4.8%. Bernstein reiterated its outperform rating and said investors should buy the stock after a recent pullback in share prices.
Palantir – The software stock surged more than 5%. Bank of America reiterated its buy rating on Palantir, calling the company a “key player” in implementing secure AI despite the recent share pullback.
Splunk — Shares of the software company added 1.8% on Tuesday after Jefferies named the company a top pick in a Tuesday note. Jefferies said Splunk is now in position to deliver “mid-teens” increases in annual revenue after a management overhaul that began 18 months ago.
Futu Holdings — The Asian wealth management stock popped 10% following a double-upgrade to buy from underperform by Bank of America. The Wall Street bank said to expect more growth in overseas markets.
NextEra Energy Partners — The energy stock advanced 3.7% on the back of an upgrade from Raymond James to outperform from market perform. Raymond James said investors should buy the dip on the stock.
— CNBC’s Sarah Min, Samantha Subin, Yun Li, Hakyung Kim, Michelle Fox, Pia Singh and Jesse Pound contributed reporting
3M Co. MMM, +0.46%
agreed to pay disgorgement plus prejudgment interest totaling $4.58 million and a $2 million civil penalty for charges that it violated the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) in its business activities in China, the Securities and Exchange Commission said Friday. The SEC’s order found that 3M’s Chinese subsidiary paid about $1 million for at least 24 trips for Chinese government officials that included tourism activities as part of efforts to persuade them to buy 3M products, from at least 2014 to 2017. Without admitting or denying the findings, 3M agreed to cease and desist from future violations. 3M stock was up by 0.1% on Friday, while the S&P 500 SPX, +0.67%
rose fractionally.
Maplewood, Minnesota, 3M company global headquarters.
Michael Siluk | Universal Images Group | Getty Images
Check out the companies making headlines in premarket trading.
General Motors — Shares of General Motors rose more than 1% after the automaker raised its full-year guidance and reported second-quarter results that rose on a year-over-year basis.
related investing news
3M – Shares of the chemical manufacturer rose about 2% in premarket trading following the company’s latest earnings report. 3M posted $7.99 billion in revenue, beating analysts’ estimates of $7.87 billion, according to Refinitiv. The company also raised its full-year earnings guidance and reaffirmed its revenue guidance.
Xerox — The workplace technology provider advanced 3.6% after beating earnings expectations for the second quarter, posting 44 cents per share excluding items against a 32-cent forecast from analysts polled by FactSet. Quarterly revenue came in line with expectations at $1.75 billion. Xerox also said to expect free cash flow and the adjusted operating margin to be better than previously anticipated for the full year.
General Electric — Shares of the industrial giant jumped more than 4% in premarket trading after the company posted stronger-than-expected earnings for the second quarter. GE also boosted its full-year profit guidance on the back of strong demand from aerospace and record orders in its renewable energy business.
Danaher — Shares of the conglomerate slid 4.6%. Danaher said non-GAAP core revenue in the base business will be down in the current quarter compared with the same quarter a year ago and would be up less than previously expected for the full year. However, the company gave a strong quarterly report, posting second quarter earnings per share excluding items at $2.05 and revenue at $7.16 billion, while analysts polled by FactSet anticipated $2.01 per share on $7.12 billion in revenue.
Spotify — The music streaming platform dropped 6.1% after presenting a weak quarterly report and guidance. Spotify reported revenue of €3.18 billion, below a Refinitiv forecast of €3.21 billion. Full-year revenue guidance was also worse than analysts expected. The report follows Spotify’s announcement that it will raise prices for premium subscription plans.
Lilium — The electric helicopter stock added 5.6% after management released a letter to shareholders. In the letter, management said adjusted cash spend for the first half of 2023 was within budget and the company was successful in an audit from the European Union Aviation Safety Agency.
Alaska Air — Shares of the airline fell more than 4% even after Alaska beat estimates on the top and bottom lines for the second quarter. Alaska reported $3 in adjusted earnings per share on $2.84 billion in revenue. Analysts surveyed by Refinitiv were expecting $2.70 in earnings per share on $2.77 billion in revenue. The airline’s full-year earnings guidance of $5.50 to $7.50 per share was roughly in-line with the average analyst estimates of $6.65, according to FactSet.
RTX — Shares of the company formerly known as Raytheon slipped 3% despite a strong quarterly report. RTX ported $1.29 in earnings per share, excluding items, on $18.32 billion in revenue. Analysts polled by Refinitiv forecasted $1.18 per share and $17.68 billion. The company also raised its full-year expectations for both lines.
Verizon — The telecommunications giant traded 2.6% higher after reaffirming its full-year guidance. That came despite a mixed second quarter, with Verizon posting $1.21 in earnings per share, excluding items, on $32.6 billion in revenue. Analysts polled by Refinitiv estimated $1.17 earnings per share and revenue of $33.24 billion.
Walmart — Walmart rose more than 1% after Piper Sandler upgraded the big-box retailer Monday to overweight from neutral, and hiked its price target. Analyst Edward Yruma said Walmart could take greater market share in the grocery business as inflation eases.
— CNBC’s Samantha Subin, Yun Li, Jesse Pound, Sarah Min and Tanaya Macheel contributed reporting
What the heck really did happen on Friday, when the Dow jumped 700 points on a strong jobs reading ? Why such a viscerally positive reaction to an employment number that was hotter than expected? Was it because wages didn’t spike? Was it all that perfect — a Goldilocks report? Here’s my take on Friday’s rally. Going into the debt ceiling crisis, there was a belief that House Speaker Kevin McCarthy couldn’t control his own Republican party. Senate Majority Leader Charles Schumer wasn’t much better off with the Democrats. Both had lost control of their parties to the extremists. That meant the United States would default on its debt. It seemed pretty logical. I truly believe the extremists never believed a default would mean more than a few weeks of setbacks and more brinkmanship. Who can blame them? President Joe Biden lamely floated that he could invoke the 14th Amendment to avoid this and any future debt limit fights; the amendment includes a clause that some legal scholars say overrides the statutory borrowing limit set by Congress. No matter what, it was pretty clear that chaos was our destiny. But when McCarthy and Biden agreed to temporarily suspend the debt ceiling and cap some federal spending in order to prevent a default, we got a deal that was even less contentious than the 2011 bargain . (The coming together brought to mind the legendary coalition of President Ronald Reagan and House Speaker Tip O’Neil in the 1980s, memorialized in Chris Matthews’ “Tip and the Gipper: When Politics Worked.”) It was the compromise debt limit deal — not the employment number — that caused the market to rally. Sure, the jobs report showed wage inflation was cooling, which is good news in the Federal Reserve’s fight against inflation. But the job creation in May and the revisions were insanely strong. What matters most is that Fed Chair Jerome Powell, who is far more powerful than the independents on the Fed’s board who have such a hard time keeping their mouths shut, is reasonable. He seems to understand that it’s time to wait a bit on any more rate hikes. Not because he thinks things are cooler, but because he actually doesn’t even know. We have a young workforce coming into the market akin to when I got out of school in 1977 — nary a job to be had anywhere. This is potentially a monumental moment. The new debt limit legislation sets the date for resuming federal student loan repayments, which have been on hold since March 2020. We have the end of Supplemental Nutrition Assistance Program (SNAP) benefits and other pandemic breaks. Why not wait two months to see if unemployment naturally goes up and wages come down? To sum things up: We came into Friday shocked that there was a shocker of a deal and a not-red-hot employment number (at least one that didn’t send rates higher). This is what triggered the long-awaited buying of stocks outside of the Magnificent Seven that have led the market all year: Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Tesla (TSLA), Meta Platforms (META), Apple (AAPL), and Nvidia , which briefly joined the $1 trillion valuation club. We each have our own way of monitoring these things. I used Club name Caterpillar (CAT) as my judge. On Thursday afternoon, CEO Jim Umpleby went into the lion’s den of Sanford Bernstein and told a tale about de-cyclization. Shares of the heavy equipment maker had a tiny snap back. One day later and armed with the budget deal and the employment number, CAT shot up seventeen points — an unheard-of short squeeze. This took the stock back to when it reported a good number that was converted into a bad number by bearish analysts still unwilling to admit that the company had changed its bi-polar ways. Of course, the bears would say that it only went up because of one more silly stimulus by China, this time to adjust rents. I say Caterpillar went up because it was overly shorted, like so much of the market, including retail, health care, financials, other industrials including the commodities (the oils!). We even saw the imperfect chipmakers and heavily challenged enterprise software stocks come alive. The shorts were correct to press their bets if there was no debt deal and we got an employment number that was a steamer. But they were wrong on both counts. This plus a rare wave of new money coming in and massive buybacks by companies capable of plundering after their reports, caused the broadening that had been bemoaned as non-existent as recently as the day before. You could argue it was a short squeeze of monumental proportions. A short squeeze happens when short sellers having to buy stocks to cover their short positions, pushing prices higher. But every time there has been a broadening since FANG, it’s always been called a short squeeze. That’s just how things work, although it’s never been acknowledged by anybody. Which brings us up to date for Monday. We have a blackout of the Fed speakers. We have no real macroeconomic data. We have no landmines of earnings. And no Fed meeting until mid-June. A true interregnum. We are going to have to take more things off the table if we get a rally into an overbought setting. Yes, we have some real stinkers — Disney (DIS), Foot Locker (FL), Emerson Electric (EMR), Estee Lauder (EL) — and we can battle them. But the important thing is that we have so many winners that we have to ring the register on some stocks if all goes our way. Of course I obsess on the losers. I didn’t think that Fabrizio Freda at Estee Lauder and Mary Dillon at Foot Locker could both blow it that badly. I had reason to dislike the Emerson team, but it still gave me more than I can handle. I have no idea how Disney’s stock could be this weak in a long-on-money-short-on-time moment. I am furious at myself for not seeing around any of these corners. But I am not going to throw good money after bad and I see no good on these names — yet. This leaves us with the big question: Which winners to trim? As long as we are not subsidizing losers, we aren’t breaking protocol. But we have two tasks. One is to come up with a new name that hasn’t moved that we actually like. And two is to trim into strength as we get overbought. I want both resolved by our next Club meeting on June 14. That’s what I am working on right now. Do we need so much Salesforce (CRM), even as it reported a good quarter all things considering? Do we even need Advanced Micro Devices (AMD) when it has nothing to rival Nvidia? I just don’t know. I want the market to tell me what to do. I think it will. Where does this leave us? In a sanguine week that will allow us to see if the short squeeze continues. If it does and continues to broaden, we can both peel some winners. See which caterpillars can develop into, well, Caterpillars. Maybe add Take-Two (TTWO), which gave us a two-year outlook, possibly aided by a new Grand Theft Auto game and better Nvidia cards. Just one of many ideas. But one Jeff Marks and I are trying to get our arms around. Some who read might ask: “Shouldn’t there be more of a thesis behind a bullish move?” I say no, no more than you needed in 2011, when the debt ceiling deal led to a fantastic rally because Armageddon was avoided. We cannot sit back and relax. But what we can do is accept that it is a better moment than we thought not that long ago. There are cracks. The Dollar General (DG) call was a compendium of weakness for the lower middle class and the Macy’s (M) call was a confusion of negativity. But who is to say that these companies just don’t have the “it” of Five Below (FIVE) or Lululemon (LULU). We are close enough to the infrastructure money wave to handle another rate hike if we need it. But Powell recognizes the futility of another rate hike right now because it lowers mortgage rates, making his job even harder. What we can do is watch and wait as battlegrounds get resolved — like CAT did on Friday. We can anticipate better things from a Johnson & Johnson (JNJ) — especially with a 3M (MMM) deal — and from GE Healthcare (GEHC). We can lick our Estee and Foot Locker wounds. And we can be glad that we got through the debt deal and wax in the wave of new money that will at last be coming in. No, we can’t be complacent. Too many needs for the shorts to save themselves. They have been run over in so many places that they have to make a comeback somewhere. Their number didn’t get so strong before the debt ceiling deal that they can’t all cover at once. Nevertheless, we have enough money to put to work if we want to in a new name that hasn’t moved and has a special situation thesis. But I do not want to be so relieved as to think there is no woods, just that we are out of it for now. Personally, the last few weeks have been hard ones, ameliorated by members who have made money with the club. Some mistakenly believe that we missed this entirely rally. It galls me because I gave up being a hedge fund manager years ago and I know the truth: This may be the best we’ve ever been, and this time it is for you, not the entitled class. I thank you all for letting us have the floor to help and not be tools of the traders who have infiltrated our ranks. So let’s take and make some gains and be ready for the next storm after the calm, wherever it might be coming from. Rest up. We have gotten past the systemic chaos into business as usual, where we can glow in a world where stock picking matters. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
US President Joe Biden, accompanied by Speaker of the House Kevin McCarthy, Republican of California, arrives for the annual Friends of Ireland luncheon on St. Patrick’s Day at the US Capitol in Washington, DC, on March 17, 2023.
Saul Loeb | AFP | Getty Images
What the heck really did happen on Friday, when the Dow jumped 700 points on a strong jobs reading? Why such a viscerally positive reaction to an employment number that was hotter than expected? Was it because wages didn’t spike? Was it all that perfect — a Goldilocks report?
Here’s my take on Friday’s rally. Going into the debt ceiling crisis, there was a belief that House Speaker Kevin McCarthy couldn’t control his own Republican party. Senate Majority Leader Charles Schumer wasn’t much better off with the Democrats. Both had lost control of their parties to the extremists. That meant the United States would default on its debt. It seemed pretty logical.
I truly believe the extremists never believed a default would mean more than a few weeks of setbacks and more brinkmanship. Who can blame them? President Joe Biden lamely floated that he could invoke the 14th Amendment to avoid this and any future debt limit fights; the amendment includes a clause that some legal scholars say overrides the statutory borrowing limit set by Congress.
No matter what, it was pretty clear that chaos was our destiny. But when McCarthy and Biden agreed to temporarily suspend the debt ceiling and cap some federal spending in order to prevent a default, we got a deal that was even less contentious than the 2011 bargain. (The coming together brought to mind the legendary coalition of President Ronald Reagan and House Speaker Tip O’Neil in the 1980s, memorialized in Chris Matthews’ “Tip and the Gipper: When Politics Worked.”)
Traders wearing masks arrive before the opening bell at the New York Stock Exchange (NYSE) in Wall Street in New York City.
Johannes Eisele | AFP | Getty Images
Check out the companies making headlines before the bell on Tuesday.
First Republic Bank — The San Francisco-based regional bank plunged after it said Monday that deposits fell by 40% to $104.5 billion during the first quarter, which came out worse than Wall Street’s expectations. First Republic said that its deposit flows have since stabilized. The stock was down nearly 22% in early morning trading and has declined by 86.6% so far this year. On Tuesday, Janney downgraded First Republic to sell from neutral and lowered its price target on the stock to $8 from $10, implying a 50% downside from Monday’s closing price.
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UPS — UPS shares fell 1.6%after the shipping giant reported quarterly results that missed analyst expectations. The company earned an adjusted $2.20 per share on revenue of $22.93 billion. Analysts expected earnings of $2.21 per share on revenue of $23.01 billion, according to Refinitiv.
3M — The industrial stock added 1.3% before the opening bell. 3M reported $1.97 in earnings per share, higher than analysts expectations of $1.58 from FactSet. The Minnesota-based company announced it would cut about 6,000 positions globally in efforts to focus on high-growth markets such as automotive electrification and home improvement, while prioritizing emerging growth areas such as climate technology and semiconductors.
McDonald’s — Shares advanced less than 1% after the company beat Wall Street expectations for the first quarter. The company reported $2.63 in adjusted earnings per share on $5.9 billion in revenue. Analysts polled by Refinitiv expected $2.33 in per-share earnings and $5.59 billion in revenue. The stock was recently up 9.8%.
General Motors — Shares gained 2.1% after General Motors raised its key guidance for 2023 and reported first-quarter earnings that beat Wall Street’s top- and bottom-line forecasts. The company reported $39.99 billion in revenue, higher than $38.96 billion according to Refinitiv data. Adjusted earnings came in at $2.21 per share, above the consensus estimate of $1.73. General Motors and Samsung SDI are also expected to announce as early as Tuesday that they plan to build a joint battery manufacturing plant in the U.S.
JetBlue — The stock popped more than 2.3% in the premarket after the airline forecasted a “solidly profitable” second quarter due to strong travel demand. For the first quarter, JetBlue posted a 34 cents loss, less than the 39 cents expected, per Refinitiv.
Packaging Corp of America — Shares fell 6.8% after the company reported an adjusted profit per share of $2.20, which came in below a StreetAccount forecast of $2.27 per share. The company’s second-quarter guidance also missed expectations.
Novartis — Shares of the pharmaceutical company added more than 3% after it raised its full-year earnings outlook, saying it expects sales to grow by mid-single digits. Novartis reported earnings per share of $1.71 on $12.95 billion in revenue, topping analysts’ expectations of $1.54 per share on $12.52 billion in revenue.
PepsiCo — Shares of the beverage and snacks giant climbed nearly 1.6% in premarket trading after it posted earnings and revenue that topped Wall Street’s expectations. PepsiCo also raised its outlook on the full year. The company said first-quarter revenue totaled $17.85 billion, surpassing the $17.22 billion consensus estimate of analysts polled by Refinitiv. PepsiCo reported earnings per share of $1.50, topping analysts’ expectations of $1.39.
— CNBC’s un Li, YAlex Harring, Michelle Fox Theobald and Tanaya Macheel contributed reporting.
Shares of 3M Co. MMM were moving about 2% higher in premarket trading Tuesday after the company saw its profit for the latest quarter fall but top expectations. 3M also announced a restructuring that comes with 6,000 more job cuts. The company generated net income of $976 million, or $1.76 a share, compared with $1.30 billion, or $2.26 a share, in the year-before quarter. On an adjusted basis, 3M logged $1.97 in earnings per share, compared with $2.63 a year before, while analysts tracked by FactSet were modeling $1.58. Revenue slipped to $8.03 billion from $8.83 billion, while analysts were looking for $7.49 billion….
As the likelihood of a hard landing this year rises, Barclays says investors should seek quality stocks that are not overly expensive. Large-cap tech stocks have been outperforming the market in 2023, with the S & P 500’s tech sector up more than 16%. However, Venu Krishna, Barclays’ head of U.S. equity strategy, warned against following this trend, citing elevated valuations, as well as inflation and interest rate risks. “Rather than chasing yet another crowded trade that is vulnerable to the next unwind, we recommend seeking safe haven among quality stocks at less demanding valuations,” Krishna wrote in a report on Monday. With the growing market uncertainty in mind, Barclays recommended a basket of quality stocks trading at lower valuations as a way to position for the growing risk of an economic downturn this year. Take a look at some of the names below: Health-care giant Johnson & Johnson made Barclays’ list. Shares have fallen 13% in 2023. The stock is one of eight names in the S & P 500 to have raised annual dividends consistently over the past 60 years. Barclays also highlighted Merck as a quality name that’s cheap. The pharmaceutical company is a notable winner in the Dow since the Federal Reserve began its latest rate-hike cycle . Shares are down more than 3% this year. About 7 out of 10 analysts covering Merck rate it a buy or are overweight on the stock, according to FactSet. They see upside of nearly 13%. Industrial names United Postal Service and 3M were also chosen as safe picks for a potential hard landing. UPS shares are up more than 7% in 2023, and the stock is a notable dividend increaser among the S & P 500 . Meanwhile, 3M is down more than 15% this year. Analysts see upside of 14% from here, according to FactSet. Several tech stocks made the list, including Microsoft and Accenture . Microsoft shares have gained 15% in 2023. More than 8 out of 10 analysts covering the stock rate it a buy, according to FactSet. The tech giant’s shares have been boosted by the recent boom in artificial intelligence . Accenture was a top performer in the prior trading week after the company announced it would lay off about 2.5% of its workforce , or 19,000 jobs. Shares are up more than 2% in 2023, and analysts see upside of more than 13%, according to FactSet. —CNBC’s Michael Bloom contributed to this report.
Nathan Frei, a former active-duty infantry officer, who served from 2011 to 2015 and Judge Advocate General in the U.S. Army, first noticed issues with his hearing in 2013, shortly after returning from coaching with the U.S. Navy. Nate was identified with tinnitus and now is one of more than 200,000 claimants suing 3M over its Combat Arms earplugs.
Nathan Frei
Former active duty U.S. army infantry officer Nathan Frei says from 2011 to 2015 he went through some of the most intense training that the U.S. Army had to offer. With it, came loud noises — everything from weapons to helicopters to explosions.
To protect his hearing, Frei wore standard issue earplugs made by 3M.
Today, he’s one of more than 200,000 military service members and veterans suing the conglomerate. 3M stock, which hit a new 52-week low Wednesday, is one of the worst-performing industrial stocks this year, down more than 16% in 2023, versus the XLI Industrials ETF, which is down 1.5% year to date.
Plaintiffs claim 3M earplugs were “defective” and failed to protect against hearing loss and tinnitus.
“We used [the earplugs] every time that we were around loud noises,” Frei, who lives in Seattle, told CNBC. “And I relied on that hearing protection during that time.”
From 2003 to 2015, Aearo Technologies and its parent company, 3M, manufactured and supplied the U.S. military with the Combat Arms CAEv2 earplugs. The plugs were standard issue for soldiers in Afghanistan and Iraq and were designed to protect service members’ hearing in military training and during combat.
3M’s Combat Arms CAEv2 earplugs
CNBC
Each earplug had two ends: The green end was designed to block out all sound. The yellow end, signaling “whisper mode,” purported to block out loud sound — but allowed the user to hear quieter noises, like conversations.
I don’t look like somebody who probably should have as much hearing loss as I do at my age.
Nathan Frei
Former active duty U.S. army infantry officer
“We were told that by wearing ‘whisper mode’ that we could still protect our hearing,” said Frei, who claims he first noticed issues with his hearing in 2013.
“I was hearing ringing,” Frei recalled. “At first, I thought it was a TV that was on. And so I searched and scoured the house looking for where the noise was coming from before I realized that it was just in my head.”
As the years passed, the 35-year-old said, his hearing issues got worse. Department of Veterans Affairs records shared by Frei with CNBC show he was later diagnosed with tinnitus.
“It’s constant,” he said. “It’s a loud ringing in my ears — very similar to just like a buzz noise.”
He said the ringing is so disruptive it occasionally keeps him awake.
“I don’t look like somebody who probably should have as much hearing loss as I do at my age,” he said.
Eric Rucker, an attorney for 3M, told CNBC the company has great respect for the men and women in the military and that their safety has always been a priority.
Maplewood, Minnesota, 3M company global headquarters.
Michael Siluk | Getty Images
“The purpose of the creation of [the Combat Arms earplugs] was to collaborate with the military to solve one of the longest-standing problems they have had, that soldiers won’t wear their hearing protection around loud noises and in combat,” Rucker said.
Rucker said the plugs were designed in collaboration with the U.S. military and tested by the Air Force, Army, National Institute for Occupational Safety and Health, and others.
“All of that testing shows the Combat Arms earplugs, when properly fitted and when used according to its instructions, work to protect people’s hearing,” he said.
Rucker conceded that military audiologists were “well trained in how to train people and fit people for the use of earplugs,” but maintained, “it should have worked and protected their hearing in environments where it was appropriate to be using these earplugs.”
Today, the lawsuits have been consolidated in Florida federal court, creating what some are calling the largest mass tort in U.S. history, surpassing even the multidistrict litigation involving Johnson & Johnson’s talc products.
3M has lost 10 of the 16 cases that have gone to trial so far, with a total of $265 million awarded to 13 plaintiffs to date.
“There have been several bellwether trials. And unfortunately, Aearo and 3M have not been able to present all of the evidence related to the original design of the product, the military’s involvement in the design of the product, all of the issues concerning the instructions, and how to use the product, and how well the product performed, including some testing information which has been excluded from certain trials,” Rucker said.
“All of that is on appeal. And we’re hoping that the decisions on appeal will cause more of that information to come forward,” he added.
The Combat Arms earplugs, when properly fitted and when used according to its instructions, works to protect people’s hearing.
3M recently unveiled new data that shows 90% of a group of 175,000 plaintiffs have no hearing impairment under medically accepted standards, according to U.S. Department of Defense records. The lead attorneys for the plaintiffs call the data a “misrepresentation.”
“3M has purposefully skewed this data by relying on hearing standards that do not measure frequencies most affected by noise, concealing the hearing damage suffered by veterans,” said Bryan Aylstock and Chris Seeger, co-lead counsel for the service members and veterans, in a joint statement.
3M disagreed with those claims, telling CNBC: “The data support what 3M has maintained throughout this litigation: the Combat Arms Earplugs version two were safe and effective to use. This has been confirmed by every independent, third-party organization that has tested the product, including the Army Research Lab, the Air Force Research lab, NIOSH, and others.”
Mizuho’s executive director Brett Linzey wrote in a note to clients that “even the low end of previously settled Combat Arms lawsuits (or even half that amount) equates to some pretty healthy liabilities 3M may have to address.”
According to one Wall Street analyst, 3M’s liability risk could potentially be in the billions.
“Do the math on the number of plaintiffs, which is north of 200,000 and you take the average settlement value — the simple math on that gets you well north of $10 billion to $20 billion,” JPMorgan analyst Stephen Tusa told CNBC. 3M told CNBC that estimate was “completely speculative.”
“We will continue to defend the cases. But the vast majority of these claims do not have complete information,” said Rucker.
In a legal maneuver that would indemnify 3M, the company’s attorneys attempted to put its subsidiary Aearo Technologies into bankruptcy protection, and put aside a $1 billion trust to settle the suits. The service members suing 3M are accusing the company of using the bankruptcy to shield itself and have asked a judge to dismiss it.
A ruling on that potential dismissal is scheduled for April. Oral arguments for the appeal of the initial bellwether trials are scheduled for May 1.
As for Frei, he expects his case to go to trial by year-end.
“It does make me mad,” Frei told CNBC, accusing 3M of “trying to scheme away through either bankruptcy or through these arguments to try and avoid responsibility for what they’ve done.”
US President Joe Biden meets with CEOs about the economy in the South Court Auditorium of the Eisenhower Executive Office Building, next to the White House, in Washington, DC on July 28, 2022.
Mandel Ngan | AFP | Getty Images
U.S. President Joe Biden has appointed the heads of Citigroup, United Airlines, CVS, 3M and FedEx, among other top executives, to sit on a White House advisory committee overseeing international trade.
The President’s Export Council gives recommendations and insight into the ways government policies impact U.S. trade performance. The group also provides feedback on how Biden’s trade policies are affecting businesses across sectors from industry and labor to agriculture.
D.C. businessman Mark D. Ein will chair the board. He currently serves as chairman of Lindblad Expeditions and Kastle Systems and is on the board of directors of Custom Truck One Source and Membership Collective Group. Walgreens Boots Alliance CEO Rosalind Brewer will serve at the council’s vice chair. She previously served as chief operating officer and group president of Starbucks and CEO of Sam’s Club.
The 25-member board includes: Dana Walden, co-chairman of Disney Entertainment; Jane Fraser, Citigroup CEO; Michael F. Roman, chairman and CEO of 3M; Rajesh Subramaniam, president and CEO of FedEx; Karen S. Lynch, president and CEO of CVS; John Lawler, chief financial officer of Ford; Gareth Joyce, CEO at Proterra; Brett Hart, president of United Airlines; Beth Ford, president and CEO of Land O’Lakes; and Qualcomm CEO Cristiano R. Amon.
The Export Council features expertise from labor, real estate, national security and law, and leaders of Fortune 200 companies. Biden has previously reached out to some of the executives for counsel on the state of the economy.
Other members include: Raymond E. Curry Jr., president of the UAW union; Rich Lesser, global chair of Boston Consulting Group; Patrick E. Murphy, a former congressman who is the chief investment officer of Coastal Construction Group; Robert G. Martinez Jr., international president of the International Association of Machinist and Aerospace Workers union; Daniel Rosen, CEO of real estate firm Rosen Partners; and Brett Isaac, co-founder and executive chairman of Navajo Power.
Other members of the council include:
Lisa Disbrow, a national security expert who served as the undersecretary of the Air Force;
Lacy M. Johnson, partner-in-charge of Taft’s D.C. law firm;
Juan Verde, strategist and consultant with stops at Santander Bank Investments and the World Bank;
Michelle W. Singer, senior vice president for political engagement at Comcast;
Farnam Jahanian, president of Carnegie Mellon University;
Paul A. Laudicina, chairman emeritus of the consulting firm A.T. Kearney; and
Deloitte Global CEO Emeritus Punit Renjen.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
Biogen — The biotech stock declined fell slightly after Biogen’s Japanese partner, Eisai, said a third person has died during a trial of their experimental Alzheimer’s treatment, confirming Reuters reports.
Carnival, Norwegian Cruise Line — Cruise line operators declined as fears of a recession weighed on consumer discretionary stocks, which was one of three worst-performing sectors in the S&P 500. Shares of Carnival were down more than 4%, while Norwegian Cruise Line was down more than 2%.
Tesla — Shares of the electric vehicle maker declined 2% after CEO Elon Musk said that he would hold off on selling any more Tesla stock for the next 18 to 24 months. Over the past year, Musk sold roughly $39 billion in shares.
3M Company — 3M shed 1.6% after a U.S. judge barred the company from shifting liability to a subsidiary for injuries suffered by military members from allegedly defective earplugs. The judge said 3M deserved the “harshest penalty” for its “bad faith” attempts to transfer liability, Reuters reported.
Nutanix — Shares of Nutanix fell more than 5% after Dealreporter reported that Hewlett Packard Enterprise has halted talks to acquire the cloud computing company. Hewlett Packard confirmed in a statement to CNBC that “there are currently no discussions with Nutanix.”
Mission Produce — Shares of the avocado producer dropped more than 14% after the company reported financial results for its most recent quarter. It posted lower-than-expected profit and revenue as the rise in volume was not enough to offset a plunge in the prices of avocados.
— CNBC’s Tanaya Macheel and Michelle Fox contributed reporting.
Check out the companies making headlines before the bell:
Tesla (TSLA) – Tesla CEO Elon Musk said he would refrain from selling any more Tesla stock for 18 to 24 months. Musk has sold about $39 billion in stock over the past year, amid his $44 billion deal to buy Twitter. Tesla gained 1.2% in the premarket.
Nutanix (NTNX) – Nutanix tumbled 16.6% in the premarket following a report that Hewlett Packard Enterprise (HPE) has ended talks to acquire the cloud computing company.
Meta Platforms (META) – Meta and users of its Facebook platform settled a privacy class action lawsuit, with Meta agreeing to pay $725 million. The suit stemmed from the 2018 revelation that data firm Cambridge Analytica had collected information from tens of millions of Facebook users.
Mission Produce (AVO) – The avocado producer reported lower-than-expected profit and revenue as the rise in volume was not enough to offset a plunge in avocado prices. Mission Produce slumped 13.7% in premarket trading.
3M (MMM) – 3M was barred by a judge from shifting liability to a subsidiary in a case involving combat earplugs. The case stems from injuries suffered by members of the military who used the allegedly defective earplugs.
Toro (TTC) – The lawn care and outdoor products company was upgraded to outperform from market perform at Raymond James, which set a price target of $130 compared with yesterday’s close of $111.15 per share. Toro also reported better-than-expected quarterly earnings earlier this week. The stock added 1% in premarket action.
Biogen (BIIB) – Biogen’s Japanese partner Eisai has confirmed to Reuters reports of a third death in a trial of their experimental Alzheimer’s treatment and said the cause is being investigated.
Oilfield services stocks – Halliburton (HAL) gained 1.4% in the premarket, with Schlumberger (SLB) up 1.3% and Baker Hughes (BKR) rising 1%. The gains come as the price for crude rises more than 2% in early trading.
With many stocks in a bear market, equities could be undervalued by 15%, according to Morningstar’s chief U.S. strategist. Dave Sekera told CNBC last week that markets are overestimating the impact of inflation on the U.S. economy, leaving many stocks below their fair value. “We actually think the U.S. market is pretty undervalued here, trading at about a 15% to 20% discount to fair value,” he said Thursday, although his comments were before the 5.5% jump in the S & P 500 later that day. “I think the market is probably overestimating just how much of a stagnant environment we’re going to be in for the economy and still pricing in inflation much longer than what we see.” The S & P 500 rallied 5.9% last week for its best week since June , although stocks fell slightly Monday. Sekera believes multiple headwinds facing the economy that were present earlier in the year will start to recede at the beginning of next year, including energy prices and interest rates. “With the economy being relatively sluggish, that could give the Federal Reserve the room it would need, not only to stop making monetary policy tighter, but switch gears in the second half of the year and start to loosen monetary policy,” he added. In such an environment, Morningstar’s Sekera believes the following six companies with a “wide economic moat” will have the pricing power needed to pass through cost increases and maintain profit margins. Compass Minerals tops the list, with shares expected to rise by 81.8% to $80 over the next 12 months. It is currently trading at $44. The small-cap company produces deicing salt from the world’s largest salt mine in Ontario, Canada. According to Morningstar, the mining company has access to a deep-water port which enables it to ship its products at a lower cost than competitors. Medical device maker Zimmer Biomet and technology companies ServiceNow , Salesforce and Amazon also featured on the list, with Morningstar expecting most to rise by at least 50% from their current share prices. It gives Zimmer Biomet 51.4% potential upside, Amazon upside of 48%, Salesforce 52% upside, ServiceNow upside of 57%. Morningstar analysts also believe 3M is a “cheap stock” trading at $133 and expect shares to rise by 37.6% to $183. Senior analyst Joshua Aguilar maintained his price target for the company despite it pointing toward multiple headwinds in its third-quarter earnings.
