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  • CNBC Daily Open: Banishing the AI hallucination

    CNBC Daily Open: Banishing the AI hallucination

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    The Nvidia headquarters in Santa Clara, California.

    Justin Sullivan | Getty Images News | 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.

    What you need to know today

    Cautious markets
    U.S. stocks fell for a third consecutive day as Treasury yields continued rising to multiyear highs. Asia-Pacific markets were mixed Friday. Hong Kong’s Hang Seng Index rose almost 1% as the city’s inflation held steady at 1.8% in August. Meanwhile, Japan’s Nikkei 225 lost 0.42% after the country’s central bank maintained its negative interest rates.

    Holding fast
    The Bank of Japan left its ultra-loose monetary policy untouched at its Friday meeting. That is, the bank kept its short-term interest rates at -0.1% and maintained the cap of its 10-year Japanese government bond yield at around zero. But with the Japanese yen weakening against the U.S. dollar in recent weeks, economists think the BOJ might be forced to tighten policy sooner than expected.

    Securing business and the internet
    Cisco is acquiring Splunk, a cybersecurity software company, for $157 a share in a cash deal. The total deal’s worth $28 billion — about 13% of Cisco’s market capitalization — making it the company’s largest acquisition ever. Cisco’s known for making computer networking equipment, but has been boosting its cybersecurity business recently to grow its revenue stream.

    New top of the class
    Singapore is the world’s freest economy, according to a 2023 report by Canada think tank Fraser Institute. It’s the first time since 1970, when the rankings started, that Hong Kong lost its top spot. “Hong Kong’s recent turn is an example of how economic freedom is intimately connected with civil and political freedom,” said Fraser Institute’s senior fellow, Matthew Mitchell.

    [PRO] Value over growth
    U.S. markets have been having two bad months. Growth-focused technology stocks, in particular, are struggling in an environment of higher-for-longer interest rates. But that means the time’s ripe to look at European value stocks. Here’s a list of 10 stocks Citi analysts recommend — comprising a mix of quality and risky ones with more potential upside.

    The bottom line

    Four months after hype over artificial intelligence fired up markets, the rally’s starting to look more like a hallucination — a confident but false claim AI models are prone to making.

    For evidence, look no further than Nvidia, the spark that ignited the whole blaze. Shares of the chipmaker peaked on Aug. 24 and have tumbled 18.4% since. While it’s true Nvidia’s still up 181% for the entire year, that’s 60 percentage points lower than its August peak, when shares were 244% higher.

    Microsoft’s announcement of a broad rollout of Copilot — the company’s AI tool — to corporate clients didn’t stoke excitement. On the contrary, Microsoft shares dipped 0.39% after the company’s event. By contrast, recall how share prices popped to a record in May after the company announced the pricing of the Copilot subscription service.

    And Arm, which tried to position itself as integral to AI computing, saw its shares descend to Earth after rocketing on the first day of its initial public offering. It’s now just $1 above its IPO price.

    In short, investor interest in AI — while still hot in comparison with other sectors — looks like it’s simmering down.

    “The combination of waning retail demand and cautious risk sentiment among institutional investors may pose a substantial risk to the AI sector, potentially heralding a pronounced reversal in the weeks ahead,” said Vanda Research’s senior vice president Marco Iachini.

    Blame the usual suspects for this lukewarm sentiment. Higher-for-longer interest rates — and Treasury yields — caused by spiking oil prices and a tight labor market. (Initial jobless claims for last week dropped to their lowest level since late January, according to the U.S. Labor Department.)

    Against that backdrop, it’s unsurprising major indexes had a bad day. The Dow Jones Industrial Average fell 1.08%, the Nasdaq Composite slid 1.82% and the S&P 500 lost 1.64%, the most in a day since March. All three indexes are poised for a losing week, with the tech-heavy Nasdaq the deepest in the red so far.

    If it’s any comfort, September — the worst month for stocks, historically — ends in a week. Investors will hope it’ll pass like a bad dream, or a banished hallucination.

     

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  • CNBC Daily Open: Dispelling the AI hallucination

    CNBC Daily Open: Dispelling the AI hallucination

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    Signage for Nvidia Corp. during the Taipei Computex expo in Taipei, Taiwan, on Tuesday, May 30, 2023.

    Hwa Cheng | Bloomberg | 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.

    What you need to know today

    Infectious pessimism
    U.S. stocks fell for a third consecutive day as Treasury yields continued rising to multiyear highs. The pan-European Stoxx 600 slumped 1.3% amid a flurry of central bank decisions. Sweden hiked rates by 25 basis points to 4%; Norway raised its rate from 4% to 4.25%; Switzerland kept rates unchanged. For more central bank decisions, see below.

    A halt and a big hike
    The Bank of England elected to keep interest rates unchanged at its September meeting, breaking a series of 14 straight rate hikes. But the decision wasn’t unanimous: Four out of nine members voted for another 25-basis-point hike to 5.5%. In other central bank news, Turkey hiked its interest rate to 30%, a 5-percentage-point jump from 25%.

    Securing business and the internet
    Cisco is acquiring Splunk, a cybersecurity software company, for $157 a share in a cash deal. The total deal’s worth $28 billion — about 13% of Cisco’s market capitalization — making it the company’s largest acquisition ever. Cisco’s known for making computer networking equipment, but has been boosting its cybersecurity business recently to grow its revenue stream.

    Succession
    Rupert Murdoch is stepping down as chairman of the board of Fox Corp and News Corp in November. The 92-year-old will be succeeded by his son Lachlan Murdoch. Fox Corp is the parent company of Fox News, a TV channel embroiled in a $787.5 million settlement this year over false claims that Dominion Voting Systems’ machines swayed the 2020 U.S. presidential election.

    [PRO] ‘Uninvestable’ banking sector
    Steve Eisman, the investor who called — and profited from — the subprime mortgage crisis that began in 2007, thinks “the whole bank sector is uninvestable.” Silicon Valley Bank collapsed in March this year, sparking panic and causing depositors to withdraw money at other regional banks. But that’s not the only risk to banks weighing on Eisman’s mind.

    The bottom line

    Four months after hype over artificial intelligence fired up markets, the rally’s starting to look more like a hallucination — a confident but false claim AI models are prone to making.

    For evidence, look no further than Nvidia, the spark that ignited the whole blaze. Shares of the chipmaker peaked on Aug. 24 and have tumbled 18.4% since. While it’s true Nvidia’s still up 181% for the entire year, that’s 60 percentage points lower than its August peak, when shares were 244% higher.

    Microsoft’s announcement of a broad rollout of Copilot — the company’s AI tool — to corporate clients didn’t stoke excitement. On the contrary, Microsoft shares dipped 0.39% after the company’s event. By contrast, recall how share prices popped to a record in May after the company announced the pricing of the Copilot subscription service.

    And Arm, which tried to position itself as integral to AI computing, saw its shares descend to Earth after rocketing on the first day of its initial public offering. After dropping almost 1% in extended trading, the share’s around $51.60 a piece — just 60 cents above its IPO price.

    In short, investor interest in AI — while still hot in comparison with other sectors — looks like it’s simmering down.

    “The combination of waning retail demand and cautious risk sentiment among institutional investors may pose a substantial risk to the AI sector, potentially heralding a pronounced reversal in the weeks ahead,” said Vanda Research’s senior vice president Marco Iachini.

    Blame the usual suspects for this lukewarm sentiment. Higher-for-longer interest rates — and Treasury yields — caused by spiking oil prices and a tight labor market. (Initial jobless claims for last week dropped to their lowest level since late January, according to the U.S. Labor Department.)

    Against that backdrop, it’s unsurprising major indexes had a bad day. The Dow Jones Industrial Average fell 1.08%, the Nasdaq Composite slid 1.82% and the S&P 500 lost 1.64%, the most in a day since March. All three indexes are poised for a losing week, with the tech-heavy Nasdaq the deepest in the red so far.

    If it’s any comfort, September — the worst month for stocks, historically — ends in a week. Investors will hope it’ll pass like a bad dream, or a banished hallucination.

     

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  • Fed’s revised dot plot for interest rates makes wall of maturing debt a bigger worry

    Fed’s revised dot plot for interest rates makes wall of maturing debt a bigger worry

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    The Federal Reserve on Wednesday surprised markets with a fortification of its higher-for-longer stance on interest rates, penciling in only half as many rate cuts next year as had been expected.

    Fed officials kept the central bank’s policy rate at a 22-year high, but redrew their so-called “dot plot,” a chart of the potential path of short-term rates over time, in a less favorable way for borrowers.

    The…

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  • Instacart, Ford, Pinterest, Coty, Dollar General, Intel, and More Stock Market Movers

    Instacart, Ford, Pinterest, Coty, Dollar General, Intel, and More Stock Market Movers

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    This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.

    https://www.barrons.com/articles/stock-market-movers-457cee3b

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  • Why the Fed’s next decisions on rates could lead to a wave of commercial-debt defaults

    Why the Fed’s next decisions on rates could lead to a wave of commercial-debt defaults

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    Getting staff back to the office is only part of the battle.

    Regional banks that went big lending on office properties also face a ticking time bomb of maturing debt that they helped create, particularly if the Federal Reserve holds its policy rate near the current 22-year high well into next year.

    “The area of greatest concerns for banks is office space,” says Tom Collins, senior partner focused on regional banks and credit unions at consulting firm firm West Monroe. Should rates stay high, “borrowers are going to face a tough decision of whether they refinance or default,” he said.

    The fight to bring more staff back to half-empty office buildings comes as an estimated $1 trillion wall of commercial real-estate loans is set to mature through 2024. While tenants haven’t shied away from signing up to pay top rents at trophy buildings, the same can’t be said for the rows of lower-rung properties lining financial districts in big cities.

    See: Labor Day is just a ‘milestone’ in the marathon to get workers back to the office

    The Fed embarks on a two-day policy meeting on Tuesday, with expectations running high for rates to stay steady, giving more time to study the impact of earlier rate increases.

    The central bank’s rate hikes have further complicated matters for landlords, and fresh debt for office buildings no longer looks cheap nor abundant. Regional banks also have been piling back on lending after Silicon Valley Bank and Signature Bank collapsed in March and as deposits fled for yield elsewhere.

    Related: FDIC kicks off $33 billion sale of seized assets from Signature Bank

    Loan volumes from Wall Street similarly have been anemic. This year it has produced slightly more than $10 billion in “conduit,” or multi-borrower, commercial mortgage-backed securities deals through the end of August, the least since 2008, according to Goldman Sachs. Coupons, a proxy for mortgage rates, have climbed above 7%, the highest since the early 2000s.

    “I don’t think this is a wash out here,” Collins said of the threat of more regional bank failures, but he does anticipate pain for lenders heavily exposed to lower quality class B and C office buildings in urban areas.

    Banks can help mitigate the wall of debt coming due by stepping up the pace of loan modifications to help borrowers keep properties, but Collins said he also anticipates lenders will need to increase loan sales, write downs and mergers or acquisitions.

    “There is no doubt there will be private equity and other investors that will be interested in buying some of these loans, taking them off the balance sheets of banks,” Collins said.

    “The obvious question there is at what discount?” he said, adding, “I think investors will wait until things get more dire to try to get a better deal.”

    Another offset to banks’ office exposure has been the relatively stable performance of hotels, industrial and other property types. But Collins said that if rates stay high and the economy falters, those sectors are likely to face challenges as well.

    The 10-year Treasury yield,
    BX:TMUBMUSD10Y
    a benchmark lending rate for the commercial real estate industry, was near 4.32% on Monday, hovering around a 16-year high ahead of the Fed meeting, while the policy-sensitive 2-year Treasury rate
    BX:TMUBMUSD02Y
    was near 5.06%. Stocks
    SPX

    DJIA
    were edging higher.

    Office distress intensified in August, with the special servicing rate of loans in bond deals hitting 7.72%, compared with a 6.67% rate for all property types, according to Trepp, which tracks the commercial mortgage-backed securities market. A year ago, the rate of problem office loans was 3.18%.

    “If I was an investor, I would be patient around this, because values are only going to come down, I would imagine,” Collins said.

    Check out: Powell could still hammer U.S. stocks on Wednesday even if the Fed doesn’t hike interest rates

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  • Stocks finish lower; S&P 500 gives up weekly gain as investors await Fed

    Stocks finish lower; S&P 500 gives up weekly gain as investors await Fed

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    Stocks ended lower Friday as investors assessed the start of a United Auto Workers strike against Ford
    F,
    -0.08%    ,
    General Motors
    GM,
    +0.86%
    and Stellantis
    STLA,
    +2.18%
    and awaited next week’s Fed decision. The Dow Jones Industrial Average
    DJIA,
    -0.83%
    declined nearly 290 points, or 0.8%, to close near 34,619, according to preliminary data. The S&P 500
    SPX,
    -1.22%
    shed 0.8% and the Nasdaq Composite
    COMP,
    -1.56%
    slid 1.6%. The declines left the Dow with a weekly gain of 0.1%, while dragging the S&P 500 to a 0.2% drop and leaving the Nasdaq down 0.4%.

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  • CNBC Daily Open: Arm’s surge lends helping hand to banks

    CNBC Daily Open: Arm’s surge lends helping hand to banks

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    Arm Holdings CEO Rene Haas poses for a photo with members of leadership before the Nasdaq opening bell at the Nasdaq MarketSite on September 14, 2023 in New York City.

    Michael M. Santiago | Getty Images News | 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.

    What you need to know today

    The long reach of Arm
    Arm shares surged almost 25% on its first day of trading on New York’s Nasdaq, and a further 6.8% in extended trading. The chip designer priced its shares at $51 a piece in its initial public offering. Shares of Arm began trading at $56.10 a share and ended the day at $63.59. That gives the company a fully diluted market cap of about $68 billion, and a price-to-earnings multiple higher than Nvidia’s.

    Markets rebound
    U.S. stocks rose Thursday, aided by Arm’s electrifying showing and promising economic data from the U.S. The Dow Jones Industrial Average, in particular, rallied 0.96% for its best day since August. Asia-Pacific markets rose Friday, cheered by China’s better-than-expected data. Japan’s Topix gained 1.25% to hit a 33-year high, as Softbank jumped around 2.7% after Arm’s impressive showing.

    China’s economy picks up
    Finally, some positive economic data from China. Retail sales in August grew 4.6% from a year ago, beating expectations for 3% growth. Industrial production rose 4.5%, also surpassing the forecast of 3.9%. However, fixed asset investment was still weighed down by the real estate sector, and came in at 3.2%, slightly below the expected growth of 3.3%.

    Screeching to a halt
    Thousands of members of the United Auto Workers went on strike after the union failed to reach a deal with General Motors, Ford Motor and Stellantis. Workers at three key U.S. assembly plants plan to cease work from Friday — those plants were targeted because they produce highly profitable vehicles that are still in high demand.

    [PRO] Cash or stocks?
    In recent weeks, U.S. Treasury yields have risen to their highest levels in decades. Meanwhile, major indexes lost ground in August. That has boosted the attractiveness of keeping cash holdings as opposed to investing in stocks. But will that trend hold true for the rest of the year? Analysts from big banks weigh in on the debate between cash and stocks.

    The bottom line

    When you have a toothache, your whole body feels the pain. In the same vein, when Arm experienced a flush of wellbeing, it radiated through markets’ entire body, giving them their best day in weeks.

    “The successful IPO of Arm … instills some confidence that perhaps the capital markets window is going to open again after virtually being closed for the last 18 months,” said Art Hogan, chief market strategist at B. Riley Financial.

    Big banks rallied on excitement that the sleepy IPO market for tech companies might finally be stirring. (More IPOs means more dealmaking — and higher revenue — for banks.) Shares of JPMorgan Chase rose almost 2%, Morgan Stanley gained 2.09% and Goldman Sachs popped 2.86%. Tech IPOs are particularly important to Goldman as the bank relies on investment banking more than its rivals. With Instacart and marketing firm Klaviyo set to list soon, Goldman — which has been struggling of late — might see a change in its fortunes.

    Goldman and JPMorgan are big components of the Dow. That helped the blue-chip index rise 0.96%, its best day since Aug. 7, giving it a closing level above its 50-day moving average for the first time since Sept. 1. The S&P 500 advanced 0.84%, its best showing in around two weeks, and the Nasdaq Composite gained 0.81%.

    Meanwhile, a tame core PPI reading for August assuaged worries after core consumer price index was higher than expected. But because CPI is a lagging indicator, while PPI is considered a leading indicator — that is, it predicts the future state of the economy — markets found solace in the idea that things aren’t as bad as consumer inflation appeared to portray.

    And August retail sales jumped 0.6% against the 0.1% expected. Taken together with the PPI report, that suggests the U.S. economy, supported by an indefatigable consumer, might skirt a recession even as inflation gradually cools.

    “You’ve got the perfect framework of inflation heading in the right direction, but the economy not falling apart,” Hogan said. “And that really paints the picture that the Fed has done the right thing and we may well be orchestrating that elusive soft landing.”

    But the economy is infamously volatile. Hence Hogan’s all-important caveat: “At least that’s the impression we get this week.” Still, after markets ended in the red last week, any reprieve, however temporary, will be welcome.

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  • CNBC Daily Open: Arm’s spectacular day lends helping hand to banks

    CNBC Daily Open: Arm’s spectacular day lends helping hand to banks

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    Rene Haas, chief executive officer of Arm Ltd., center, during the company’s IPO at the Nasdaq MarketSite in New York, US, on Thursday, Sept. 14, 2023.

    Michael Nagle | Bloomberg | 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.

    What you need to know today

    The long reach of Arm
    Arm shares surged almost 25% on its first day of trading on New York’s Nasdaq, and a further 6% in extended trading. The chip designer priced its shares at $51 a piece in its initial public offering. Shares of Arm began trading at $56.10 a share and ended the day at $63.59. That gives the company a fully diluted market cap of about $68 billion, and a price-to-earnings multiple higher than Nvidia’s.

    Markets rebound
    U.S. stocks rose Thursday, aided by Arm’s electrifying showing and promising economic data from the U.S. The Dow Jones Industrial Average, in particular, rallied 0.96% for its best day since August. European markets traded higher, with the regional Stoxx 600 index climbing 1.52% and other major bourses adding at least 1% following the European Central Bank’s rate decision.

    Record rates in the EU
    The ECB raised rates by 25 basis points to 4%, a record high reached after 10th consecutive hikes since June 2022 when rates were -0.5%. The good news is that the ECB indicated it may be holding off further hikes. “ECB interest rates have reached levels that … will make a substantial contribution to the timely return of inflation to the target,” the bank’s council said.

    Focus on the core
    The U.S. producer price index, which measures wholesale prices, rose a seasonally adjusted 0.7% in August — far more than the 0.4% estimate — and 1.6% from a year earlier. August was the biggest monthly jump in more than a year. However, when stripping out food and energy prices, the month-over-month PPI was 0.2%, in line with expectations, and 2.1% on an annual basis, the lowest since January 2021.

    [PRO] No secret sauce for HP
    Warren Buffett’s Berkshire Hathaway sold a portion of its stake in HP. This year hasn’t been kind to the computer and printer maker, as its fiscal third-quarter earnings missed Wall Street’s expectations. CNBC Pro’s Yun Li breaks down what Berkshire’s play in HP initially was, and whether it’ll change going forward — based on another bet the company has made in the past.

    The bottom line

    When you have a toothache, your whole body feels the pain. In the same vein, when Arm experienced a flush of wellbeing, it radiated through markets’ entire body, giving them their best day in weeks.

    “The successful IPO of Arm … instills some confidence that perhaps the capital markets window is going to open again after virtually being closed for the last 18 months,” said Art Hogan, chief market strategist at B. Riley Financial.

    Big banks rallied on excitement that the sleepy IPO market for tech companies might finally be stirring. (More IPOs means more dealmaking — and higher revenue — for banks.) Shares of JPMorgan Chase rose almost 2%, Morgan Stanley gained 2.09% and Goldman Sachs popped 2.86%. Tech IPOs are particularly important to Goldman as the bank relies on investment banking more than its rivals. With Instacart and marketing firm Klaviyo set to list soon, Goldman — which has been struggling of late — might see a change in its fortunes.

    Goldman and JPMorgan are big components of the Dow. That helped the blue-chip index rise 0.96%, its best day since Aug. 7, giving it a closing level above its 50-day moving average for the first time since Sept. 1. The S&P 500 advanced 0.84%, its best showing in around two weeks, and the Nasdaq Composite gained 0.81%.

    Meanwhile, a tame core PPI reading for August assuaged worries — somewhat — after core consumer price index was higher than expected. As PPI is considered a leading indicator, that is, it predicts the future state of the economy, while CPI is a lagging indicator, markets found solace in the idea that things aren’t as bad as the CPI appeared to portray.

    And August retail sales jumped 0.6% against the 0.1% expected. Taken together with the PPI report, that suggests the U.S. economy, supported by an indefatigable consumer, might skirt a recession even as inflation gradually cools.

    “You’ve got the perfect framework of inflation heading in the right direction, but the economy not falling apart,” Hogan said. “And that really paints the picture that the Fed has done the right thing and we may well be orchestrating that elusive soft landing.”

    But the economy is infamously volatile. Hence Hogan’s all-important caveat: “At least that’s the impression we get this week.” Still, after markets ended in the red last week, any reprieve, however temporary, will be welcome.

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  • Here’s the ‘triple power play’ that may rule stock-market returns, other assets for next 5 years

    Here’s the ‘triple power play’ that may rule stock-market returns, other assets for next 5 years

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    Three powerful dynamics in the global economy are expected to play a significant role in investors’ multi-asset allocations over the next five years, according to a 132-page report from Rotterdam-based asset manager Robeco.

    The first is labor’s likely increased bargaining power, with the outcome of any tussle between businesses and their workers probably being determined by wages in a sticky inflation environment, based on the report compiled by strategists Laurens Swinkels and Peter van der Welle on behalf of the multi-asset team at Robeco, which manages $194 billion in assets. The second is the end of monetary-policy leniency and the potential for central banks to lock “horns” with governments over the appropriate level of borrowing costs. The third is the dawn of “multipolarity” as the U.S. and China struggle for power.

    Taken together, this “triple power play” is already starting to unfold, shifting investors into a world of higher risk-free rates and lower expected equity risk premiums, according to the asset manager. Risk premium is a gauge of relative value for stocks, helping investors understand what their short-term gain might be when taking on the additional risk of buying equities or investing in stock funds.

    Robeco provided its forecasts for five-year annualized, projected returns on a range of assets held by euro- and dollar-based investors — including developed- and emerging-market equities, bonds, and cash.

    The firm’s base-case scenario, which Robeco’s team refers to as a “stalemate,” calls for a mild recession in 2024, consumer-price inflation in developed economies to remain around 2.5% on average heading toward 2029, and real GDP in the U.S. to average 2.3% or below what the S&P 500 index
    SPX
    currently implies.

    That benign growth outlook is expected to be accompanied by macroeconomic volatility, plus a “tug of war” between central bankers reluctant to lower interest rates and governments in need of low borrowing costs — which “means there is not enough monetary policy tightening to remove demand-pull inflation.” Under such a scenario, developed-market equities are likely to underperform their emerging market counterparts and domestic bonds should offer a higher return than cash for dollar-based investors, according to Robeco.


    Source: Robeco. Returns shown are annualized.

    “Looking ahead, a key question is: are we eyeing the start of a new bull market that will broaden and pave the way for another streak of above-historical excess equity return?” the Robeco team wrote in the report released on Tuesday. “In our base case, we expect developed markets’ earnings growth to end up below current 5Y forward consensus projections, which are high single-digit or even still low double-digit for the U.S. and eurozone.

    “The reason we foresee a decline in profitability is linked to our overarching macro theme, the triple power play. Equities will likely bear the brunt of the power play in geopolitics,” according to the report. In addition, efforts by global corporations to shift production toward geopolitically-friendly powers or closer regions “will prove more costly and lower efficiency.” Plus, “further pressure from margins will come from a lagged response from past policy rate hikes.”

    Under Robeco’s bull-case scenario, early and rapid adoption of artificial intelligence across sectors and industries would likely spawn above-trend growth and push inflation back to central banks’ targets. The result is “an almost Goldilocks scenario in which things are running neither too hot nor too cold,” central banks could take a break from tightening policy, and developed- and emerging-market equities may both be able to come out with double-digit annualized returns from 2024 to 2028.

    The firm’s bear-case scenario envisions a world in which mutual trust between the world’s superpowers hits rock bottom, governments are “in the crosshairs” of central banks, and labor loses bargaining power in the services sector. A “stagflationary environment emerges, intensifying the policy dilemma for central bankers” as inflation stays stubbornly high at 3.5% on average and growth comes in at just 0.5% annually for developed economies. In that situation, developed-market equities would eke out an annualized return of 2.25% for dollar-based investors over the four-year period, which would be below the expected return on cash.

    On Thursday, all three major U.S. stock indexes
    DJIA

    SPX

    COMP
    finished higher as investors digested a batch of better-than-expected U.S. data and continued to expect no action by the Federal Reserve next week. Officials are seen as likely to leave their main policy rate target at a 22-year high of 5.25%-5% on Wednesday.

    As investors continued to monitor the possibility of a strike by United Auto Workers, 2-
    BX:TMUBMUSD02Y
    and 10-year Treasury yields
    BX:TMUBMUSD10Y
    ended at one-week highs and the ICE U.S. Dollar Index
    DXY
    jumped 0.6%. In a separate development earlier this week, Air Force Secretary Frank Kendall warned that China is preparing for a potential war with the U.S.

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  • CNBC Daily Open: Don’t worry about August’s hotter-than-expected CPI

    CNBC Daily Open: Don’t worry about August’s hotter-than-expected CPI

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    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.

    What you need to know today

    Biggest monthly jump this year
    The     U.S. consumer price index for August rose 3.7% from a year ago and a seasonally adjusted 0.6% 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!”

    [PRO] 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. It’s a lofty multiple, comparable to Nvidia’s 110 for the previous 12 months. Read what four analysts have to say about the risks and benefits of buying Arm shares.

    The bottom line

    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

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  • CNBC Daily Open: August’s CPI report isn’t as bad as it seems

    CNBC Daily Open: August’s CPI report isn’t as bad as it seems

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    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.

    What you need to know today

    Biggest monthly jump this year
    The     U.S. consumer price index for August rose 3.7% from a year ago and a seasonally adjusted 0.6% 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.

    Markets shrugged
    U.S. markets were mixed Wednesday, with the Dow Jones Industrial Average the only major index to fall. The pan-European Stoxx 600 fell 0.32% as European dealmaking sentiment remains cautious, according to a new report from law firm CMS and Mergermarket. Meanwhile, the U.K.’s economy shrank 0.5% month on month in July, more than the 0.2% expected.

    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.

    The bottom line

    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

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  • Dow posts back-to-back drop, S&P 500 climbs after inflation gauge ticks higher

    Dow posts back-to-back drop, S&P 500 climbs after inflation gauge ticks higher

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    The Dow posted a back-to-back loss on Wednesday after a gauge of consumer inflation for August rose on the back of higher energy costs, while the S&P 500 and Nasdaq Composite ended with modest gains. The Dow Jones Industrial Average
    DJIA,
    -0.20%
    shed about 70 points, or 0.2%, ending near 34,565, according to preliminary FactSet data. That marked its second day in a row of declines. The S&P 500 index
    SPX,
    +0.12%
    added 0.1% and the Nasdaq Composite Index
    COMP,
    +0.29%
    finished at a 0.3% gain. Both the Dow and S&P 500 struggled for direction earlier Wednesday, with both indexes flipping between small gains and loss as investors considered whether the Federal Reserve will be promoted to increase its policy rate any further this year to tamp down inflation further. Its benchmark rate was increased to a 22-year high in July. The consumer price-index for August showed the yearly rate of inflation climbed to 3.7% from 3.2% in July, and up from a 27-month low of 3% in June.

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  • When will inflation cool to the Fed’s 2% target? By late next year, says JP Morgan strategist.

    When will inflation cool to the Fed’s 2% target? By late next year, says JP Morgan strategist.

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    Inflation is likely to fall below the Federal Reserve’s 2% annual target by late next year, according to David Kelly, chief global strategist at JP Morgan Asset Management.

    Consumer prices rose again in August to reach a 3.7% yearly rate, based on Wednesday’s release of the monthly consumer-price index. That marked its biggest jump in 14 months and a higher reading than the recent 3% low set in June (see chart) as the toll of the Fed’s rate hikes kicked in.

    U.S. consumer prices rose in August, after touching a recent low of 3% yearly in June, as energy prices shot up.


    AllianceBernstein

    The catalyst for increased price pressures in August was a roughly 30% surge in energy prices
    CL00,
    +1.32%
    this quarter, according to Eric Winograd, director of developed market economic research at AllianceBernstein.

    West Texas Intermediate Crude, the U.S. benchmark, settled at $88.52 a barrel on Wednesday, as traders focused on supply concerns following decisions by Saudi Arabia and Russia to cut crude supplies through year-end. WTI was trading at a low for the year below $65 a barrel in May.

    “I don’t think that today’s upside surprise is sufficient to trigger a rate hike next week and I continue to expect the Fed to stay on hold,” Winograd said, in emailed commentary. “But with inflation sticky and growth resilient, the committee is likely to maintain a clear tightening bias—the dot plot may even continue to reflect expectations of an additional hike later this year.”

    Federal Reserve officials increased the central bank’s policy rate to a 5.25%-5.5% range in July, the highest in 22 years.

    Higher gasoline prices, however, also could act as a counterweight to inflation, according to JP Morgan’s Kelly. “Indeed, to the extent that higher gasoline prices cool other consumer spending, the recent energy price surge could contribute to slower growth and lower inflation entering 2024,” Kelly wrote in a Wednesday client note. 

    “We still believe that, barring some further shock, year-over-year headline consumption deflator inflation will be below the Fed’s 2% target by the fourth quarter of 2024.”

    Kelly isn’t expecting the Fed to raise rates again in this cycle.

    U.S. stocks ended mixed Wednesday following the CPI update, with the Dow Jones Industrial Average
    DJIA
    down 0.2%, the S&P 500 index
    SPX
    up 0.1% and the Nasdaq Composite Index
    COMP
    up 0.3%, according to FactSet.

    But with oil prices well off their lows for 2023, Winograd said further progress on cooling headline inflation is unlikely this year, even though he expects core inflation to gradually decelerate, a process that will “keep the Fed on high alert.”

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  • ‘Complicated’ inflation report produces wavering U.S. stocks, keeps higher-for-longer theme in rates intact

    ‘Complicated’ inflation report produces wavering U.S. stocks, keeps higher-for-longer theme in rates intact

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    Investors were evaluating a less-than-straightforward take on U.S. inflation Wednesday, with August’s consumer price index coming in close to or in line with expectations while providing reasons for the Federal Reserve to hike again by year-end.

    U.S. stocks
    DJIA

    SPX

    COMP
    were higher, though wavering, in New York afternoon trading as traders weighed the chances of another rate hike in November. Three-month through 1-year T-bill rates were up slightly, though 2- through 30-year Treasury yields slipped. And the ICE U.S. Dollar Index
    DXY,
    which moves according to the market’s expectations for U.S. rates relative to the rest of the world, swung between gains and losses.

    Rising gas prices in August had Wall Street anticipating higher headline inflation figures of 0.6% for last month and either 3.6% or 3.7% year-on-year ahead of Wednesday’s session, and on that score August’s CPI report met expectations. The as-expected headline readings appeared to offer some comfort to many investors, even though the monthly gain was the biggest increase in 14 months and the annual rate jumped versus the prior two months.

    Still, Ed Moya, a senior market analyst for the Americas at OANDA Corp. in New York, said “this was a complicated inflation report” and price gains are failing to ease by enough for the central bank to abandon its hawkish stance. Core readings which matter most to Fed policy makers came in a bit above expectations at 0.3% for last month, driven partly by a jump in airline fares, as the annual core rate dipped to 4.3% from 4.7% previously. According to Moya, “inflation will likely still be running well above the Fed’s 2% target for the rest of the year.”

    “Today’s uptick in CPI could slightly increase the likelihood of a November interest rate hike and potentially delay the timing of any rate cuts until deeper into 2024,” said Joe Tuckey, head of FX analysis at London-based Argentex Group, a provider of currency risk-management and payment services.

    As of Wednesday afternoon, however, August’s CPI wasn’t putting much of a dent in expectations for fed funds futures traders. They see a 97% likelihood of no rate hike next Wednesday, which would keep the fed funds rate at between 5.25%-5.5%, and a more-than-50% chance of the same in November and December, according to the CME Fed Tool. They also continued to price in the likelihood of no rate cuts through the early part of 2024.

    While August’s CPI report failed to move the needle in stocks, the dollar, or fed funds futures, there was one corner of the financial market where the data did make more a difference: Traders of derivatives-like instruments known as fixings now foresee five more 3%-plus annual headline CPI readings starting in September, after adjusting their expectations to include January.

    If those expectations play out, that would bring the total number of 3%-plus readings to six months, including August’s data, and produce a scenario that investors may not be entirely prepared for — the possibility that headline inflation doesn’t meaningfully budge from current levels soon.

    Read: Why financial markets may be unprepared for a fourth-quarter ‘inflation surprise’

    Central bankers care more about less-volatile core readings, but pay attention to headline CPI figures because of their potential to affect household expectations.

    “While these numbers do not change our, and the market’s, expectations that the Fed will hold the target fed funds rate unchanged at the September meeting, the slightly stronger number can influence the tone of the press conference and Summary of Economic Projections,” said Greg Wilensky, head of U.S. fixed income at Denver-based Janus Henderson Investors, which manages $322.1 billion in assets.

    “We continue to expect some reduction in the number of participants projecting further hikes, but probably not enough to move the median projection of one more rate hike,” Wilensky said in an email. “That said, we believe that we have likely seen the last rate hike for this cycle, as the economic data that the Fed will see over the coming months will keep them on hold and allow the impact of 5.25% of prior hikes to slow the economy and inflation.”

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  • Nasdaq ends 1% down, leading stocks lower as tech shares slump

    Nasdaq ends 1% down, leading stocks lower as tech shares slump

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    U.S. stocks closed lower on Tuesday, with the Nasdaq Composite leading the way down, as Apple’s unveiling of its new iPhone and watch failed to boost appetite for equities. The Dow Jones Industrial Average
    DJIA,
    -0.05%
    shed about 16 points, or about 0.1%, to end near 34,647, while the S&P 500 index
    SPX,
    -0.57%
    closed 0.6% lower and the Nasdaq Composite Index
    COMP,
    -1.04%
    slumped 1%, according to preliminary FactSet data. That was the biggest daily percentage drop in about a week for the Nasdaq. Shares of Apple Inc.
    AAPL,
    -1.71%
    were a focus Tuesday as it rolled out a lineup of new consumer products, including its iPhone Pro Max, which will now start at $1,199 instead of $1,099, while its Pro model’s price stays the same. Investors also remain focused on the inflation data, including the release on Wednesday of the consumer-price index for August, before the U.S. stock market’s open. Apple shares fell 1.9% on Tuesday. Climbing bond yields can pressure high-growth stocks as borrowing costs rise. The benchmark 10-year Treasury yield
    TMUBMUSD10Y,
    4.297%
    edged down 2.4 basis points to 4.263% Tuesday, but was still near its highest level of the year.

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  • Watch this ‘canary in the coal mine’ for signs of trouble in markets, Neuberger Berman CIO says

    Watch this ‘canary in the coal mine’ for signs of trouble in markets, Neuberger Berman CIO says

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    Neuberger Berman, an asset manager with eight decades under its belt, is on the lookout for cracks in credit markets from the Federal Reserve’s rate-hiking campaign.

    Erik Knutzen, chief investment officer of multi asset, worries that several factors could be a tipping point for the economy, from an economic slowdown in China to U.S. consumers finally becoming exhausted by higher rates.

    Yet Knutzen expects the high-yield, or junk bond, market to serve as the “canary in the coal mine” for broader market volatility, acting as “perhaps the most visible threat, and therefore one we think could be priced in sooner than later.”

    The Bloomberg U.S. High Yield Bond Index has returned 6.4% through the end of August, producing one of the year’s highest gains in fixed income, helped along by a “resilient U.S. economy coupled with still-available financial liquidity,” according to the Wells Fargo Investment Institute.

    But Knutzen worries that as the high-yield maturity wall draws closer, “the first policy rate cuts get priced further and further out, raising the threat of expensive refinancings.”

    The 10-year Treasury yield’s
    BX: TMUBMUSD10Y
    climb to a multidecade high in August of almost 4.4% left many major U.S. corporations in early September hesitant to borrow beyond 10 years.

    Starting next year, some $700 billion of high-yield bonds are set to mature through the end of 2027, with a big slice of the refinancing need coming from companies with riskier credit ratings below the top BB ratings bracket.

    The junk-bond maturity wall.


    Bloomberg, Wells Fargo Investment Institute, Moody’s Investors Service

    The two big U.S. exchange-traded funds linked to junk bonds are the SPDR Bloomberg High Yield Bond ETF
    JNK
    and the iShares iBoxx $ High Yield Corporate Bond ETF
    HYG,
    both up 1.8% and 1.5% on the year through Monday, respectively, while offering dividend yields of more than 5.8%, according to FactSet.

    Of note, fixed-income strategists at the Wells Fargo Investment Institute also said they see risks emerging in junk bonds for companies rated B and below, particularly with spread in the sector trading less than 400 basis points above the risk-free Treasury rate since July. Spreads are the premium that investors are paid on bonds to help compensate for default risks.

    Top corporate executives appear hopeful that the Federal Reserve will cut rates sooner than later. Fed Chairman Jerome Powell said in Jackson Hole, Wyo., in August that the central bank is prepared to keep its policy rate restrictive for a while to get inflation down to its 2% target.

    To that end, Neuberger Berman, which has roughly $443 billion in managed assets, sees several sources of volatility lurking through year’s end, and has a “defensive inclination” in equity and credit, favoring high-quality companies with plenty of free cash flow, high cash balances and less expensive long-term debt.

    U.S. stocks booked gains on Monday after a week of losses, with the S&P 500 index
    SPX
    and Nasdaq Composite Index
    COMP
    scoring their best daily percentage gains in about two weeks. The Dow Jones Industrial Average
    DJIA
    advanced 0.3%.

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  • Wall Street’s most bullish strategist warns of choppiness in stocks, still sees the S&P 500 touching a record high this year

    Wall Street’s most bullish strategist warns of choppiness in stocks, still sees the S&P 500 touching a record high this year

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    Recent weakness in the U.S. stock market is likely to persist over the near-term, according to Wall Street’s most bullish strategist, who still thinks the S&P 500 is on a path to a record high this year.

    John Stoltzfus, chief investment strategist at Oppenheimer Asset Management Inc., in late July projected the S&P 500 would rise above 4,900 by the end of 2023. That is the highest price target for the large-cap index among 20 Wall Street firms surveyed by MarketWatch in August.

    It implies the S&P 500 would rise above its earlier closing record high of 4,796 reached on Jan. 3, 2022 by the end of the year. The path up, however, could get bumpy.

    “Bullishness [in the stock market] is relatively high while the Fed remains shy of its inflation target,” said a team of Oppenheimer strategists led by Stoltzfus in a Sunday note. They also said, “we persist in suggesting that investors curb their enthusiasm [in the stock market] for a long rate pause or even a rate cut and instead right-size expectations.”

    Expectations that the Federal Reserve is nearing an end to its current interest-rate hiking cycle, as well as optimism around artificial intelligence boosted the U.S. stock market in the first seven months of 2023. However, the rally came to a brief halt in August as investors worried the Fed could be forced to keep rates elevated as a batch of stronger-than-expected economic data and rising oil prices fueled concerns that still-sticky inflation would mean that borrowing costs will stay higher for longer.

    Investors should not brush off those pressures, even through the Fed appears to be nearing the end to its current rate-hike cycle, Stoltzfus and his team said. “The stickiness evidenced in food, services, energy and other prices warrants the Fed remaining vigilant along with a potential for one more hike this year and perhaps another next year,” they said.

    See: When will consumers stop buying more stuff? It’s a key question for the stock market.

    However, Stoltzfus doesn’t see current headwinds for stocks as something that would prevent the S&P 500 from achieving his team’s new peak target.

    Stock-market investors expect this week’s August inflation report to offer more clarity on whether the central bank will continue to ratchet up its fight against inflation. The headline component of the consumer-price index is forecast to accelerate to 0.6% in August from July’s 0.2% gain, while the core measure that strips out volatile food and fuel costs is expected to rise a mild 0.2% from a month earlier, according to a survey of economists by The Wall Street Journal. 

    Meanwhile, a key Wall Street volatility index also pointed to “some choppiness” in the stock market in the near term to keep investors on their toes, said Stoltzfus. The CBOE Volatility Index
    VIX,
    at a level of 13.82 on Monday, hovered around its 12-month low and traded about 30% below its one-year average level of 19.9, and 37% below its two-year average of 21.88 (see chart below). 

    Stoltzfus and his team suggest that investors use market weakness to seek out “babies that get thrown out with the bath water” in periods of volatility. They said the S&P 500 Energy Sector
    XX:SP500.10
    looks increasingly attractive as policy makers in the U.S. and abroad strive to contain inflation and manage economic growth. 

    “We believe that prospects are looking better that the Fed’s success thus far in bringing down the rate of inflation could lead to a [rate] pause next year, thus lessening pressures on economic growth,” the strategists said. An improved economic growth, along with fiscal stimulus from investment in stateside infrastructure projects and stateside chip manufacturing efforts, could contribute to profitability in the energy sector into 2024, the team added. 

    The Energy Select Sector SPDR Fund
    XLE,
    which is seen as a proxy of the energy sector of the S&P 500, has advanced 3.9% year to date versus a 8.5% increase in the price of the U.S. benchmark West Texas Intermediate crude oil
    CL00,
    +0.03%

    CL.1,
    +0.03%    ,
    according to FactSet data.

    Oil futures
    CLV23,
    +0.03%
    BRNX23,
    -0.03%
    traded at their highest levels of the year on Monday morning, a week after Russia and Saudi Arabia caught markets off guard with their output cut extension announcements, but they settled modestly lower on Monday afternoon.

    See: Energy ETFs are outshining the S&P 500, but it’s not just because of the oil rally

    Stoltzfus in late July projected the S&P 500
    SPX
    would rise above its record high by the end of 2023, lifting his year-end price target for the large-cap index to 4,900 from an earlier 4,400 projection from December. It implies a 9.2% advance from where the S&P 500 settled on Monday, at around 4,487.

    See: S&P 500 has a new record high 2023 price target. Here’s a look at Wall Street’s official stock-market outlook.

    U.S. stocks finished higher on Monday, boosted by technology shares as Nasdaq Composite
    COMP
    advanced 1.1%. The S&P 500 was up 0.7% and the Dow Jones Industrial Average
    DJIA
    ended 0.3% higher, according to FactSet data. 

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  • Nasdaq snaps four-day losing streak, but U.S. stocks book worst week in three

    Nasdaq snaps four-day losing streak, but U.S. stocks book worst week in three

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    U.S. stocks finished modestly higher on Friday, but Wall Street still suffered a losing week amid renewed concerns that the Federal Reserve may keep interest rates higher for longer. The S&P 500
    SPX,
    +0.14%
    booked a 1.3% weekly loss, while the Dow Jones Industrial Average
    DJIA,
    +0.22%
    fell 0.8% and the Nasdaq Composite
    COMP,
    +0.09%
    dropped 1.9% for the week. All three major indexes logged their worst weekly decline since August 18, according to Dow Jones Market Data. Meanwhile, investors looked ahead to inflation data, with readings on the consumer-price index and producer-price index next week expected to offer further clues on the central bank’s rate decision at its next policy meeting.

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  • Stock market’s 2023 run may hit roadblock after August’s energy-led boost to U.S. CPI

    Stock market’s 2023 run may hit roadblock after August’s energy-led boost to U.S. CPI

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    August was a hot month and it wasn’t just about the weather. Financial markets are now bracing for what’s likely to be a rebound in headline U.S. inflation next week, fueled by higher energy prices.

    Barclays
    BARC,
    +0.18%    ,
    BofA Securities
    BAC,
    +0.62%    ,
    and TD Securities expect August’s consumer price index to reflect a 0.6% monthly rise, up from the 0.2% monthly readings seen in July and in June. In addition, they put the annual CPI inflation rate at 3.6% or 3.7% for last month, which compares with the 3.2% and 3% figures reported respectively for the prior two months.

    While Federal Reserve policy makers and analysts are loath to read too much into one report, August’s CPI has the potential to disrupt expectations that getting back to the central bank’s 2% target will be easy. Inflation has instead been nudging back up since June, with the likely rebound in August being regarded as primarily driven by the energy sector. What now remains to be seen is how much longer energy prices will remain elevated and whether they’ll begin to feed into narrower measures of inflation that matter most to the Fed.

    Read: Stock-market investors just got reminded that the inflation fight isn’t over

    “We’re going to see a spike in gas prices and other commodity prices driven by supply cuts, which means headline CPI goes back up,” said Alex Pelle, a U.S. economist for Mizuho Securities in New York. Via phone on Friday, Pelle said that prospects for a hotter August CPI report have already been factored in by financial markets, with all three major U.S. stock indexes heading for weekly losses.

    How investors react to next Wednesday’s data will likely come down to whether the rebound in headline figures is seen as “a one-off” or something that gets repeated, and “what that means for the bottoming off of inflation,” Pelle said. “The equity market is going to have some trouble in the fourth quarter after a pretty impressive first half. Earnings expectations are still pretty high, but the macro-driven backdrop is challenging.”

    Rising energy prices in August have already spilled into the month of September, with gasoline reaching the highest seasonal level in more than a decade this week. Voluntary production cuts by Saudi Arabia and Russia are a major contributing factor curtailing the supply of crude oil into year-end, and Goldman Sachs has warned that oil could climb above $100 a barrel.

    In financial markets, there’s one group of traders which is telegraphing that the final mile of the road toward 2% inflation won’t be smooth.

    Traders of derivatives-like instruments known as fixings anticipate that the next five CPI reports, including August’s, will produce annual headline inflation rates above 3%. Though policy makers care more about core readings that strip out volatile food and energy prices, they’re aware of how much headline figures can impact the public’s expectations.


    Source: Bloomberg. The maturity column reflects the month and year of upcoming CPI reports. The forwards column reflects the year-ago period from which the year-over-year rate is based.

    At BofA Securities, U.S. economist Stephen Juneau said August’s CPI won’t necessarily change his firm’s view that inflation is likely to move lower next year and fall back to the Fed’s target without the need for a recession. BofA Securities expects just one more Fed rate hike in November and will maintain that view if August’s CPI report comes in as he expects, Juneau said via phone.

    After stripping out volatile food and energy items, BofA Securities, along with Barclays and TD Securities, expects August’s core CPI readings to come in at 0.2% month-over-month — matching June and July’s levels — and to fall to 4.3% on an annual basis.

    Based on core measures, August’s report wouldn’t “change the narrative all that much: Everything points to a moderation in price growth,” Pelle said. “There’s a reason why food and energy are typically excluded,” and “we don’t want to put too much stock into one month.”

    As of Friday afternoon, all three major U.S. stock indexes were headed higher, with the S&P 500 attempting to snap a three-day losing streak. Dow industrials
    DJIA,
    the S&P 500
    SPX
    and Nasdaq Composite
    COMP
    were respectively on track for weekly losses of 0.7%, 1.2%, and 1.7%. They’re still up for the year by more than 4%, 16% and 31%.

    Meanwhile, Treasury yields turned were little changed on Friday as fed funds futures traders priced in a 93% chance of no action by the Fed at its next policy meeting in less than two weeks, and a more-than-50% likelihood of the same for November and December — which would leave the Fed’s main policy rate target between 5.25%-5.5%.

    “There is a risk that investors are too complacent about the inflation report,” said Brian Jacobsen, chief economist at Annex Wealth Management in Elm Grove, Wis. “We might not get to 2% inflation as quickly as many hope.”

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  • Nasdaq falls for 4th straight session as Apple weighs on technology stocks

    Nasdaq falls for 4th straight session as Apple weighs on technology stocks

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    U.S. stocks finished mostly lower on Thursday with the Nasdaq Composite leading the way down as investor sentiment cratered in the face of concerns that the Federal Reserve may keep interest rates higher for longer. The technology-heavy Nasdaq
    COMP,
    -0.89%
    fell 123 points, or 0.9%, to end at 13,748, while suffering its four consecutive sessions of losses. The Dow Jones Industrial Average
    DJIA,
    +0.17%
    was up 0.2%, and the S&P 500
    SPX,
    -0.32%
    dropped 0.3%. Apple shares
    AAPL,
    -2.92%
    were down for a second day, after the Wall Street Journal reported that China had banned government officials from using iPhones for work purposes. In U.S. economic data, initial jobless benefit claims fell by 13,000 to 216,000 in the week ended Sept. 2, the U.S. Labor Department said Thursday. This is the lowest level since mid-February.

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