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CNBC Daily Open: Tech might not be the biggest beneficiary of rate cuts

The sun rises behind the skyline of lower Manhattan and One World Trade Center on September 14, 2024, in Jersey City, New Jersey.

Gary Hershorn | Corbis News | Getty Images

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.

What you need to know today

Record close for Dow
U.S. markets were mixed on Monday. The S&P 500 and Dow Jones Industrial Average rose, with the Dow notching a record close. But the Nasdaq Composite fell. The pan-European Stoxx 600 index lost 0.16%. U.K.’s FTSE 100 ended flat. The Bank of England will meet Thursday for its latest monetary policy decision.

Intel forges new path for foundry
Intel shares popped around 8% in extended trading on news the chipmaker plans to structure its foundry business as an independent unit with its own board and ability to raise outside funding. It might even spin off the business as a public company, according to a person with knowledge of the matter. Separately, the Biden administration on Monday awarded Intel up to $3 billion under the CHIPS Act.

Blemished Apple
Apple shares slid 2.78% after TF Securities analyst Ming-Chi Kuo reported demand for Apple’s new iPhone 16 was down 12% year on year compared with the iPhone 15’s first-weekend sales. Kuo also said consumers weren’t enthused because Apple Intelligence wasn’t available with the iPhone at launch, and as competition from Chinese manufacturers dents iPhone demand.

Choppy flight
Boeing is implementing a hiring freeze amid plans to cut costs, such as pausing nonessential staff travel. Just this year, Boeing has had to deal with: a 737 MAX door panel blowing out in midair; its Starliner spacecraft returning to Earth without its two planned passengers; and a strike by more than 30,000 workers.

[PRO] Short-lived record?
The S&P 500 is less than 1% away from its record high set in July. The upcoming Federal Open Market Committee meeting, at which the U.S. Federal Reserve is expected to cut interest rates by at least 25 basis points, might lift the S&P to new heights. But analysts warn the new high might be short lived.

The bottom line

Technology stocks benefit the most from low interest rates, conventional market wisdom says.

That’s because tech companies tend to promise future profit in exchange for present money. When rates are low, that proposition appears attractive because returns are low elsewhere. But when rates are high, those promises don’t seem as attractive as less risky returns from assets such as Treasurys.

The past two years have demolished this narrative. Tech has soared even as interest rates have been at 23-year highs, thanks to enthusiasm over artificial intelligence’s promise of new and explosive revenue streams.

Nvidia, the lynchpin of AI, has soared nearly 136% just this year. Meta, which has its own AI model named Llama, is up about 51%.

With the market pricing in a 62% chance — up from 30% last week — that the U.S. Federal Reserve will make a larger-than-usual cut of 50 basis points, according to the CME FedWatch Tool, it stands to reason tech will pop further.

The sector, however, has been rocky in recent weeks. The VanEck Semiconductor ETF, for instance, fell 1.31% Monday, while Nvidia slipped 1.95%.

The tech-heavy Nasdaq Composite fell 0.52%, while the S&P 500 inched up 0.13% and the Dow Jones Industrial Average added 0.55% to close at a new record.

This implies investors have been moving out of tech to other sectors that might experience tailwinds amid lower rates. Case in point: the financial and energy sectors rose more than 1% on Monday, performing better than the broader market.

Goldman Sachs noted hedge funds’ weekly purchases last week of financial stocks were the highest since June 2023.

“Other areas of the market are starting to perk up, and a lot of that has to do with the future rate cuts that are coming into play,” said Christopher Barto, senior investment analyst at Fort Pitt Capital.

That doesn’t mean tech’s out of favor. It’s likely to continue driving the market. But other sectors might show up for the ride.

– CNBC’s Hakyung Kim, Pia Singh and Yun Li contributed to this story.

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September 16, 2024

Hong Kong stocks fall as investors digest China economic data, await Fed rate verdict

A man walks along The Bund during the passage of Typhoon Bebinca in Shanghai on September 16, 2024. The strongest storm to hit Shanghai in over 70 years made landfall on September 16, state media reported, with flights cancelled and highways closed as Typhoon Bebinca lashed the city with strong winds and torrential rains.

Hector Retamal | Afp | Getty Images

Asian markets opened mixed Monday, with Hong Kong stocks falling as investors assessed downbeat economic data from China, while several key markets were closed for holidays.

Hong Kong’s Hang Seng index fell 0.76% on open, after China released a slew of worrying economic data over the weekend, with August factory output, retail sales and investment numbers missing expectations. Urban jobless rate rose to a six-month high while year-on-year home prices fell at their fastest pace in nine years.

Investors also await the Federal Reserve’s policy meeting on Tuesday and Wednesday where the central bankers are expected to make their first interest rate cut since 2020

Australia’s S&P/ASX 200 rose 0.44% on open. The Taiwan Weighted Index edged up slightly.

Markets in mainland China and South Korea were closed for Mid-Autumn festival. Japan markets were closed for Respect for the Aged Day.

Typhoon Bebinca has led to cancellation of hundreds of flights in China and Shanghai is expected to be hit by the strongest storm since 1949.

Asian investors also await a swath of key data and central bank decisions from the region.

Japan’s inflation is expected to tick higher in August, according to a Reuters poll, backing the case for the Bank of Japan to stay hawkish as the board sets its policy on Friday.

The central bank is anticipated to keep the rate unchanged while signaling that further rate hikes were in the offing.

The Japanese yen strengthened Monday morning to trade at 140.49 against the greenback. If the yen holds these levels, the currency will close at its strongest in more than a year.

China is poised to set its one- and five-year loan prime rates on Friday. The one-year rate, which affects most new and outstanding loans, is currently at 3.35%, while the five-year rate, that influences the pricing of mortgages, is currently at 3.85%.

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September 15, 2024

CNBC Daily Open: Moving past sticky core inflation

Prices are displayed in a store window in Brooklyn on August 14, 2024 in New York City.

Spencer Platt | Getty Images News | Getty Images

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.

What you need to know today

Stubborn core inflation
Prices in the U.S. rose 0.2% in August, the Bureau of Labor Statistics reported, in line with the Dow Jones consensus. The 12-month inflation rate was at 2.5%, the lowest since February 2021. However, core CPI, which excludes food and energy prices, ticked up 0.3%, 10 basis points higher than expected.

Rebound rally
Major U.S. indexes closed higher in a choppy session on Wednesday, lifted by technology stocks. Asia-Pacific markets were trading higher on Thursday. Japan’s Nikkei 225 jumped 3.43% and the Taiwan Weighted Index rose 3%. Chip-related Asian stocks including Tokyo Electron, Advantest and TSMC rose, tracking the rally in U.S. technology stocks.

UBS CEO sees soft landing
Sergio Ermotti, Group CEO of UBS Group AG, told CNBC that investors expecting the Fed to cut rates aggressively are getting “ahead of the curve.” Sticky inflation remains the “most important” issue, he added – August’s core CPI surprised to the upside. However, Ermotti still sees “the outlook [as] pretty consistent with a soft landing.”

Harris or Trump? Little difference for China
Regardless of who wins the U.S. Presidential elections, the country’s trade ties with China will remain tense, said Carlos Casanova, senior economist at Swiss private bank UBP. Donald Trump has proposed tariffs of up to 100%, while Kamala Harris is expected to stick with Joe Biden’s tariff policy that not only retained Trump-era tariffs but also escalated them.

[PRO] Opportunities for semiconductor stocks
Semiconductor stocks have been the market’s darling this year and are responsible for pushing the S&P 500 to consecutive fresh highs. However, since July, they’ve had wild swings. Still, with some chip stocks being undervalued, they appear to be good buys amid this volatility, said analysts.

The bottom line

On the surface, Wednesday looked like a great day for investors.

The S&P 500 climbed 1.07%, the Dow Jones Industrial Average added 0.31% and the Nasdaq Composite shot up 2.17%.

However, those numbers are hiding turmoil under their pretty facades.

The S&P dropped around 1% during trading but eventually managed to claw back losses and close more than 1% higher by the end of the day. It’s the first time the broad-based index has done so since October 2022.

The consumer price index for August precipitated the initial fall. Core inflation, to which the Fed pays more attention because it more accurately reflects price movements, came in a bit higher than expected for the month.

Core inflation was higher than the headline number because food and energy prices are stripped out from the former. And both were mild for the month: Food prices were only 0.1% higher, suggesting no pets need to be eaten, while energy costs fell 0.8%.

Still, that data means the Fed’s unlikely to make a jumbo-sized 50-basis-point cut. Disappointment translated into stocks dropping.

Even with inflation remaining difficult to tame, it doesn’t mean consumers are worse off. Real earnings rose 0.2% for the month, showed a separate Bureau of Labor Statistics report, which means the rise in income outstripped price increases.

That might have helped the intraday rebound in the S&P.

As for the Nasdaq, it was buoyed by technology stocks, which experienced a huge bounce from the previous days’ falls. Nvidia popped 8%, probably on news the U.S. might let the chipmaker sell advanced chips to Saudi Arabia, according to Reuters.

But there might be more choppiness ahead in markets. The U.S. government is, once again, close to a shutdown because of politicking over government funding. It’s almost like the U.S. House of Representatives has no concept of a plan.

– CNBC’s Jeff Cox, Pia Singh and Lisa Kailai Han contributed to this story.

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September 11, 2024

CNBC Daily Open: Looking past sticky core inflation

Prices are displayed in a store window in Brooklyn on August 14, 2024 in New York City.

Spencer Platt | Getty Images News | Getty Images

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.

What you need to know today

Stubborn core inflation
Prices in the U.S. rose 0.2% in August, the Bureau of Labor Statistics reported, in line with the Dow Jones consensus. The 12-month inflation rate was at 2.5%, the lowest since February 2021. However, core CPI, which excludes food and energy prices, ticked up 0.3%, 10 basis points higher than expected.

Choppy trading
Major U.S. indexes closed higher in a choppy session on Wednesday, lifted by technology stocks. The regional Stoxx 600 index ended the day flat following volatile trading. Country-specific indexes were mixed, however. Germany’s DAX added 0.35% while France’s CAC 40 lost 0.14%.

Oracle shares jump
Oracle’s shares have surged by double-digit percentages following its earnings reports so far this year. After Oracle popped 11% on Tuesday, the company’s share prices are up 49% year to date, second only to Nvidia’s 136%. “After 13 years of single-digit organic total revenue growth, Oracle is reaccelerating into the double digits,” said JMP analysts.

Buffett sells more BofA
Berkshire Hathaway isn’t done selling Bank of America shares. Warren Buffett’s conglomerate sold 5.8 million BofA shares on Friday, Monday and Tuesday, netting around $228.7 million for them. BofA dropped to Berkshire’s third-biggest holding, having long occupied the second spot.

[PRO] Nothing to short here
Bank stocks fell on Tuesday on fears of a slowdown in the sector. However, Steve Eisman, senior portfolio manager at Neuberger Berman, said he was not worried about the health of banks — or the economy, for that matter. And when the person who spotted the weakness in subprime mortgage loans speaks, it’s good to listen to him.

The bottom line

On the surface, Wednesday looked like a great day for investors.

The S&P 500 climbed 1.07%, the Dow Jones Industrial Average added 0.31% and the Nasdaq Composite shot up 2.17%.

However, those numbers are hiding turmoil under their pretty facades.

The S&P dropped around 1% during trading but eventually managed to claw back losses and close more than 1% higher by the end of the day. It’s the first time the broad-based index has done so since October 2022.

The consumer price index for August precipitated the initial fall. Core inflation, to which the Fed pays more attention because it more accurately reflects price movements, came in a bit higher than expected for the month.

Core inflation was higher than the headline number because food and energy prices are stripped out from the former. And both were mild for the month: Food prices were only 0.1% higher, suggesting no pets need to be eaten, while energy costs fell 0.8%.

Still, that data means the Fed’s unlikely to make a jumbo-sized 50-basis-point cut. Disappointment translated into stocks dropping.

Even with inflation remaining difficult to tame, it doesn’t mean consumers are worse off. Real earnings rose 0.2% for the month, showed a separate Bureau of Labor Statistics report, which means the rise in income outstripped price increases.

That might have helped the intraday rebound in the S&P.

As for the Nasdaq, it was buoyed by technology stocks, which experienced a huge bounce from the previous days’ falls. Nvidia popped 8%, probably on news the U.S. might let the chipmaker sell advanced chips to Saudi Arabia, according to Reuters.

But there might be more choppiness ahead in markets. The U.S. government is, once again, close to a shutdown because of politicking over government funding. It’s almost like the U.S. House of Representatives has no concept of a plan.

– CNBC’s Jeff Cox, Pia Singh and Lisa Kailai Han contributed to this story.

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September 11, 2024

CNBC Daily Open: Lower rates might hurt banks

JP Morgan headquarters at Canary Wharf financial district at the heart of Canary Wharf financial district on 6th February 2024 in London, United Kingdom.

Mike Kemp | In Pictures | Getty Images

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.

What you need to know today

Unsteady markets
U.S. markets were mixed on Tuesday. The S&P 500 and Nasdaq Composite rose, buoyed by Oracle’s 10% surge, while the Dow slipped. Asia-Pacific stocks fell Wednesday. Japan’s Nikkei 225 lost around 1.4%, extending its seven-day losing streak. The Japanese yen strengthened to 141.17 against the U.S. dollar, its highest this year.

First Harris-Trump debate
In their first face-to-face meeting, Vice President Kamala Harris met former President Donald Trump for their first — and perhaps only – presidential debate. On the economic front, both candidates clashed over tariffs, fracking and China policy. After the debate, Taylor Swift endorsed Harris on Instagram, and signed off her post as “Childless Cat Lady.”

Tough environment for European companies
China’s environment for businesses is so thorny that European companies have grown discouraged with operating in the country, according to the EU Chamber of Commerce. If European companies were to invest in China further, Beijing must act on its pledges to improve the business conditions, the chamber’s paper wrote.

Big price reports
The U.S. consumer price index for August comes out later today, while the producer price index, which measures prices at the wholesale level, will be released a day later. They’re the last major economic data the Federal Reserve will receive — and hence influence its decision on the size of cuts — before its meeting next week.

[PRO] U.S.-listed global stocks
With the outlook for the U.S. economy looking uncertain, investors can turn their attention to global companies. At the same time, investors may want to stick with the safety of the U.S. stock market. CNBC Pro looked for companies headquartered overseas, but listed in the U.S. – and may experience over 100% upside, according to analysts.

The bottom line

Everyone loves lower interest rates.

As rates fall, borrowing becomes cheaper. For the consumer, that’s most felt in areas like housing; for companies, it tends to boost spending on expansion and investment.

Those acts trigger a virtuous cycle of spending, boosting consumption and growth, which in turns increases employment. The economy loves lower rates too and swells up.

There’s one industry, however, that generally enjoys higher interest rates: banking.

One way banks make money is through the net interest income. That’s the difference between the interest rate they charge on loans and the rate they offer on savings. As rates rise, banks can raise the former, which is a revenue source, while keeping the latter, a cost, low.

With rate cuts looming on the horizon, however, that age of abundance is coming to an end for big banks.

JPMorgan poured cold water on the market’s expectation of around $90 billion for NII in 2025. That number “is not very reasonable” because the Fed will cut rates, said JPMorgan President Daniel Pinto.

If the biggest bank in the U.S. thinks it can’t keep loan rates high, it’s hard to imagine smaller banks can maintain juicy NII of the previous years.

Investors didn’t take JPMorgan’s caution warmly. Its shares lost around 5% and weighed down the Dow Jones Industrial Average, which declined 0.23%.

On the other hand, the S&P 500 rose 0.45% and the Nasdaq Composite added 0.84%.

With rate cuts on the horizon, banks might experience a dip in NII revenue — but many are likely to see revenue and sentiment rise.

– CNBC’s Jeff Cox, Pia Singh and Brian Evans contributed to this story.

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September 10, 2024

CNBC Daily Open: Banks might not love lower rates unconditionally

JPMorgan signage outside a Chase bank branch in New York, US, on Thursday, Jan. 12, 2023.

Stephanie Keith | Bloomberg | Getty Images

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.

What you need to know today

Clawing back losses
U.S. markets were mixed on Tuesday. The S&P 500 and Nasdaq Composite rose, buoyed by Oracle’s 10% surge and technology stocks recouping some losses, while the Dow slipped. Europe’s Stoxx 600 index lost 0.54%, with autos dropping 3.8% as supplier Continental fell 10.5% and BMW plunged 11.15%.

Big price reports
The U.S. consumer price index for August comes out later today, while the producer price index, which measures prices at the wholesale level, will be released a day later. They’re the last major economic data the Federal Reserve will receive — and hence influence its decision on the size of cuts — before its meeting next week.

Endgame for Basel regulations
The Basel Endgame regulation, introduced in July 2023, was meant to increase capital requirements for big banks by around 19%. On Tuesday, however, a Federal Reserve official announced that regulatory institutions have agreed to resubmit the proposal, reducing the increase in capital requirement to just 9%.

Risk of stagflation
Jamie Dimon, CEO of JPMorgan Chase, said stagflation is a possibility for the U.S. The government’s budget deficit and high spending on infrastructure works are inflationary forces, he said. Separately, JPMorgan shares fell 5.19% after the bank’s president Daniel Pinto lowered expectations for next year’s net interest income.

[PRO] Underwhelming Apple Intelligence
Apple announced new iPhones yesterday. But Wall Street was more focused on the company’s artificial intelligence offerings, given their potential to start an iPhone-upgrade cycle and establish a new source of revenue. Unfortunately, analysts came away underwhelmed.