August 14, 2024

In another astounding upside day, the market exploded to the upside yesterday with its third-best performance of the year as the July P.P.I. report came in better than expected, which should motivate the Federal Reserve to accelerate its interest rate lowering situation.

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The Dow jumped by 408 points to 39,765 led by gains in AAPL, MSFT, UNH and GS as only the energy components sold off. The S&P made a huge gain of 90 to 5434 as the large technology stocks finally all got their act together in a day reminiscent of the first part of the year, when their strong gains led the S&P to 34 all-time highs.

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The Nasdaq also did its upside thing with a 402 burst to 17,187 for the aforementioned season and the Russell 2000 Index of small stocks rose by 33 to 2095 on some gains in the smaller banks.

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And how about the VIX, which had everyone panicking on its reaching the unsustainable level of 66 on the unwinding of the Japanese yen carry trade, plunged down to 18.12 as I said it would collapse and I sent out a special report on how this works a couple of days ago.

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The July P.P.I. report came in cooler than expected at a gain of 0.1% while ex-food and energy it was unchanged. Year over year it was higher by 2.2% and 2.4% on the core rate. This was important because high inflation has been the scourge of shoppers and financial markets for years. It finally looks to be slowing enough to get the Federal Reserve to ease up on high interest rates, which the Fed has been keeping at too high a level in order to stifle inflation.

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Treasury yields eased in the bond market following the inflation data, as traders remain convinced the Fed’s meeting next month will bring the first cut to interest rates since the COVID crash of 2020. The yield on the 10-year Treasury fell to 3.84% from 3.91% late Monday.

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All is not clear, though. At 8:30am, the U.S. government will deliver the latest monthly update on C.P.I. and we will see how that one goes. A growing worry on Wall Street is that the Fed may have kept interest rates too high for too long and undercut the U.S. economy by making it so expensive to borrow money. The economy is still growing, and many economists don’t expect a recession, but a sharp slowdown in the latest jobs report last month raised questions about its strength.

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Dow component HD delivered stronger profit for the spring quarter than analysts expected, but it also said high interest rates and uncertainty about the economy are keeping some customers from spending on home improvement projects. It started out sharply lower and after that selling was satisfied, it reversed to the upside to end higher.

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The retail giant lowered its full-year forecasts for an important measure of sales and for profit, even though it topped expectations for the second quarter.

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And how about SBUX, which soared by 25% for its largest gain ever from low levels after it convinced Brian Nicol to leave his job as C.E.O. of CMG to take over the coffee chain. He will start as chairman and chief executive next month and will replace the current head, who is stepping down immediately.

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CMG meanwhile, dropped by 7.5%. Niccol has been its chief executive since 2018 and its chairman since 2020, and he helped its stock rise by more than 240% for the five years through Monday. That towers over the S&P 96% return during that time including dividends. CMG said its chief operating officer would be its interim C.E.O.

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In stock markets abroad, indexes were modestly higher across much of Europe and Asia. Japan’s Nikkei 225 was an outlier and jumped 3.4%. A promise last week by a top Bank of Japan official not to raise rates further as long as markets are “unstable” has helped calm the market.

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Another worry that has made investors so shaky the last month is concerns that investors went overboard in their mania around AI technology which took the prices of Big Tech and AI-related stocks too high.

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NVDA, the company whose chips are powering much of the move into AI, has been at the center of the action. After soaring more than 170% through the year’s first six and a half months, it plunged more than 20% over the ensuing three weeks.

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Yesterday however, it rose by 6.5% and was the strongest force pushing upward on the S&P, as did all the others in the Mag 7 rose as well. But unlike much of the early part of this year, it wasn’t just the Magnificent Seven rising Tuesday, as nearly 85% of the stocks in the S&P rose.

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Earnings for the second-quarter come to an end this week with the following: yesterday – Dow component HD higher after a lower start and ON while TME was lower; today – CAH, FUST higher and TEN, EAT lower; tonight; - CSCO; Thursday – Dow component WMT plus BABA, TPR, AMAT and DE.

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Economic reports will have: yesterday – July P.P.I. came in lower than expected at a gain of 0.1% while ex-food and energy was unchanged. Year over year the gain was 2.2% while ex-food and energy was 2.9% and this is giving the stock indices a push higher; today – July C.P.I. rose by 0.2% while ex-food and energy also gained 0.2%. Year over year the gain was 2.9% and 3.2% respectively; Thursday – weekly jobless claims, July retail sales, July industrial production and capacity utilization; Friday – July housing starts and mid-month July U. of Michigan Consumer Sentiment Survey.

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