Article published at 9:10 a.m. CT
JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- Iran peace deal at stake again
- Inflation hits three-year high
- Investors worry about tech runup
Stock futures were solidly in the red in premarket trading today as investors negotiate a bevy of cross currents that include geopolitical tensions in Iran, rising Treasury notes and what looks to be another collapse in the technology sector.
Fears were stoked after President Trump said in an early morning social media missive that Iran will have “to pay the price” because a deal to end the war has not yet been reached. That was among the catalysts that sent the major indices lower, with the Nasdaq Composite off about 1.5%, the S&P 500 lower by 1% and the Dow Jones Industrial Average down by nearly 1%. Yesterday’s short-lived run up was turned into a quick selloff after tensions in Iran flared.
Treasury yields are on the upside as is WTI crude oil after yesterday’s fleeting retreat. Global oil reserves are plummeting as governments tap on strategic reserves to offset the closing of the Strait of Hormuz, according to Oilprice.com
The Consumer Price Index, released ahead of the open, rose 4.2% last month, meeting Wall Street’s expectations and tapping the highest inflation rate in three years. By tracking the basket of everyday goods and services, which underscore inflationary pressures, the CPI tends to be a key marker for the Federal Reserve’s interest rate decisions.
Typically, a “hot” CPI print like today’s underscores suggestions that the Federal Reserve should leave interest rates untouched in the 3.5% to 3.75% range at its June 17 meeting. The Fed targets a 2% inflation range. The CME Fed Watch tool is marking a better than 65% chance the Fed will up rates in December. Tomorrow’s Producer Price Index report will offer more insight.
The markets whipsawed yesterday in a fast and furious manner, blowing up premarket trading that looked like all would be back to some sort of upswing after Friday’s volatility and Monday’s trading. Didn’t happen. Instead rising geopolitical worries in Iran and what appeared to be investor angst and moves to take profits turned the tech-heavy Nasdaq Composite, which has been a bellwether of strong market momentum, into the red.
The good news, if you can call it that, was that the Nasdaq cut its losses after a better than 4% dip in intraday trading to end the session down nearly 1%. The S&P 500 edged lower by 0.26% while the Dow Jones Industrial Average was able to eke out a small gain of 0.17%.
Pressure was evident on the chipmakers again today as shares of Nvidia, Micron, Intel and Arm Holdings were trading to the downside. Super Micro Computer tumbled 11% after revealing that it will launch a hefty $7 billion equity offering to finance its AI plans.
We could experience a lot of ups and downs with the Nasdaq in coming weeks. The promise of AI is compelling and that’s been evident in the massive amounts of money that have been funneled into tech stocks. Ahead of SpaceX’s history-making initial public offering on Friday, for example, investor enthusiasm appears at record levels amid reports that demand has crossed a mind-blowing $250 billion, three times the $75 billion that was expected.
But the freefall in the Nasdaq in recent sessions points to investor concerns about the future of the new technology. This is a cycle we’ve seen before: lots of money gets funneled into the sector on hope that this is the Next Big Thing, then there’s a cooling off period as investors reassess whether that enthusiasm was too much too soon, and then the buying-on-the-dip period begins. That’s a trend we’ve seen over the last 10 years. Hold tight and stay the course as this unfolds.
Meanwhile, the investor disappointment in Apple’s hoped-for overhaul of Siri was evident again in the stock’s retrenchment yesterday. It didn’t help that Apple was part of the overall slump in the tech sector and the broader markets. Shares retreated by 3.6% to end the session at $290.55. That accounts for a near-8% slump since before the developer’s conference began Monday.
Keep an eye on Oracle earnings, which will be reported after the bell. Analysts are looking for earnings of $1.96 per share, representing a 15% year-over-year jump, on a 20% leap in revenue to $19.1 billion. While Wall Street is highly bullish on the stock, investors will be scrutinizing capital expenditure guidance amid data center expansions, an issue that has taken center stage as prices skyrocket. Moreover, how will Oracle finance data center buildout. Shares were on the downside in the early going.
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