It was another quite choppy day with the Dow dipping as much as 130 points in the red several times before rising to a close 58 down.  As was the case yesterday, investors are sitting on the fence waiting for Wednesday’s CPI report to get another read on inflation. Labor costs continued rising in Q2 but not as fast as Q1. There was the statement from one expert that inflation right now is supply driven so the Fed tightening to crimp demand will have limited impact. This is not really accurate. Supply and demand are intimately intertwined so any action that reduces demand will also help ease supply concerns. 

There was also some skepticism expressed that the bottom was really behind us stating the summer rallies in a bear market are not uncommon. Well, since both the bulls and the bears are being driven by inflation concerns right now – up when  there’s optimism that inflation is getting under control, down on the days there isn’t – I’m also not sure that such a statement is accurate. It’s not part of pattern, it’s part of a unique set of investor behaviors right now.  Volume was a little below average at 10.6 billion. 

Tue  August 9, 2022  4:26 PM

Nasdaq closes lower as chipmaker Micron's warning renews tech rout

By Herbert Lash and Bansari Mayur Kamdar

DJ: 32,832.54  +29.07        NAS: 12,644.46  -13.10         S&P: 4,140.06  -5.13        8/8

DJ: 32,774.41  -58.13         NAS: 12,493.93  -150.53       S&P: 4,122.47 -17.59       8/9

NEW YORK, Aug 9 (Reuters) - The Nasdaq closed down on Tuesday after a dismal forecast from Micron Technology pulled chip makers and tech stocks lower as investors await U.S. inflation data that could lead the Federal Reserve to further tighten its efforts to curb inflation.  High inflation numbers on Wednesday, following last week's blowout jobs report, would likely stop the Fed from easing interest rates hikes anytime soon and halt the market's rally off mid-June lows.  Traders see a 68.5% chance of the Fed raising rates by 75 basis points in September, in what would be its third big hike in a row.

Adding to concerns of a tight labor market and runaway inflation, data on Tuesday showed an acceleration of unit labor costs in the second quarter, which suggested strong wage pressures will help keep inflation elevated. read more  Unit labor costs - the price of labor per single unit of output - rose at a 10.8% rate, following a 12.7% rate of growth in the first quarter, the Labor Department said.  "We're still seeing wage pressure building, using last Friday's job data as a gauge," said Jimmy Chang, chief investment officer at Rockefeller Global Family Office.  Chang remains cautious about the market's outlook. "I don't think it's going to be a set of numbers that will change the Fed’s policy course," he said.

Inflation at the moment is primarily supply driven, so the traditional central bank playbook of tightening rates to crimp demand will not be as effective as previous cycles, said Jean Boivin, head of the BlackRock Investment Institute.  "We're going to see central banks being surprised by inflation. They will have to sound hawkish on the back of this," Boivin told the Reuters Global Markets Forum.

The Dow Jones Industrial Average (.DJI) fell 58.13 points, or 0.18%, to 32,774.41, while the S&P 500 (.SPX) lost 17.59 points, or 0.42%, to 4,122.47 and the Nasdaq Composite (.IXIC) dropped 150.53 points, or 1.19%, to 12,493.93.

Volume on U.S. exchanges was 10.64 billion shares, compared with the 10.94 billion average for the full session over the past 20 trading days.  Seven of the 11 major S&P 500 sectors fell, led by a 1.5%decline in consumer discretionary (.SPLRCD). Value stocks (.IVX) closed flat, while the growth index (.IGX) slid 0.8%.

The jobsdata from last Friday eroded some of the bullish arguments that the Fed would "pivot" to a neutral policy stance, followed by rate cuts early next year, Chang said.  "You have some strategists and technicians capitulating, saying the bottom is behind us, this is a new bull market now," he said. "Typically in a bear market, a summer rally is not unusual."

Micron Technology Inc (MU.O) slid 3.7% after the memory-chipmaker cut its current-quarter revenue forecast and warned of negative free cash flow in its next quarter as demand wanes for chips in PCs and smartphones. read more  Micron's dismal forecast, a day after Nvidia Corp (NVDA.O) warned of weakness in its gaming business, knocked the Philadelphia Semiconductor index (.SOX) down 4.57%, its biggest single-day decline since June 16 as all 30 components fell. The index has lost 7% the past three days. 

 

President Joe Biden signed a sweeping bill to provide $52.7 billion in subsidies for U.S. semiconductor production and research, a measure that gained bipartisan support to combat China's investment in technology. read more  "It's utterly discounted," said Michael Shaoul, chief executive officer at Marketfield, on why chip stocks were unfazed by the bill.  Rate-sensitive growth and technology stocks slipped as U.S. Treasury yields climbed.

Despite a choppy recovery, the benchmark S&P 500 (.SPX) is down 13.5% this year after hitting a record high in early January as surging consumer prices, hawkish central banks and geopolitical tensions weigh.  Stronger-than-expected earnings from corporate America have been a positive, with 77.5% of S&P 500 companies beating earnings estimates, according to Refinitiv data as of Friday. 

 

Occidental Petroleum (OXY.N) rose 4.0% after Warren Buffett's Berkshire Hathaway  (BRKa.N)  increased its stake to 20.2% of outstanding shares. Occidental's shares have more than doubled in price this year. read more  U.S. vaccine maker Novavax (NVAX.O) slumped 29.6% after it halved its annual revenue forecast as it does not expect further sales of its COVID-19 shot this year in the United States amid a global supply glut and soft demand. read more

Declining issues outnumbered advancing ones on the NYSE by a 1.91-to-1 ratio; on Nasdaq, a 2.41-to-1 ratio favored decliners.  The S&P 500 posted four new 52-week highs and 30 new lows; the Nasdaq Composite recorded 42 new highs and 66 new lows.