Live Markets: Chip stocks lead Wall Street lower

Veeco Instruments

08/08/2023 17:29

* 
      Main U.S. indexes fall: Nasdaq down ~1.3%
    

        * 
      Financials and materials weakest S&P 500 sectors
    

        * 
      Healthcare sole gainer
    

        * 
      Dollar, bitcoin rise; gold lower; crude now ~flat
    

        * 
      U.S. 10-Year Treasury yield slides to ~4.01%
    

  
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        CHIP STOCKS LEAD WALL STREET LOWER (1622 EDT/1623 GMT)
  
        Chip stocks are dropping hard on Tuesday, with Advanced
Micro Devices  AMD.O , Intel  INTC.O  and Broadcom  AVGO.O 
leading the way lower in a broad Wall Street selloff.
  
        AMD is down 3.6% at mid-day, while Broadcom and Intel
are each losing almost 2%.
  
        The Philadelphia Semiconductor Index  .SOX  is tumbling
2.4%, cutting its recovery in 2023 to about 44%. The chip
benchmark is down about 10% from its record high close in
December 2021.
  
        China's imports and exports fell much 
    faster
     than expected in July, data showed on Tuesday, as weaker
demand threatens recovery prospects in the world's
second-largest economy.
  
        Exports to the United States - the top destination for
Chinese goods - tumbled 23% year-over-year, while shipments to
the European Union fell 21% as diplomatic tensions mount over
chip technology and "de-risking" from China.
  
        Veeco Instruments  VECO.O  is jumping nearly 6% after
the manufacturer of chip process equipment late on Monday 
    reported
     better-than-expected quarterly results late.
  
        Nvidia  NVDA.O , however, is last down 2%, trimming its
gain in 2023 to 203%.
  
           
  
        (Noel Randewich)
  
         *****
  
        
  
        
  
        SOFT-LANDING NOT A GIVEN (1155 EDT/1555 GMT)
    The S&P 500  .SPX  has risen 16% so far this year thanks to
a rally driven by AI prospects, and several major brokerages
have predicted a likely soft-landing scenario for the U.S.
economy as it shows resilience in the face of Fed's tightening. 
    But Wells Fargo and Citigroup warn that markets may be
getting ahead of themselves. 
    "The AI rally is running ahead of reality, in our view, and
there are still significant uncertainties about how AI
integration into the economy and what regulatory challenges may
arise," said Paul Christopher, head of global investment
strategy at Wells Fargo Investment institute (WFII). 
    While WFII is overweight U.S. large caps, they favor taking
profits on tech related sectors, and reallocating to
quality-oriented sectors such as energy, healthcare and
materials. 
    Citigroup, meanwhile, says a soft-landing is "the least well
supported" by empirical and theoretical evidence. 
    "To the extent the economy continues to expand, inflation
will likely remain stuck above target," said Citi's chief U.S.
economist Andrew Hollenhorst. 
    "As markets come to grapple with the implication of
higher-for-longer policy rates with consistently strong US
activity data, this could lead to a continued move higher in
yields. We agree that a near-term recession looks unlikely, but
we also would not see current conditions as consistent with a
true soft-landing scenario."
    He cites the labor market remaining imbalanced, with demand
still outstripping supply, adding that rising house prices and
rebounding goods demand data point to upside risks for a broad
range of consumer prices into 2024.
    
    (Susan Mathew)
     *****
    

    WILL "FOMO" BECOME "OH, NO"? (1133 EDT/1533 GMT)
    Saira Malik, CIO at Nuveen, is pondering the question -
"Will 'FOMO' turn into 'Oh, no'?" 
    According to Malik, the overall equity market backdrop in
2023 has been such a pleasant surprise and has reintroduced the
all-too-popular phrase, “Fear Of Missing Out.”
    While year-to-date gains have been a welcome reprieve from
2022's bear market volatility, Malik says that last week’s news
proved just how fragile the rally had become.
    "Beyond the U.S. credit downgrade, elevated inflation and
higher-for-longer interest rates continue to act as headwinds
for markets and the underlying economy," Malik writes in a note.
    Though last week’s nonfarm payrolls underpinned the healthy
employment backdrop, Malik says that hot wages – one of the
Fed’s most closely watched data points – are still well above
long-term trends. 
    Although Malik believes a persistently resilient economy and
better-than-expected earnings are reasons for tempered
confidence, lofty valuations and downside risks point to the
potential for heightened near-term volatility. 
    Given this, Nuveen believes investors may want to consider
adding a little more quality defensive positioning to their
equity allocations.
    In terms of portfolio considerations amid what is likely to
be stubbornly high inflation over the medium-term, Malik thinks
investors may want to consider global infrastructure. She says
the sector’s profitability tends to be well insulated from the
costs of higher interest rates and elevated inflation. Malik
mentions U.S. utilities as an infrastructure play.
    Malik also mentions waste management as an area also well
prepared for a slowdown, as relatively stable demand for their
operations converts to pricing power.
    Additionally, she says 2022's Inflation Reduction Act makes
green energy spending even more attractive.
    In the meantime, Malik also believes that North American
energy infrastructure, such as gas pipelines, should continue to
benefit from relatively favorable dynamics in an elevated
inflationary environment.

    (Terence Gabriel)
     *****
    
        
  
        U.S. STOCKS TAKE A HIT AS BANKS BATTERED (1005 EDT/1405
GMT)
    Wall Street's main indexes are sharply lower early on
Tuesday with banks under heavy downside pressure after Moody's
cut credit ratings of several small- to mid-sized U.S. banks and
said it could downgrade some of the country's biggest lenders.
    With this, banking indexes are among the biggest losers. The
SPDR S&P 500 banks index  .SPXBK  is off more than 2.5%, while
the KBW regional banking index  .KRX  is down more than 3%.
    Chips  .SOX  are also among weaker groups.
    Defensive S&P 500 sectors such as healthcare  .SPXHC  and
utilities  .SPLRCU  are showing strength.
    This with the U.S. 10-Year Treasury yield  US10YT=RR  now
retreating back to the 4% area.
    Here is a snapshot of where markets stood just shortly after
1000 EDT:
    
    
    (Terence Gabriel)
     *****     
    
    
    SICK MAN OF EUROPE REARING ITS HEAD AGAIN? (0925 EDT/1325
GMT)
    Talks of Germany returning as the sick man of Europe are
doing the rounds after recent data showed Europe's largest
economy stagnated in the second quarter, having fallen into a
mild recession in winter.
    Like most other economies, Germany is also feeling the heat
from the most aggressive monetary policy tightening in decades,
but what has been particularly detrimental for Germany is the
fact that the United States and Europe are slowly pulling away
from production and trade ties with China and Russia.
    With the ending of China's last growth stage and Russia's
disintegration from Europe, the entire economic model of Germany
has changed for the worse, said Saxo Bank's head of equity
strategy, Peter Garnry.
    "The structural issues might not be as bad as during the
"sick man of Europe" days of the 1990s, but the failure of
building a digital economy and cluster of powerful technology
companies combined with the car industry ongoing its biggest
competitive change in 70 years are exposing the German economy
to key risks," Garnry added.
    The slowing economic growth and absence of Big Tech, that
has benefited from the AI frenzy this year, have pushed European
equities to their biggest valuation discount to U.S. equities
since January 2006, according to Saxo Bank, reflecting the
pessimism on continental markets among investors. 
    "While investors are offered value in Europe it comes with
risks," said Garnry, pointing to the prolonged crisis in
Ukraine, Germany's structural growth issues and the ongoing
energy crisis due the Russia-Ukraine conflict.
    While the German DAX  .GDAXI  hit a record high as recently
as July 31, it has a price-to-earnings ratio of 13.25 versus the
benchmark S&P 500's  .SPX  PE ratio of 24.05. 
    
    (Sruthi Shankar)
     *****
    
    
    TEXAS HOUSING STRAIN TO WORSEN AS POPULATION BOOMS -BOFA
INSTITUTE (0915 EDT/1315 GMT)
    Texas cities are more likely to have the biggest housing
shortages in the long-term, as the state continues to see strong
population growth, as per a Bank of America Institute report.
    Cities such as Dallas, Orlando, Houston, and San Antonio
continue to see fast inward population growth and putting strain
to an already stretched housing supply.
    The Department of Commerce reported last week that U.S.
housing vacancy rates edged lower in the second quarter,
intensifying a nationwide housing shortage that has propped up
rents and home prices against the downward pressure of high
mortgage rates.
    One reason for the shortfall in housing is booming labor
markets which are performing even better than national
statistics, said Anna Zhou, Economist at Bank of America
Institute.
    On the other hand, the cities of St. Louis, Detroit and
Miami appear to have the highest housing stock relative to their
population, likely due to shrinking populations or excess
housing construction, the institute finds. 
    In Miami, the institute notes that many people who moved to
the city in the beginning of the pandemic have since moved away,
in part due to rising cost of living in the city.
    "While home price appreciation remains elevated in Miami so
far, longer term downside risks could be growing if such exodus 
trends are sustained," Zhou said.
    Of the 27 metropolitan statistical areas (MSAs) the
institute tracks, 13 continue to see positive year-over-year
(YoY) growth in population with Jacksonville and Columbus
leading the gain.
    "The good news is that cities with lower housing supply are
already seeing higher construction trends but if the current
population dynamics are maintained there will continue to be a
strong housing need in the growing parts of the country."
    
    (Roshan Abraham)
     *****

    
    U.S. 10-YEAR TREASURY YIELD SLIDES AS STOCK FUTURES, BANKS
SINK (0900 EDT/1300 GMT)
    U.S. equity index futures are lower on Tuesday, with
financial stocks under pressure after Moody's cut credit ratings
of several small- to mid-sized U.S. banks and said it may
downgrade some of the nation's biggest lenders.
    Add in a sharp fall in European banks  .SX7P  after Italy
shocked banks with a 40% windfall tax for 2023, and it's perhaps
no surprise that anxiety is suddenly ratcheting back up.
    Indeed, ahead of the open, the SPDR S&P regional banking ETF
 KRE.P  is quoted down nearly 3%.
    On the plus side, Philadelphia Fed President Patrick Harker
said on Tuesday that barring any abrupt change in the direction
of recent economic data, the U.S. Federal Reserve may be at the
stage where it can leave interest rates where they are. 
    That said, markets still have to wait for the latest CPI
data out of the U.S. due on Thursday.
    Meanwhile, the VIX  .VIX  is percolating, and the U.S.
10-Year Treasury yield  US10YT=RR , after hitting a high of
4.2060% just this past Friday, is sliding back to 4.00% on
Tuesday:
    
    
    Indeed, the yield has turned to the downside after probing
monthly Gann Line resistance at 4.20%, which was ahead of the
October 2022 high at 4.3380%.
    Now, with the reversal, the yield is back down to flirt with
the 23.6% Fibonacci retracement of its 1981-2020 yield decline
at 3.9765%, and the August low at 3.9490%. Coming back under
these levels can suggest room for a deeper decline.
    The 3.74%-3.67% area is now seen as particularly significant
since it includes another monthly Gann Line, the mid-July
trough, the 100 and 200-day moving averages, and the support
line from late 2021.
    Now reversing back over 4.07% can refocus on the
4.13%-4.206% area, followed by 4.338%.
    
    (Terence Gabriel)
     *****
 
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 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)