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Briefing.com Summary:
*There is an active buy-the-dip trade on the heels of Wednesday's post-FOMC selloff.
*Intel (INTC) and the semiconductor stocks are in rally mode ahead of the open.
*Fed Chair Warsh sounded more hawkish-minded than many market participants had been expecting.
The stock market hit an air pocket yesterday as it listened to Fed Chair Warsh lay out his view for the Federal Reserve. The most important revelation is that the Fed is committed to delivering price stability, which he said it has failed to do for the last five years.
The takeaway from that statement is that the Fed isn't going to be cutting rates anytime soon. The fed funds futures market pretty much thought as much before Mr. Warsh spoke, but hearing him emphasize the price stability commitment took some market watchers by surprise, as it upended a popular belief that Mr. Warsh would helm the FOMC with a more dovish-minded disposition.
He may eventually, but he clearly isn't coming out of the gate. Accordingly, the 2-yr note yield spiked as he conducted his press conference and stocks sold off.
Ah, but that selloff in stocks was like catnip for the buy-the-dip crowd, which has been quick to cast aside yesterday's concerns about restrictive monetary policy in favor of its undying belief in the AI buildout trade and its longstanding position that the U.S. and Iran would come to a peace agreement that would facilitate the reopening of the Strait of Hormuz.
Currently, the S&P 500 futures are up 63 points and are trading 0.8% above fair value, the Nasdaq 100 futures are up 496 points and are trading 1.7% above fair value, and the Dow Jones Industrial Average futures are up 247 points and are trading 0.5% above fair value.
The semiconductor stocks are the focal point of the AI trade. Intel (INTC) is leading the pack, up 8.7%, after President Trump stated in a Truth Social post that "Apple (AAPL) has agreed to work with Intel to design and build its Chips in America." Meanwhile, Marvell Technology (MRVL), the company Jensen Huang touted as the next trillion-dollar company, is up 6.2% on the heels of KeyBanc raising its price target to $385 from $260.
The VanEck Semiconductor ETF (SMH) is up 3.9% ahead of the open, with visions of pricing power underpinning many of the stocks after Apple CEO Tim Cook told The Wall Street Journal that the company will have to raise prices due to the huge price increases it is incurring for memory and storage chips.
We're just wondering when the market might catch on to the fact that this is inflation at work in real time that isn't due to oil prices. In any case, it is a timely revelation on the other side of Mr. Warsh's commitment to delivering price stability that monetary policy is apt to have a restrictive orientation longer than previously expected.
For now, though, the stock market is seeing it as more fuel for earnings growth and multiple expansion, at least in the case of the semiconductor stocks, and more reason to keep plying its buy-the-dip trade.
Lower oil prices (WTI -2.0% to $75.24/bbl), after the U.S. and Iran officially signed their memorandum of understanding earlier than expected, have helped spur buy-the-dip efforts, along with average gasoline prices sliding below $4.00/gallon after topping $4.50/gallon a month ago.
That has put more fuel in the bull market's tank, which has gotten a fuel additive in an otherwise pleasing weekly jobless claims report and a better-than-expected Philadelphia Fed Index for June.
Briefly, initial jobless claims for the week ending June 13 decreased by 4,000 to 226,000 (Briefing.com consensus: 226,000), while continuing jobless claims for the week ending June 6 increased by 24,000 to 1.810 million.
The key takeaway from the report is the steady level of initial jobless claims—a leading indicator—which suggests the continuation of low firing activity overall.
Separately, the Philadelphia Fed Index bounced back into expansion territory, printing a reading of 10.3 (Briefing.com consensus: 10.0) versus -0.4 in the prior month. The line between expansion and contraction for this report is 0.0.
