What to know today

  • It’s a nice PCE Friday. 
  • Amazon takes on Shein and Temu.
  • Micron weighs on other chipmakers.
markets

Seems Like a Soft Landing

Stay tuned for incoming data.

Welcome to the last day of the week, the month, and the second quarter.

And what an occasion it is, with the Federal Reserve’s favorite inflation indicator set for release at 8:30 a.m. ET.

The major equity indexes made it through some chipmaker volatility to stack another set of green numbers on Thursday.

The shock here is that Nvidia $NVDA was only along for what was Micron Technology’s $MU ride – one triggered, perhaps, by a careless “whisper number” that went unmet.

That the S&P 500 and the Dow Jones Industrial Average both posted gains of 0.09 percent suggests some harmonization after the discordant action of the early week as NVDA bounced up and down around the $3 trillion market cap mark.

That the Nasdaq Composite was up 0.30 percent suggests tech is still leading this market, despite the chipmakers’ troubles Thursday.

Breadth is a real factor, but, so far, deterioration hasn’t held back the big indexes from all-time highs so far in 2024, with even the NVDA-less Dow cracking 40,000 for the first time ever a little more than a month ago.

“The stock market is not the economy,” of course, but things are looking good there too.

As Apollo Global Management partner and chief economist Torsten Slok noted on Thursday, it’s hard to be negative on the economy when household net worth relative to income is near record-high levels.

Data collected by Torsten Slok of Apollo Global Management show that household net worth relative to income is near record-high levels.

Ryan Detrick of Carson Group provides the underscore here: “People are simply worth a lot more, and you don't have recessions when most consumers are healthy.”

If there is something to keep an eye on – and we’ve been doing that – it’s the employment market. 

Even here, though, with continuing claims for unemployment insurance for the week ended June 15 rising to levels not seen since 2021, the broader context is basically positive.

Continuing claims for unemployment insurance rose to 1.84 million for the week ended June 15, 2024, the highest level since late 2021.

The rate of change is important, especially if it’s rising – it’s rarely good when people lose jobs. Initial claims came in below expectations, but the four-week moving average is the highest it’s been since September.

Once they lose a job, it is getting harder to find another, is what that means.

Here’s the thing, though: During the two decades before the COVID-19 pandemic, weekly initial claims averaged approximately 345,000, while continuing claims averaged approximately 2.9 million.

Inflation remains the priority, perhaps at the risk of a policy mistake.

Enter PCE Price Index data for May.

The consensus according to FactSet is that the headline month-over-month print will be flat at 0.26 percent. The year-over-year print is expected to be 2.6 percent, cooling from 2.7 percent in April.

At the core level, the month-over-month forecast is 0.10 percent, cooling from 0.25 percent in April, and the year-over-year forecast is 2.6 percent, cooling from 2.8 percent.

According to the CME FedWatch tool, traders are pricing in a 53 percent chance of a quarter-point rate cut at the September Federal Open Market Committee meeting.

Whatever slowing there is at a macro level seems to be happening at a reasonable pace.

Sounds like a soft landing.

But stay tuned for incoming data.

deep dive

Amazon Delivers More Day One Vitality

Winning customers is the Bezos Way.

"We're not competitor obsessed,” Amazon.com $AMZN founder Jeff Bezos said in one of his annual shareholder letters. “We're customer obsessed. We start with what the customer needs and we work backwards."

Bezos chose the name “Amazon” from a dictionary because it was “exotic and different,” and that’s what he wanted his company to be. “Amazon” also connotes constant movement, like the biggest river system in the world.

The company’s focus is “to delight customers with more selection, lower prices, and greater convenience,” as a company spokesperson said to describe its latest initiative.

According to multiple outlets, Amazon presented a plan for a new budget storefront during a closed-door event for sellers in China.

The budget storefront on its main site would include low-cost apparel, home goods, and other lifestyle items.

CNBC said it will compete directly with China-based upstart internet retailers Shein and Temu. The new storefront will allow Chinese sellers to ship directly to the US.

Whether he chooses to call it “competition,” Bezos has animated his ecommerce behemoth with an instinct for winning customers, and it’s been doing that ever since the site went live selling books in 1997.

Amazon.com $AMZN was up 2.19 percent on Thursday, June 27, 2024, and is now up 30.22 percent year to date.

Amazon will begin accepting products from sellers for listing on the storefront this fall, though it hasn’t said when it will open for business.

It promises expedited shipping times from China for unbranded merchandise priced below $20 – a direct shot across Shein’s and Temu’s bows.

Amazon says Chinese sellers will save on costs. Amazon also hopes to attract more sellers to its platform.

The Middle Kingdom remains a major global growth engine for Amazon, with items sold by Chinese merchants up 20 percent last year.  And the number of sellers with sales greater than $10 million grew by 30 percent.

AMZN, enjoying a strong week, was up another 2.19 percent on Thursday.

The stock crossed the $2 trillion market capitalization threshold for the first time and appears ready to make higher highs from here.

"There are many ways to center a business,” Bezos emphasizes in another shareholder letter.

“You can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused, and there are more.

“But, in my view, obsessive customer focus is by far the most protective of day one vitality."

deep dive |
June 28, 2024

Amazon Delivers More Day One Vitality

FROM THE RESEARCH DESK

Down To a Whisper

Micron misses unofficial guidance…

Micron Technologies $MU got hammered on Thursday, falling another 7.12 percent in the aftermath of its post-closing-bell fiscal third-quarter earnings release on Wednesday.

The chipmaker beat top- and bottom-line forecasts with its results.

But those were the “official” numbers. The “whisper numbers” created hope of something else, speculates Adam Clark of Barron’s.

That speculation is founded on a lot of history of earnings-announcement-management, not necessarily by Micron, but it happens.

Expectations for growth for Micron and other AI chipmakers are extremely high right now, and any break in stride is going to be punished, if only in the very short term.

Take MU, which was trading higher in the after-market already on Thursday.

Micron Technology $MU was down 7.12 percent on Thursday, June 27, 2024, weighing on other major chip makers.

Wall Street may have been disappointed with this week’s developments but it remains long-term bullish on the stock and the broader boom that’s carrying it higher.

Goldman Sachs, reiterating its “buy” rating on the stock, says this dip is an opportunity. With a 12-month target of $158, Goldman sees upside of 19.48 percent from Thursday’s closing price.

AI-driven demand is still strong, Goldman says, and will remain particularly so for Micron’s memory products.

CFRA also reiterated its “buy” rating on MU and boosted its price target to $170 from $130, implying 12-month upside of 28.56 percent.

Micron’s “content growth in AI-enabled servers, PCs, and smartphones provides a multi-year growth opportunity,” writes analyst Angelo Zino.

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