August 18th Market Overview

Happy Tuesday

30 year Treasury yield touched 5.33% this morning, its highest since 2007.

Japan, Germany and France hit multi decade highs the same day. Stocks fell overall, Dow hardly moved, and the selling landed on the companies that borrow to build the Ai stuff. I don't know where yields stop. I do know the data center buildout was financed on the assumption they would be lower than this.

Let’s dig in...

Today's Big Picture

1. Expensive Money Hit the AI Trade
   Every stock in the Philadelphia semiconductor index finished lower. The companies that borrow to build fell furthest, with CoreWeave, Nebius and TeraWulf leading the way down. The Wall Street Journal reported that Big Tech's AI commitments don't all show up on the balance sheet. Cheap debt was the quiet assumption under this whole buildout, and it stopped being cheap.
   

2. The War Showed Up in Shipping Again 
   A cargo ship was struck by a projectile off the coast of Oman overnight, wrecking the engine room and killing a crew member. The UAE said it tracked two Iranian ballistic missiles, one landing inside its waters. Brent traded near $91 and crude has now risen three sessions running. Oil is the fastest route from this war into the inflation data, which is why the bond market is paying attention.
   

3. Healthcare Took the Money 
   Health care and biotech indexes closed at all time highs on a day tech sold off. Johnson & Johnson traded toward its first record close since July 7. The State Street and Vanguard health care funds both set records, with Eli Lilly and J&J making up about a quarter of each. Money rotated today, it didn't leave.

Market Overview

Index Performance

Stock spotlight

UGI $UGI ( ▲ 9.8% )  
received a $9 billion takeover bid from KKR, per the Wall Street Journal. Trading was halted briefly for volatility in the Pennsylvania gas and power utility, which serves about 700,000 customers.

Klarna $KLAR ( ▼ 22.68% )  
cut its full year revenue outlook below what Wall Street expected, burying an otherwise strong quarter. Shoppers in Germany are spending less, and Germany is Klarna's biggest market. (I hate this company)

Carvana $CVNA ( ▼ 7.47% )  
fell a second day as investors weighed whether Mark Walter sells his stake while under federal investigation. Directors Danforth Quayle and Ira Platt sold 44,525 shares between them last week.

Baidu $BIDU ( ▼ 12.69% )  
reported lower revenue and profit, and the U.S. listed shares had one of the day's worst drops.

Big name updates

Home Depot $HD ( ▲ 0.07% )  
did $47.9 billion in quarterly revenue, beat on earnings, and left full year guidance alone for the second straight quarter. Management blamed fuel and energy costs, and said big renovation jobs are still on ice.

Meta Platforms $META ( ▼ 4.47% )  
went to trial in Oakland against four states over claims its apps harmed teenagers. They want up to $1.4 trillion, which is close to what the entire company is worth.

Alphabet $GOOGL ( ▲ 0.04% )  
started selling bonds in Australian dollars to help pay for AI spending.

BHP $BHP ( ▲ 0.75% )  
said copper passed iron ore as its biggest source of annual earnings for the first time, at just over half the total.

Other notable company news

L3Harris $LHX ( ▲ 0.67% )  
removed chief executive Chris Kubasik over conduct the board said clashed with company values, and handed the job to Sam Mehta.

Bath & Body Works $BBWI ( ▲ 6.96% )  
got a Citi upgrade to buy on improving store traffic, ahead of its August 26 report.

XTI Aerospace $XTIA ( ▼ 15.29% )  
said chairman and chief executive Scott Pomeroy resigned during an internal review.

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Sector Watch

Bond market

The Fed and the bond market are arguing. Traders put September hike odds near one in three now, down from near certain in late July, and long yields climbed anyway. Barclays says what changed this year is the pile of long dated debt coming from AI companies, competing for the same buyers Treasuries need, and Japan, Germany and France all hit multi decade highs on the same day.

Policy watch

Trade

New tariffs of 50 percent on a slice of Canadian goods start at midnight unless the two sides land something tonight.

• They cover roughly a twentieth of what the U.S. bought from Canada last year, so the direct economic hit is small.

• Autos are the sticking point. Canadian limits on American wine and liquor are close behind.

• Mark Carney called the talks intense and delicate, and his trade minister said the job isn't done.

The real signal is the North American trade agreement up for review next year. A deal tonight would make that look a lot more doable.

Middle East

Trump said there are no talks with Iran and none scheduled, which contradicts what he said two weeks ago. He also said the strait is open and every mine is cleared. Central Command hasn't confirmed that and sent questions to the White House.

• He posted an image labeling the Strait of Hormuz a new U.S. territory.

• Iran and Oman are still negotiating a shipping route through it, and Trump has threatened Oman over those talks.

• Eurasia Group pushed its timeline for any real de-escalation out to year end.

Three ships crossed the strait on Sunday.

Washington

The SEC is collecting comment on scrapping the rule that requires brokers to get investors the best available price, and the responses are not friendly. Separately, the Forest Service advanced its repeal of the 2001 roadless rule, which would open millions of federal acres to logging roads and, in time, more domestic lumber.

What to Watch

The AI company quietly automating every Walmart distribution center. 
23 billion in orders on the book.

It's just one of seven names in this free MarketBeat report.

Fed Minutes

The July meeting record comes out Wednesday. Read it against a 30 year yield that has only gone up since that meeting.

Retail Earnings

Target, Lowe's and TJX report Wednesday, Walmart Thursday. Lowe's is the cleanest check on whether Home Depot's frozen housing story is the whole industry.

Oil Inventories

Weekly petroleum data lands Wednesday. It matters more than usual with the strategic reserve at its lowest level since 1982.

Thanks for reading - you are now the more informed 🙂

- John

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