July 14th Market Overview

Happy Tuesday

Inflation is down. Stocks took the win.

The Dow went nowhere anyway, because IBM had its worst day since 1987. Banks printed the biggest quarter in the history of American banking and half of them still closed red.

Oil finished up even after Trump dropped his shipping fee.

Let’s dig in...

Today's Big Picture

Inflation Cooled and the Fed Got Some Room

June prices came in below what economists expected, and once you strip out food and gas, prices did not rise at all. Traders now see a July rate hike as unlikely, after betting it was close to a coin flip yesterday. Kevin Warsh told Congress the report was good but one month is not a win. Better data, same Fed.

IBM Just Told You Where Corporate Money Is Going

IBM warned its quarter will miss, and the reason matters more than the miss. In the last weeks of June, its customers pulled money out of software and mainframes and spent it on servers, storage and memory chips before prices climb. Chip makers and cybersecurity names collected that money today. Software companies lost it.

Banks Had Their Best Quarter Ever and the Stocks Still Split

Five big banks earned more than $49 billion between them. JPMorgan made the largest quarterly profit in US banking history and Goldman set its own record. Citigroup and Wells Fargo still finished lower. The money came from trading desks, not from lending, and investors noticed which one is the real business.

Market Overview

Index Performance

Stock Spotlight

IBM $IBM ( ▼ 25.31% )  
had its worst day since Black Monday in 1987. CEO Arvind Krishna said the z17 mainframe cycle came up short and clients reprioritized their capital spending. Actual earnings land next week.

Micron $MU ( ▲ 4.54% )  
led the chip bounce back. If clients are buying memory ahead of price hikes, Micron is the one collecting.

CrowdStrike $CRWD ( ▲ 11.46% )  
ran higher after Krishna said cybersecurity concerns pulled client attention during the quarter. Security budgets look safe.

ServiceNow $NOW ( ▼ 5.46% )  
fell with the rest of enterprise software. When IBM says the software wallet is shrinking, the market checks everybody’s pockets.

Big Name Updates

Goldman Sachs $GS ( ▲ 9.09% )  
posted a record quarterly profit and led the banks. David Solomon said the deal backlog grew and CEOs are hunting for size.

JPMorgan Chase $JPM ( ▲ 2.09% )  
earned $21.2 billion, the most any US bank has made in a quarter. Jamie Dimon called conditions “close to as good as it gets.”

Citigroup $C ( ▼ 4.93% )  
beat on earnings and revenue and the stock still fell. Jane Fraser told analysts she plans to spend into the good times, and investors flinched at the expense line.

Wells Fargo $WFC ( ▼ 2.22% )  
beat too and also finished red. Oppenheimer pointed out the profit leaned on equity gains rather than the trading strength its peers showed.

Bank of America $BAC ( ▲ 2.04% ) grew net income in every segment. Brian Moynihan said the economy is more durable than expected and consumer spending is holding up.

Other Notable Company News

Biogen $BIIB ( ▼ 8.17% )  
fell after its experimental Alzheimer’s drug showed cognitive results roughly in line with a drug it already sells.

Arm Holdings $ARM ( ▼ 5.8% )  
was cut to hold at HSBC, which raised the price target but sees foundry capacity capping the upside.

Circle $CRCL ( ▼ 0.35% )  
was cut to underperform at Mizuho over a new stablecoin group backed by 140 companies including Visa and Mastercard.

Progressive $PGR ( ▼ 3.38% )  
got downgraded to neutral at JPMorgan on tougher competition in personal auto. It reports Wednesday.

BP $BP ( ▲ 1.48% )  
said second quarter oil trading should come in slightly better than an already strong first quarter, and it cut debt.

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Sector Watch

Bond Market

Yields dropped after core prices came in flat for June. The 10-year backed off to around 4.58 after climbing overnight on war headlines.

The July hike is mostly priced out now. September is not. That is the meeting to watch, and Warsh gave nothing away today.

Policy Watch

Fed

Warsh spent close to three hours with the House Financial Services Committee and gave the market almost nothing on rates. That was the point. What he did say:

• The Fed has no tolerance for inflation that stays high, and one good month is “not for cherry picking.”

• The balance sheet is monetary policy, not plumbing. Any change gets previewed and debated first.

• The Fed does not want to be in the bailout business, crypto very much included.

• Price stability, in his words, is when households do not have to think about prices at all.

Fiscal and Trade

Trump dropped the 20 percent cargo fee on ships crossing the Strait of Hormuz and said Gulf states will make large investments into the US instead. Oil gave back part of the pop, then finished higher anyway.

The reason is simple. The fee is gone but the blockade is not. It restarted Tuesday afternoon, and US forces struck Iran for a third straight night.

International

• China’s June exports set a monthly record at $412 billion. Semiconductor exports more than doubled from a year ago and car exports topped a million vehicles in a month for the first time.

• Singapore’s economy beat expectations in the second quarter on manufacturing.

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China Second Quarter GDP

Out Wednesday after a record export month. The question is whether domestic demand shows up, and whether Beijing signals anything before the late July Politburo meeting.

The Hormuz Blockade

Watch tanker traffic, insurance rates and where crude actually reroutes. Refiners are already telling you what the market thinks.

IBM's Real Numbers

Today was a warning letter. Next week we get the detail on where that client capex actually went, and that number matters to half the tech tape.

- John

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