The stock market rally gained momentum amid tame inflation data that sent Treasury yields and the dollar tumbling. The S&P 500 and Nasdaq hit fresh 52-week highs while a slew of leading stocks flashed buy signals. Salesforce.com buoyed software names with its first price hikes in seven years. Delta Air Lines reported strong earnings and guidance, a good sign for airline stocks and travel plays broadly. JPMorgan Chase and Wells Fargo rallied on among an early batch of financials reporting. Megacaps shrugged off news of an upcoming Nasdaq 100 special rebalance that will reduce the weight of Microsoft, Nvidia and more.
S&P 500, Nasdaq Hit Market Rally Highs
The Nasdaq and S&P 500 both rallied to their best levels in more than a year, while the Dow lagged, but did flirt with 2023 highs. Market breadth continued to improve dramatically, with a slew of leading stocks running past buy points. The big catalyst? Tame inflation reports that eased Fed rate hike fears, sending Treasury yields and the dollar tumbling. Salesforce.com fueled software gains, while Delta Air Lines and JPMorgan Chase got earnings season off to a strong start. Crude oil prices rose .
Inflation Cools, Fed Fears Ease
The threat of persistently high core inflation and multiple additional Fed rate hikes got downgraded in a big way over the past few days. Benign monthly readings in June for the consumer price index and producer price index reversed the latest spike of the 10-year Treasury yield past 4%, providing support for a rallying stock market and lifting hopes that the economy can avert recession.
The overall CPI rose 0.2%, lowering the annual inflation rate to 3% from 4% in May. The core CPI, excluding food and energy, rose just 0.16%, the smallest monthly increase since February 2021, before the inflation outbreak began. The core CPI inflation rate eased to 4.8% from 5.3%, better than 5% forecasts. Drops in prices for air travel, cellphone plans and used cars held down core inflation.
The next day's PPI rose just 0.1% on the month. Along with downward revisions to May data, that cut the wholesale inflation rate to practically nothing: 0.1%. The core PPI also rose a tame 0.1%, lowering the 12-month inflation rate to 2.4%.
Plus, PPI data showed that health care services prices rose just 0.1% in June. PPI health services data feeds into the Fed's primary inflation rate, the personal consumption expenditures PCE price index. Tame health services inflation increases confidence that June's PCE inflation reading will be tame as well.
While a Fed rate hike on July 26 looks certain, markets now see only about 25% odds of a second extra hike this fall, down from about 40% a week ago.
Salesforce Spikes On Price Hike
Salesforce will lift prices by an average of 9% for most software products in August, its first hikes in seven years. The Dow Jones giant sells software under a subscription model, covering sales, customer relationships, marketing, e-commerce and data analytics. CRM stock soared, clearing a buy point. The Salesforce price hike also appeared to buoy many other software plays.
Delta Air Lines Earnings Fly 86%
Delta Air Lines topped Q2 views, with revenue increasing 19% to $14.6 million, with international travel revenue soaring 61%. Domestic passenger revenue climbed 8%. The carrier also raised its full-year guidance. Delta shares jumped, with other airline stocks rising.
Big Banks Beat Earnings Views
JPMorgan Chase and Wells Fargo handily beat Q2 views, while Citigroup slightly topped. JPMorgan, benefiting from its First Republic Bank bailout acquisition in May, reported a 72% EPS gain while revenue leapt 34% to $42.4 billion. Wells earnings leapt 67%, with revenue growth accelerating to 20%. Citigroup earnings tumbled as revenue edged lower. reported strong net interest income. All beat net interest income estimates, with JPMorgan raising its NII guidance. JPMorgan CEO Jamie Dimon said the U.S. economy was "resilient" but warned consumer spending is slowing as they use up their cash buffers. JPM and WFC rose solidly for the week. Citi reversed lower Friday on earnings, paring weekly gains.
Eli Lilly, Novo Nordisk Shrug Off On Weight-Loss Drug Reports
Eli Lilly and Novo Nordisk initially fell this past week on damaging reports facing their obesity treatments, but LLY slashed losses while NVO turned higher. Only 32% of patients who began taking a weight-loss drug like Novo's Wegovy were still taking it a year later, according to an analysis from pharmacy benefits manager Prime Therapeutics. Lilly is hoping to gain approval for its diabetes drug, Mounjaro, as an obesity treatment. Also, the European Medicines Agency began investigating three reports tying some of Novo's diabetes and weight-loss drugs and suicidal thoughts.
Lilly will buy privately-held Versanis Bio for $1.925 billion cash, including future milestone payments. Versanis has a drug in Phase 2b trial to treat cardiometabolic diseases and obesity.
UnitedHealth Earnings Rise
The health insurance giant topped Q2 views despite rising medical costs. EPS grew 10% while revenue rose 16% to $92.9 billion. Its main UnitedHealthcare unit saw membership climb to 58.2 million, also topping. UNH's net margin fell to 5.9% from 6.3% as its medical cost ratio climbed to 83.2% from 81.5% a year earlier. Shares of UnitedHealth and other managed-care firms have tumbled in recent weeks on warnings of rising costs as medical procedures return to pre-pandemic levels. UNH stock rose on earnings though.
Amazon Prime Day Biggest Yet
E-commerce giant Amazon.com said its 48-hour Amazon Prime Day sales event was its biggest ever, with July 11 the single largest sales day in company history. Prime members purchased more than 375 million items worldwide during the event, up from over 300 million items in last year's promotion. Amazon did not give revenue figures. Analyst estimates for Amazon revenue growth for the event ranged from 15% to 21% vs. last year's Prime Day. Bestselling product categories included home, fashion and beauty, implying the consumers were more practical with their purchases this year.
News In Brief
Microsoft entered the computer security Secure Service Edge market, or SSE, taking on Zscaler, Palo Alto Networks, Cloudflare, among other. All three cybersecurity stocks tumbled Wednesday, though PANW stock pared weekly losses while ZS rose modestly and Cloudflare jumped.
InMode soared out of a base after preannouncing Q2 EPS and revenue above Wall Street estimates. The medical aesthetics company also raised its full-year sales view.
ExxonMobil will buy Denbury in a $4.9 billion all-stock deal. The energy giant views Denbury key to its carbon emission cutting efforts, while also providing some oil and natural gas assets. Denbury, which has been viewed as a takeover target for months, fell on the deal.
Berkshire Hathaway will pay Dominion Energy $3.3 billion for its 50% stake in the Maryland-based Cove Point LNG export plant. Warren Buffett's Berkshire, which operates the facility, will have a 75% stake. Brookfield Asset Management owns the other 25%.
XPeng began delivering the new G6 to customers. The EV startup is betting big on its latest electric crossover SUV, which is priced well below the Tesla Model Y in China.
Domino's bolted 11% Wednesday after the pizza chain and delivery giant announced it's expanding its mobile order offerings via a new partnership with Uber Technologies. Per the deal, Domino's drivers will deliver orders made on Uber Eats and Postmates apps. The pilot rollout will begin this fall with nationwide service seen by year-end.
Roku announced a partnership with Shopify. The arrangement will allow viewers on Roku's streaming video platform to buy products from Shopify merchants through their TVs using their remote controls. Roku stock surged while Shopify rose solidly, both flashing buy signals.
Aehr Test Systems beat Wall Street's targets for its fiscal fourth quarter ended May 31 and forecast accelerating sales and earnings growth in the current year. For fiscal 2024, it expects sales and net income to rise over 50% and 90%, respectively. In the just-ended fiscal 2023, sales and net income rose 28% and 54% from the prior year.
Activision Blizzard stock rocketed after a federal court allowed Microsoft to proceed with its $69 billion acquisition of the video game publisher. The U.S. District Court rejected arguments from the Federal Trade Commission that the deal would lessen competition. The FTC has appealed the ruling. Meanwhile, Microsoft may be near a deal to win over U.K. regulators.
