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US stocks fell on Tuesday as investors trod carefully on the eve of a closely watched consumer inflation report seen as key to the path of interest rates.
The Dow Jones Industrial Average (^DJI) closed down over 0.3% after muted trading throughout the session, while the S&P 500 (^GSPC) and tech-heavy Nasdaq Composite (^IXIC) also fell around 0.3% after all three gauges started the week with small losses.
Alphabet (GOOG, GOOGL), which initially boosted the overall tech sector in early trade, saw shares close over 5% higher after the Google parent claimed breakthroughs in quantum computing through the use of its new Willow quantum chip.
While stocks are broadly muted, they are not far off from record highs as investors wait for Wednesday’s update on consumer prices. Hopes are that the November inflation reading will provide further evidence of a “soft landing” for the economy, justifying widespread bets on a Federal Reserve rate cut in December.
Elsewhere in individual stock moves, Oracle (ORCL) shares fell around 7% after its quarterly revenue fell short in the face of tough cloud competition.
Investors also weighed chipmaker Taiwan Semiconductor Manufacturing Co.’s (TSM, 2330.TW) report of a 34% year-on-year jump in revenue in November. While the sales number suggested sustained AI demand, it was also a decline from the previous month’s reading. The Apple (AAPL) and Nvidia (NVDA) suppliers’ stock slipped nearly 3%.
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Stocks close lower ahead of CPI report
US stocks lagged on Tuesday as investors remained cautious ahead of November’s consumer inflation report, which is set for release early Wednesday morning.
The benchmark S&P 500 (^GSPC), Dow Jones Industrial Average (^DJI), and tech-heavy Nasdaq Composite each closed down around 0.3% in a mostly muted trading session on Wall Street.
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FTC blocks Kroger’s $25 billion acquisition of Albertsons
Kroger’s (KR) pending $24.6 billion acquisition of rival grocery chain Albertsons Companies (ACI) was blocked Tuesday by a US district judge in a major win for the Biden administration.
In a three-week trial, the US Federal Trade Commission argued the merger would lessen competition in the grocery space and lead to higher consumer prices over the long term.
“On balance, the Court finds that both qualitative and quantitative evidence shows that defendants engage in substantial head-to-head competition and the proposed merger would remove that competition,” the court filing read.
“As a result, the proposed merger is likely to lead to unilateral competitive effects and is presumptively unlawful.”
Shares of Kroger rose over 5% following the news while Albertsons fell around 3%.
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Here comes the November CPI report…
November’s Consumer Price Index (CPI) will serve as the latest test of whether an inflation resurgence is a risk to the US economy as the Federal Reserve debates its final interest rate decision of the year after cutting rates by 75 basis points so far in 2024.
The report, set for release at 8:30 a.m. ET on Wednesday, is expected to show headline inflation of 2.7%, a slight uptick from October’s 2.6% annual gain in prices. Consumer prices are expected to have risen 0.3% over the prior month, also ahead of the 0.2% monthly increase seen in October.
On a “core” basis, which strips out the more volatile costs of food and gas, prices in November are expected to have risen 3.3% over last year for the fourth consecutive month. Economists expect monthly core price increases to also match the prior month’s reading of 0.3%, according to Bloomberg data.
“The Fed should be in a position to move forward on the December rate cut, but [the final] CPI report now becomes another significant milestone in the policy-adjustment calculus,” Rick Rieder, chief investment officer of global fixed income at BlackRock, wrote on Friday.
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Productivity is surging. Could that mean a Fed pause?
The US economy remains in a solid position, with new data released on Tuesday emphasizing that strength in the face of high interest rates.
Productivity growth in the third quarter was left unrevised at a healthy 2.2% on a sequential basis, while the year-over-year rate remained unchanged at 2.0%.
“Productivity growth, which over the last year has exceeded the average for the business cycle, may slow in response to looser labor market conditions but we expect it to continue at a solid pace,” Nancy Vanden Houten, lead US economist at Oxford Economics, wrote in reaction to the data.
The economist said productivity strength is “partly a response to the tight labor market conditions over the past few years” but that there have been structural changes as well, including “the surge in business dynamism and stronger investment in intellectual property and research and development.”
“As a result, we think trend growth in the US economy is currently above 2%,” Houten said.
Chris Rupkey, chief economist at FWDBONDS, added higher productivity trends might mean interest rates are closer to neutral than initially thought.
The data “calls into question just how restrictive the Federal Reserve’s interest policy actually is,” Rupkey said. “With productivity data like these in hand, the hawks at the Fed can argue that interest rates are closer to neutral than the committee previously believed.”
The economist said the strong trend likely won’t stop the Fed from cutting rates again next week, “but the number of rate cuts needed in 2025 remains an open question.”
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Stocks on the move: SMCI, Walgreens
Some other stocks on the move today…
Super Micro Computer (SMCI): Shares fell as much as 9.8% on Tuesday after CEO Charles Liang said at a Reuters conference that he does not believe the company will be delisted from the Nasdaq. Liang said the company plans to file its necessary financial documents, which include delayed annual and quarterly reports, by February.
As Yahoo Finance’s Laura Bratton has reported, shares have been on a wild ride in recent months as the company continues to grapple with the the fallout from an August report by short seller firm Hindenburg Research. The report pointed to alleged accounting malpractices, violations of export controls, and shady relationships between top executives and Super Micro partners.
The stock is still up about 45% since the start of the year
Walgreens (WBA): Shares jumped 20% after the Wall Street Journal reported the company is in talks to sell itself to private equity firm Sycamore Partners. According to the outlet, a deal could be completed early next year.
Walgreens has seen its market cap shrink from over $100 billion in 2015 to just around $7.5 billion today as more competition and structural problems within the pharmacy and retail space pressure shares. Even with the jump on Tuesday, the stock is still down about 60% so far this year.
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Bitcoin rally takes a breather
Bitcoin prices (BTC-USD) retreated about 3% Tuesday afternoon, briefly floating below $95,000 a token in afternoon trade just a few days after prices crossed the critical $100,000 milestone.
Strategists blamed the pullback on profit-taking from investors as prices reached record levels.
Other smaller cryptocurrencies and crypto-adjacent names mimicked bitcoin’s moves to the downside.
Ethereum (ETH-USD) fell 8% to trade around $3,500 a coin.
Meanwhile, shares of MicroStrategy (MSTR), which owns nearly 280,000 bitcoins, dropped around 1%. The company recently announced the purchase of an additional 51,780 bitcoins for $4.6 billion. MicroStrategy now holds $16.5 billion worth of bitcoin.
Coinbase (COIN), which allows crypto trading on its platform, saw shares fall roughly 3%.
Trump’s win pushed bitcoin prices to all-time highs in the immediate aftermath of the election, with the administration viewed as generally more friendly to the alternative asset class.
In July, Trump attended a bitcoin conference in Nashville and has since pledged to usher in more supportive regulation. His promises also included appointing a crypto Presidential Advisory Council and firing current SEC Chair Gary Gensler, who announced he would step down on Jan. 20.
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Google stock jumps 4% after new quantum chip debuts
Google (GOOG) stock rose more than 4% midday Tuesday after the company unveiled a new chip the day before that it says is a breakthrough in quantum computing, an emerging technology thought to one day replace its conventional counterpart.
Google said Monday in a blog post that a mathematical equation that would take a classical supercomputer longer than the whole history of the universe — 10 septillion years — to solve takes only five minutes using a quantum computer powered by its new chip, Willow.
Shares of Google parent Alphabet rose as much as 6% early Tuesday before paring gains.
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Here’s why strategists still prefer US investments over China
China stocks have been in focus after officials signaling a more aggressive approach to stimulus next year sparked a rally on Monday.
But as Yahoo Finance’s Alexandra Canal wrote, strategists are still warning about ‘volatility’ in the China equities trade. When expanding the time horizon beyond a short-term trade, many on Wall Street have been expecting continued US exceptionalism to persist through next year. And a closer a look at the fundamentals helps explain why strategists still prefer US equities.
The team at DataTrek Research analyzed the net margin, return on equity, and return on assets for the three largest tech stocks in the MSCI China equity index MSCI (MSCI) and the three largest tech stocks in the S&P 500 (^GSPC).
As the chart below shows, the major US tech giants performed better in all three metrics during 2023 by a landslide.
“One need only look at the most barebones comparison, something a first-year investment banking analyst could do in their sleep (and often do) to see why US Big Tech is so much more richly valued than Chinese Big Tech,” DataTrek Research co-founder Nicholas Colas wrote.
Colas added that their analysis is a “microcosm” of why US equities have become the “go-to destination for global equity capital.” Colas noted that the Chinese companies have “solid” margins and returns while the US companies are “spectacular” in those same metrics.
“An investor with limited capital (i.e., all of us) needs an awfully good reason to choose the Chinese equity market index over the S&P 500 when considering long term capital allocation,” Colas wrote. “If it were a close comparison, they would likely spread their bets. But it is not, and it’s not even close.”
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The Fed’s ‘final 5-pound’ issue with inflation points to gradual rate cuts
The focus is back on the inflation front in markets this week, with the release of the November Consumer Price Index. The CPI print on Wednesday is expected to show price increases continue to make little progress toward the Federal Reserve’s 2% goal.
Wall Street economists expect headline inflation rose 2.7% annually in November, up from 2.6% in October.
On a “core” basis, which strips out food and energy prices, CPI is expected to have increased 3.3% last month, versus last year. That would mark the fourth straight month with a 3.3% reading for core CPI.
Zoom out to mid-2022 and CPI’s 9% peak, and the “significant progress” is clear, as Fed Chair Jerome Powell has reminded us.
Look closer at the past few months, though, and the Fed appears to face an issue experienced by many of us.
Some have likened the final push to 2% inflation to the struggles of the “last mile” in a race. But ADP chief economist Nela Richardson sees the Fed’s predicament as akin to that in a weight-loss program.
“The labor market is slowing. Wage growth looks like it’s plateauing, and the Fed is still trying to get inflation down,” Richardson told Yahoo Finance. “So I liken that to trying to lose the last five pounds: It’s usually the hardest, and getting from two-and-a-half percentage points of inflation back to 2%, it’s probably going to be the trickiest part.”
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Oracle slides more than 7% after earnings miss
Oracle stock (ORCL) slid about 8% early Tuesday after the database and cloud services company posted a weaker revenue outlook than Wall Street had hoped.
In the second quarter, Oracle’s revenue hit $14.06 billion, below Wall Street estimates of $14.12 billion, per Bloomberg data.
Oracle stock had been up about 80% year to date entering the print, and some analysts on Wall Street remain optimistic about the name.
UBS analyst Karl Keirstead noted that the “solid tone” tone on revenue in the coming quarters keeps UBS bullish on the stock. UBS boosted its 12-month price target to $210 from $200 previously, while maintaining a Buy rating on the stock.
The “growth acceleration story is intact,” Keirstead wrote.
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Alphabet rallies more than 5%, leading Nasdaq higher
US stocks opened mixed on Tuesday as investors trod carefully on the eve of a closely watched consumer inflation report seen as key to the path of interest rates.
The Dow Jones Industrial Average (^DJI) slid about 0.3%, while the S&P 500 (^GSPC) was just above the flat line. The tech-heavy Nasdaq Composite (^IXIC) rose about 0.4% after all three gauges started the week with small losses.
In individual stock moves, Alphabet (GOOG, GOOGL) shares jumped about 5%, leading the Nasdaq higher, after the Google parent claimed breakthroughs in quantum computing through the use of its new Willow quantum chip.
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Small business optimism sees largest monthly jump since 1980
Small business optimism skyrocketed following Donald Trump’s Election Day victory.
The NFIB Small Business Optimism Index rose by 8 points in November to 101.7, marking the largest monthly increase since 1980. The index is now at its highest level since June 2021 and is sitting above its 50-year average of 98 for the first time in nearly three years.
“The election results signal a major shift in economic policy, leading to a surge in optimism among small business owners,” NFIB chief economist Bill Dunkelberg said in the release.
“Main Street also became more certain about future business conditions following the election, breaking a nearly three-year streak of record high uncertainty. Owners are particularly hopeful for tax and regulation policies that favor strong economic growth as well as relief from inflationary pressures. In addition, small business owners are eager to expand their operations.”
A rise in small business optimism was a theme seen in Trump’s first presidency and has some strategists bullish on companies exposed to small business revenues in 2025.
“We expect an improving small business operating environment will boost the sentiment and spending of small business in 2025, and lift the earnings and valuation of stocks with revenues tied to that spending,” Goldman Sachs chief US equity strategist David Kostin wrote in his 2025 equity outlook.
Kostin recommended a basket of 60 mid- and large-cap companies with at least 50% of their revenue tied to small businesses. The largest stocks in that list include Meta (META), Deere & Company (DE), Intuit (INTU), and Shopify (SHOP).