Stocks Helped Early by Weak Oil, But Chips Down

By Joe Mazzola

August began with a mild rally led not by the usual chip suspects but instead by software and consumer names. This followed President Trump's post that he had called off an attack on Iran thanks to progress in negotiations, though market participants have heard this before and Iran denied it's in talks. Crude retreated, however, and Treasury yields fell after Japan and the U.S. announced a joint intervention designed to lift the slumping yen.

Monday looks relatively quiet on the earnings and economic front after last week's headliners, though Palantir (PLTR) is a highlight after the close. In economic data today, the July ISM Manufacturing PMI^® is expected to slip to 53% from 53.3% in June. A reading above 50 depicts expansion. Later this week, SpaceX (SPCX), Advanced Micro Devices (AMD), and Sandisk (SNDK), among many others, are scheduled to report, and Federal Reserve speakers pepper the calendar. July nonfarm payrolls data due Friday is expected to show 86,000 new jobs, up from 57,000 in June.

Stocks rose Friday, with the Nasdaq jumping 1% to end a volatile week and month with two days of strong gains. Amazon (AMZN) surged more than 15% on cloud-computing strength. Apple (AAPL), however, lost more than 7% after providing weak guidance for the current quarter due to a global memory crunch. Treasury yields reached a 19-year peak for the 30-year bond. On a happier note, results from Amazon and Microsoft (MSFT) offered "encouraging evidence of traction around AI monetization," said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research (SCFR). "The money flow has poured back into this space over the last two days."

Three things to watch

When should the Fed stop looking through supply shocks? Oil prices have been a wild card for the Fed. Policymakers generally "look through" such supply shocks—until they can't. The trick is deciding when they can't. For at least one dissenter at this week's Fed meeting, that time may be now. In a statement Friday, Minneapolis Fed President Neel Kashkari said he increasingly believes that monetary policy has a role to play in addressing supply shocks, especially a series of supply shocks such as the one seen over the past six years: COVID-19 supply chain disruptions, the war in Ukraine, U.S. tariffs, and the Iran war. For comparison, he pointed to the 1970s, when the Fed raised rates in response to a series of shocks. "If inflation remains elevated, in my view, a potential series of small policy moves would be better than waiting and eventually concluding that even bolder actions were necessary," he said.
Malaise for the American consumer? One notable number released alongside Thursday's gross domestic product (GDP) estimate is the personal saving rate—saving as a percentage of disposable personal income—which hit 2.7% in June. While still in positive territory, that's down from 2.8% in May, 3% in April, and 3.5% in March, marking six straight months of declines and landing well below the historical average of nearly 8.4%. Meanwhile, spending growth has outpaced income growth in the past five months, and 90-plus day delinquencies on credit card balances are near a 15-year high at 13.1%. This could be a sign that the K-shaped economy is still alive and well, as the wealthiest Americans continue to account for the lion's share of consumer spending, potentially masking struggles being felt by the average consumer as prices continue to rise. June job openings data tomorrow morning could begin to provide clues into consumer sentiment. Consensus is 7.45 million.
Intervention to support yen follows past tries: Treasury yields eased and the dollar fell slightly early today after the U.S. and Japan announced they'd worked together to support the slumping yen. Before this joint effort—the first since 1998 to feature just the U.S. and Japan—worries Japan might sell Treasuries to finance yen purchases were among several factors sending yields up sharply over the last month. U.S. yields fell today in part on the intervention but also due to cheaper oil. Past efforts to support the yen, including solo ones by Japan in the last few years, generally fizzled as Japan's heavy debt and low interest rates kept the currency weak. A soft yen can make products from that country cheaper for buyers abroad, but also contributes to dollar strength that raises costs for importers of U.S. goods.

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