What Happened Yesterday
The S&P 500 has now lost four sessions in a row, 1.98% in total, and closed a hair under its 50-day average, the line chart-watchers use to tell a dip from a trend. Thursday, it chose trend.
Close | Move | Mood | |
|---|---|---|---|
S&P 500 (SPY) | 757.83 | -0.60% | Four straight, and counting |
Nasdaq 100 (QQQ) | 708.69 | -1.06% | Worst of the four |
Dow (DIA) | 520.75 | -0.63% | Merely disappointed |
Russell 2000 (IWM) | 287.70 | -1.01% | Allergic to yields |
VIX | 17.84 | +8.38% | Finally reading the news |
Elsewhere: Oil (USO) +5.61%. Brent oil fund (BNO) +6.42%. Energy stocks (XLE) -0.58%. Gold (GLD) -1.73%. Defense stocks (ITA) -0.51%. The 10-year yield is 4.969%, up 12.5bp. The 30-year yield is 5.368%. Bitcoin -2.16% to 76,568. And Apple +3.56%, the day after launching a $1,999 foldable iPhone, the only big tech name we track up more than 1%.
Oil ran 5.6%. Oil companies went home early.
The US oil fund jumped 5.61%, its biggest day since August 10, as US crude crossed $100 a barrel for the first time since May. Iran-backed Houthi fighters seized the Yemeni port of Mokha, about 50 miles from the Bab el-Mandeb strait, the Red Sea exit Saudi crude uses when it is avoiding Hormuz. Both doors out of the neighborhood now have somebody standing in them.
Meanwhile, diesel topped $6 a gallon nationally for the first time on record, at $6.06 per gallon, according to AAA, up from about $3.70 a year ago. A 150-gallon truck fill-up went from about $555 to $909, and that extra $354 rides along on everything the truck carries.
Now the tell. Energy stocks fell 0.58%, the first session since at least May that oil rose more than 3% and energy stocks closed lower. Gold and defense stocks fell too. A market scared of a longer war buys all three. Thursday, it sold them and bought barrels.
When a 5.6% oil spike can't lift the oil companies, investors are betting $100 is a spike, not a new floor. Nobody sold stocks Thursday because they fear the war. They sold because the war keeps mailing an inflation bill, and the bond market is the one that opens the mail.
The long bond went back to 2007, and it brought receipts
The 10-year Treasury yield jumped 12.5 basis points to 4.969%, its biggest one-day rise since March. A basis point is a hundredth of a percentage point, so this was the bond market doing a cannonball. It now sits two basis points below its October 2023 close of 4.99%, the highest since 2007.
The 30-year got there first. It closed at 5.368%, its highest in our data since June 2007, when the first iPhone was still weeks from going on sale. Long-term yields like these set the floor under your mortgage rate.
The European Central Bank raised rates a quarter point to 2.50%, its second hike since the war began. Traders pushed the odds of a Fed hike next week from 61% to 70% after Thursday's producer price report from the Bureau of Labor Statistics, per CME FedWatch, the futures market's scoreboard of rate bets.
Europe already hiked into this oil shock, and the bond market is pricing the Fed doing the same before the Fed can say a word. It's in its pre-meeting quiet period, like a jury told not to read the papers. The papers, meanwhile, all say "hike."
Oracle spent $28 billion in three months and got a standing ovation
Oracle fell 5.38% during Thursday's session, then reported after the bell. Adjusted earnings of $1.92 a share beat the $1.74 Wall Street expected, revenue rose 30% to $19.35 billion, and cloud infrastructure, the part that rents out AI computers, grew 121%. The stock jumped after hours.
Capital spending, the money for buildings and chips rather than paychecks, hit $28 billion in the quarter, and Oracle burned $5 billion more cash than it took in. Best line on the call: GPU capacity up for renewal was re-rented at a 20% premium, and most of those chips were at least four years old. Picture a rental car company whose four-year-old sedans now rent for more than they did new.
Correction: yesterday we said Oracle was expected to earn $1.40 a share and Adobe $4.86. Wrong yardstick. The adjusted estimates Wall Street grades against were $1.74 and about $6.08.
The AI trade stopped asking what you spend and started asking who's renting. Oracle's answer: everyone, in advance, at a markup on used chips. The market forgives a $5 billion cash burn while the rental line has a waiting list. It will not forgive the first quarter that line gets shorter.
What to Watch Today
Before dawn, stock futures were higher, and oil was giving back part of Thursday's run.
The calendar, all times CT
7:30 a.m. August consumer prices (CPI) from the Bureau of Labor Statistics. Forecast: up 0.4% on the month and about 3.3% to 3.4% on the year. Core, which strips out food and energy: 0.2% and 2.4%.
9:00 a.m. University of Michigan consumer sentiment, expected 51, came in at 51.7. Watch its one-year inflation expectation, 4.0% last month.
At the open: Oracle trades on its beat. Adobe beat too but slipped about 2% after hours on a light outlook. Kroger reports before the bell.
Next Wednesday, 1:00 p.m. The Fed's rate decision, with fresh projections and the dot plot.
The one thing that could ruin everyone's day
This morning's CPI. Fed Governor Christopher Waller named it his trigger: if August shows the recent improvement was "fleeting," he said, "it may be appropriate to raise the policy rate." Traders are already at 70%. A cool number may not rescue anyone either, because oil's run to $100 came after August closed its books. A hot print ends the argument. A cool one just moves it to the diesel pump.
Oil hit $100, the oil companies called in sick, and the 30-year yield took a time machine back to 2007. The only thing that folded on purpose was Apple's new phone.
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