What Happened Yesterday
Close | Move | Mood | |
|---|---|---|---|
S&P 500 (SPY) | 772.49 | +0.25% | Polite |
Nasdaq 100 (QQQ) | 723.70 | +0.73% | Selective |
Dow (DIA) | 537.15 | -0.02% | Asleep |
Russell 2000 (IWM) | 302.71 | +0.57% | Chipper |
VIX | 14.55 | -4.78% | Unbothered |
Gold (GLD) | 404.92 | +0.99% | Hedging anyway |
Oil (USO) | 127.30 | -0.24% | Stubborn |
10-year Treasury | 4.701% | +0.5 bp | Unimpressed |
Bitcoin | $63,402 | -0.24% | Present |
A quarter of a percent on the S&P looks like a day where nothing happened. Underneath it, the market rearranged which half of the AI trade it wants to own, and it did it violently.
July CPI showed up on time and behaved itself
The Bureau of Labor Statistics put July CPI at 3.4% year over year, down from 3.5% in June, with core at 2.5% against 2.6%. Month over month, it was +0.1% headline and +0.2% core. Core strips out food and energy, which is the polite way of removing the two things you actually buy. Every figure matched what economists had penciled in, which almost never happens and was deeply boring in the best possible way.
What moved money was the rate pricing. CME FedWatch odds of a quarter-point hike at the September 15-16 meeting dropped to roughly 40%, from about 50% the day before. Yes, hike. The Fed is holding at 3.50% to 3.75% and the live risk in this cycle points up, not down, which is a sentence nobody wrote in 2021.
An in-line print did not make anyone feel good about inflation; it just bought the Fed another month of not having to explain itself, and the market will take a stay of execution over a pardon any day.
The AI trade split into the shovels and the mines
This is the real story, and the index level completely hid it.
CoreWeave rose 19.28% on 1.9 times Tuesday's volume. Super Micro rose 19.02% on 1.7 times. Both guided revenue higher: CoreWeave to $12.4-$13.2 billion for the year, up from $12-$13 billion. A thousand dollars of CoreWeave on Tuesday was $1,192.76 by the close, which is the kind of day that makes people forget the company doubled its losses two nights earlier.
The chip aisle followed them out the door. Micron +4.92%, Nvidia +3.03%, AMD +1.82%, and the VanEck semiconductor ETF SMH +2.08% on 1.5 times Tuesday's volume.
Now the other side of the same tape. Six of the seven Magnificent Seven closed lower, and we know because we pulled all seven: Meta -3.38%, Microsoft -2.26%, Amazon -1.83%, Tesla -1.59%, Apple -0.87%, Alphabet -0.08%. Nvidia was the lone green. Money did not leave AI yesterday; it walked one floor down and bought the people selling equipment to AI instead.
Michael Burry picked the same afternoon to disclose he had added to shorts in Micron, Oracle, Nebius and the semiconductor ETF, which is either excellent timing or a man getting run over by the exact truck he was pointing at.
For two years "the AI trade" meant one trade, and yesterday it stopped being one, because a market that pays up for shovels while dumping the people digging is a market that has started asking who actually gets paid.
Oil looked at 17 million barrels and shrugged
We said yesterday that the fear premium and the barrel count were about to diverge publicly. They did.
The EIA reported US crude stocks rose 17.4 million barrels for the week ended August 7, against expectations for a 1.4 million barrel draw. Bloomberg and Reuters both called it the largest weekly build since January 2023, with slumping exports doing most of the work. That is not a rounding error; that is a warehouse.
USO fell 0.24%. That is it. A shortage trade absorbed a flood of physical evidence that there is no shortage and moved less than a quarter of a percent.
On the Strait of Hormuz, still nothing enacted. No deal, no route arrangement, no toll, no reopening, just talks that continue and officials describing them as continuing. That is the tenth straight edition where we have cut a version of the concluded-deal claim, and the streak is now more informative than the story.
Oil is not trading on barrels right now; it is trading on the possibility that a waterway makes the barrels irrelevant, and a market ignoring its own inventory data is a market that has decided the fundamentals are a subplot.
The bond market did not attend the party
Everyone else spent Wednesday celebrating cooler inflation. Treasury spent it discovering what its debt costs.
The 10-year note auction stopped at 4.683%, up from 4.580% at the last one, which is 10.3 basis points more expensive than a month ago. A basis point is one hundredth of a percent, a unit invented so "we are paying meaningfully more" can be said quietly. The 10-year yield closed at 4.701%, up half a basis point, so a friendly CPI print bought the long end of the bond market exactly nothing.
Then the July budget statement at 1:00 PM CT: a $432 billion deficit against an expected $346 billion, versus $120 billion the month before. More borrowing, more auctions, more supply hitting the same buyers who just demanded a better price.
Inflation and interest rates stopped being the same conversation because the bond market has moved on to a simpler question: who is going to buy all of this?
What to Watch Today
The main event
7:15 AM CT, Cleveland Fed President Beth Hammack speaks. She votes on the FOMC this year; she dissented in July in favor of a rate hike, and on August 10, she said more than one hike will likely be needed. She reaches the microphone fifteen minutes before the inflation data, one day after the market cut the odds of a hike to 40%. Someone scheduled that on purpose.
7:30 AM CT, July PPI from the BLS. Producer prices are what companies charge each other before anything reaches a shelf, so it is the inflation that has not happened to you yet. Consensus is +0.2% monthly after a -0.3% drop, and 4.9% annually, down from 5.5%. Core PPI is seen at +0.3% monthly and 4.2% annually, down from 4.7%.
7:30 AM CT: initial jobless claims from the Labor Department; consensus 202,000 vs. 199,000 last week.
The rest
7:40 AM CT: Richmond Fed President Tom Barkin speaks. He is an alternate this year with no vote, so he is commentary, not a ballot.
12:00 PM CT: 30-year bond auction, roughly $35 billion. The last one went at 5.058%, and after Wednesday's 10-year, this is the one to watch.
After the close: Applied Materials reports, consensus near $3.38 a share. It makes the machines that make the chips, which puts it at the bottom of the exact food chain that got bought yesterday.
The one thing that could ruin everyone's day: a hot core PPI with Hammack still warm at the microphone. Wednesday's relief was built on the assumption that the disinflation trend holds, and producer prices are the earliest place where that assumption breaks down. A 0.5% core print hands the September hikers their argument back before lunch.
Wednesday's tape said the AI story is fine and inflation is fine. The bond auction said someone still has to pay for all of it.
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