What we learned last week:
“I am constantly being asked about individuals. The only way to win is as a team. Football is not about one or two or three star players.” – Pele
AI and tech stocks dragged major indexes lower last week. Health Care, Real Estate and the Utility sector had the strongest week as the rally in chip companies, which kicked off in April, takes a breather and diversification adds value.
Last week’s selloff in tech picked back up from the prior week. Shares of Alphabet, Google’s parent company, fell 1% Tuesday after shedding 5% Monday. The chipmakers Micron and Intel dropped 13.2% and 6.1% through midday Tuesday respectively, ahead of Micron’s earnings report Wednesday.
Micron’s earnings shattered expectations with gross margins of 85% and guided towards $50 billion in revenue for their next quarterly report. Micron and other memory chip stocks finished the week down. Investors have put the capital spending of the companies participating in the AI infrastructure buildout under a microscope.
Mag seven stocks, which are closely tied to the AI infrastructure build-out, have lost 2.7 trillion in market value in June. Another issue with all the demand and spending is the rising prices for memory and storage chips.
Apple announced price hikes on MacBook and iPad, stating “The consumer electronics industry is facing an unprecedented challenge. The rapid expansion of AI data centers has created an extraordinary surge in demand for memory and storage. We have never seen a component price increase this much, this quickly.”
Sticking with the price theme, but now with the broader economy, last week’s personal consumption expenditures price index (PCE) showed prices rose 4.1% in the month of May, up from 3.8% in April. Excluding the volatile energy and food component, PCE rose by 3.4%. The report also showed consumer spending for the month came in more strongly than anticipated. All and all the report provided investors some ease over concerns that the Federal Reserve will need to raise interest rates to dampen inflation.
In part, investors are looking at the Strait of Hormuz for signals on energy prices. Oil prices continued their decline last week, despite a rise in uncertainty over the U.S. – Iran peace deal, as a growing number of tankers passed through the strait.
There is always the possibility for tension in the Middle East to rise to such a level that oil prices increase. As days and weeks progress, with more barrels of oil added to supply the risk comes down.
In addition to oil prices, investors will have their eyes on several consumer companies reporting earnings. Additionally, several reports giving investors a check on the health of the labor market may garner the most attention.
What’s ahead this week:
Economic Events
- Labor market reports highlight a short week due to the 4th of July holiday
- JOLTS survey (Job Openings and Labor Turnover
- ADP National Employment Report
- Weekly Jobless Claims
- Non-farm payroll employment report and unemployment rate
Earnings
- Two of the largest consumer staples companies report earnings, both working with structural changes in their markets. Weight loss drugs and a consumer making healthier choices
- The largest producer and distributor of alcohol brands, Constellation
- Snack food and cereal manufacturer General Mills
My goal is for you to feel educated and informed about variables we do and don’t have control over and find ourselves working within. I hope to do it in an informative and relatable way. As always, I value your relationship and planning objectives – my door is always open for conversation.
