Nasdaq 100 analysis: Hawkish central banks hit stocks

Hawkish central banks hit US futures

• Dow Jones Industrial Average is down 0.2%
• S&P 500 is down 0.2%
• Nasdaq 100 is down 0.2%

Hawkish central banks are weighing on global stock markets today.

Testimony by Federal Reserve chair Jerome Powell will continue today after he warned yesterday that higher rates will be needed to bring inflation down to desired levels, throwing cold water on hopes that it was nearing the end of its tightening cycle. Fed member Loretta Mester and other members will also be speaking today.

However, the Fed’s projections pointing toward two more rate hikes this year has not convinced the markets. While the central bank has successfully dashed all hopes of a pivot before the end of 2023, fed funds are still only pricing in one more rate hike in July and then believe they will be held steady until the Fed starts cutting rates in early 2024, according to the CME FedWatch Tool.

Meanwhile, US initial jobless claims were unchanged from the week before at 264,000 in the week to June 17, coming in just above the 260,000 forecast.

Elsewhere, the Bank of England hiked rates for a 13^th consecutive time today, accelerating the increase to 50bps in an effort to tame inflation as the central bank has a tougher time than its European and US counterparts. That has taken UK rates to 5%, their highest level in 15 years, and markets currently project they could rise as high as 6% before the end of the year. Norway also lifted rates for the 11^th time in less than two years with a 50bps increase today while pointing toward more tightening ahead. The Swiss National Bank also raised rates, although by 25bps to mark the smallest lift seen in over a year.

It is clear the fight against inflation is far from over and that we are still far away from the end of this tightening cycle – which will also increase the risks of a recession the longer it goes on. All of this is testing risk appetite in the market and setting the stage for a more challenging backdrop for equities as we approach the midway point of 2023.

Most discussed Reddit stocks

Below is a list of the top 10 most mentioned US stocks on the WallStreetBets thread on Reddit over the last 24 hours on June 22, 2023, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) and other instruments have been excluded:

1. Tesla
2. Visa
3. NVIDIA
4. Advanced Micro Devices
5. C3.ai
6. Virgin Galactic
7. Carnival
8. Intel
9. Palantir
10. Apple

Most active US stocks before the bell

Below is a list of the 10 most active stocks before the bell today, based on trading volumes taken from Bloomberg:

1. Tesla
2. Nikola
3. Ideanomics
4. Faraday Future Intelligent
5. Palantir
6. Root
7. AMC
8. Talaris Therapeutics
9. Canoo
10. Marathon Digital

US premarket winners and losers

Below is a table outlining the stocks experiencing the sharpest movements before the bell today, according to data from Bloomberg:

Top US stocks to watch before the bell

Tesla is down 3.2% this morning at $251.34 after its rally snapped yesterday as brokers start to warn that the electric vehicle maker has risen too high, too quickly. Morgan Stanley downgraded the stock to Equal Weight this morning after it moved above its target price of $250. Barclays yesterday said it felt ‘prudent to move to the sidelines’ following the surge that has seen Tesla shares rise 2.5-fold in value since the start of 2023, testing its $260 price target. These warnings, plus the fact Tesla was the most overbought stock in the S&P 500 as it soared to highs earlier this week, may have prompted some profit taking.

Ford is down 0.4% after the US Energy Department said it intends to loan up to $9.2 billion to a joint venture between the carmaker and South Korean firm SK to help finance three new battery manufacturing plants in Tennessee. Bloomberg said the loan is the biggest to be dished out to a US automaker since the bailouts seen following the last financial crisis. That is part of president Joe Biden’s plan to drive clean tech and increase domestic production of key technologies.

Amazon is up 0.5% before the bell. The US Federal Trade Commission yesterday alleged the ecommerce giant enrolled millions of customers to its Amazon Prime subscription service without consent and made it difficult for them to leave. The FTC is suing Amazon, which says it was not informed of the issue before court papers were filed and that the claims are ‘false on the facts and the law’. The FTC says Amazon Prime generates $25 billion in annual revenue and has over 200 million users, making it the biggest subscription service. That came on the same day that Amazon announced its Prime Day sale for subscribers will be held on July 11 and 12.

It’s worth a quick trip to London, where online grocer and automotive warehouse maker Ocado Group has popped over 30% higher today on reports that Amazon and other tech heavyweights are weighing a bid for the company. Ocado had almost halved in value since the start of 2023 before starting to recover this month, with the news sending it to its highest level in almost four months.

Microsoft is up 0.5% while Activision Blizzard is down 0.2%. A five-day hearing begins today, which will see CEOS and other executives from both companies pushback against efforts by the Federal Trade Commission to temporarily pause the deal so it can argue why it should be blocked. A pause could be critical considering the clock is ticking down to the July 18 deadline for the deal to close which, if missed, could see the deal collapse and Microsoft forced to pay out some $3 billion to the video game company.

Wall Street’s favourite AI stock NVIDIA is down 0.7% and on course to lose ground for a second consecutive day after climbing to fresh all-time highs on Tuesday. That comes as the broader rally in AI and tech stocks take a breather. As that opens the door to a potential pullback, Barclays issued a note this morning that said investors should take advantage of any retreat in AI stocks and consider it a buying opportunity. It did not name specific stocks, but said the biggest gains are likely to continue coming from a handful of tech firms. While admitting that the AI opportunity is ‘pricey’, analysts said multiples ‘have not risen to historical extremes’. NVIDIA currently trades close to 50x forward earnings and at a 60% premium to its rival chipmakers.

With that in mind, some smaller stocks that have reaped rewards from the hype around AI are struggling this week. Palantir is down 2.1% and set to open at June-lows as it continues to freefall from the 18-month highs hit last week, while C3.ai is down 1.7% and set to open at its lowest level in almost two weeks after hitting 20-month highs last week.

Intel’s rally this week, driven by big expansion plans to build factories in Germany and Poland, has also snapped with the chipmaker down over 10% since hitting its highest level in almost 11 months on Tuesday. The chipmaker is flat today. Reports yesterday said Intel is making changes to its foundry business so that it works like a separate unit to help improve profitability, but shares declined because it provided no timeframe and announced no new major customers. Intel’s foundry business, which will manufacture chips for other companies, is a key element of Intel’s turnaround plan. Analysts said this should improve accountability of each business and could lead to cost-savings, but said there is risk around execution. ‘There is a ton of wood to chop here but frankly just identifying (and admitting to) the magnitude of the discrepancy between themselves and the market best-in-class is probably a healthy exercise,’ said Bernstein. Oppenheimer said Intel is still in ‘prove-it mode’ and that this will be a multi-year effort. Intel also announced yesterday it is selling a 20% minority stake in its IMS Nanofabrication Business, which is an ‘industry leader’ in multi-beam mask writing for nodes, to Bain Capital, valuing the unit at some $4.3 billion.

Accenture is down 4.2% and at its lowest level in almost a month after sparking fears about a slowdown after new bookings missed expectations and it trimmed its full year sales outlook. The company delivered a beat on both sales and earnings in the latest quarter, with adjusted EPS of $3.19 ahead of the $3.01 estimate, but new bookings of $17.2 billion fell short of the $18.25 billion forecast. Accenture said revenue will now grow 8% to 9% this year, having previously guided for 8% to 10%.

Visa is flat today after announcing yesterday that Chris Suh will become its chief financial officer designate on July 10 and formally take on the role at the start of August. Suh is leaving his role as CFO of Electronic Arts, before which he was the vice president and CFO of the Cloud + AI group at Microsoft.

Cryptocurrency stocks are in play after bitcoin rose another 0.2% and surpassed the $30,000 threshold for the first time in two months! Coinbase is down 0.2%, Marathon Digital is up 0.2% and Riot Platforms is flat.

Carnival shares are struggling to move back toward the 13-month highs hit last week and are down 0.6% today. The cruise line operator, which reports earnings on Monday, has been rising alongside rivals Norwegian Cruise Line and Royal Caribbean Cruises since the start of May as they continue to rebound from the pandemic. The trio are all in the top 11 performers in the S&P 500 since the start of 2023 as a result, but all three of them have all found things more difficult this week and are deep in overbought territory when looking at the Relative Strength Index.

Spirit Aerosystems is down 9% and testing June-lows after announcing it is suspending operations at its Wichita plant after union members voted to strike following the rejection of a four-year deal, dragging customer Boeing is down 2.8%. Spirit Aerosystems is Boeing’s single biggest supplier and the suspension has sparked fears that it could disrupt the planemaker’s plans to raise output of its 737 MAX jet.

Virgin Galactic is down 1.6% today. The company had rallied to four month highs as it prepares to launch its first commercial space flight toward the end of this month but started losing ground yesterday, when it announced chairman Evan Lovell died, leaving Raymond Mabus Jr to takeover on an interim basis.