Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Wednesday, July 31. The last trading day of the month. The Bottom Line segment of today’s podcast starts at (2:28) for listeners who want to skip ahead. Be sure to check out the new ‘Stocks on the Contrarian Radar’ segment at the bottom of this page and (4:11) on the podcast.
State of Play
Stocks bounced around a bit yesterday with tech selling off again. After the close earnings from AMD (AMD 0.00%↑) and Starbucks (SBUX 0.00%↑) impressed while Microsoft (MSFT 0.00%↑) left a bit to be desired. As we look at our board of indicators for signs of direction at 0640, risk-on appears to be the story ahead of more earnings and the Fed meeting this afternoon:
Stock index futures are jumping, led by tech. The Nasdaq is up 1.5% with S&P 500 (SPY 0.00%↑) futures 1% to the good;
Commodities are rebounding. WTI crude oil is up 2.5% to trade around $76.50/barrel, presumably due to the latest developments in the Middle East? Copper is up 1.5%;
Cryptos are an outlier for now, with Bitcoin unchanged trading around $66,000;
Bonds aren’t doing anything ahead of the Fed. The 2-year yields 4.37% whilst the 10-year yields 4.14%.
Today’s Known Events
Earnings kick off the proceedings again today:
Boeing (BA 0.00%↑), Norwegian Cruise Lines (NCLH 0.00%↑), MasterCard (MA 0.00%↑), Altria (MO 0.00%↑), Wingstop (WING 0.00%↑), and Kraft Heinz (KHC 0.00%↑) are due before the open at 0930;
After the close at 1600 we’ll hear from Meta (META 0.00%↑), Arm Holdings (ARM 0.00%↑), Qualcomm (QCOM 0.00%↑), and Carvana (CVNA 0.00%↑), among others.
The Federal Reserve announces its interest rate decision at 1400, to be followed by Jerome Powell’s press conference at 1430. The expectation is for the Fed to keep rates unchanged, but the market will be looking for commentary that points to a rate cut at the next meeting in September — and possibly beyond.
The Bottom Line©️
All eyes on the Fed, then. Earnings this morning are kind of blah anyway. Hopefully Powell & Co. don’t do another rug pull on interest rate cuts. In public statements he has sounded far more dovish than at any point since the Fed started its tightening cycle back in 2022. But the market will definitely be looking for some specific hints of a rate cut in September.
Fed fund futures are now pricing in an 85% chance of a rate cut at the Sept. 18 meeting. For the subsequent FOMC meeting on Nov. 7 chances of an additional rate cut are 60% right now. The meeting after that (the last one of the year, on Dec. 18)? Chances of yet another rate cut are currently at 56%, so a bit better than even odds. That’s three cuts before the end of the year. You’re going to want to keep an eye on those numbers today.
Stocks on the Contrarian Radar
At the risk of sounding like a broken record, our friends in AI chip land have had a hard time of it lately. That should be helped by AMD 0.00%↑ earnings yesterday. Judging by Nasdaq futures this morning, that is indeed coming to pass.
Still, these stocks have taken on water lately. Take the ‘Big 7’ AI chip names: Nvidia (NVDA 0.00%↑), AMD, Taiwan Semiconductor (TSM 0.00%↑), Broadcom (AVGO 0.00%↑), Marvell (MRVL 0.00%↑), Intel (INTC 0.00%↑), and Qualcomm (QCOM 0.00%↑). As you can see the last month has not been very good at all for these stocks:
You could of course just buy an ETF to get this exposure. The VanEck Semiconductor ETF (SMH 0.00%↑), perhaps the most widely-cited AI chip proxy, holds at least five of the seven. Competitors include SPDR S&P Semiconductor ETF (XSD 0.00%↑), Invesco Semiconductors ETF (PSI 0.00%↑), First Trust Nasdaq Semiconductor ETF (FTXL 0.00%↑), and the iShares Semiconductor ETF (SOXX 0.00%↑). Looking at their charts reveals the same story, as can be expected:
Of course let’s not forget about our ‘undiscovered’ AI chip names ACM Research (ACMR 0.00%↑), Camtek (CAMT 0.00%↑), FormFactor (FORM 0.00%↑), Inchor Holdings (ICHR 0.00%↑), Kulicke and Soffa Industries (KLIC 0.00%↑), Photronics (PLAB 0.00%↑), Ultra Clean Holdings (UCTT 0.00%↑), and Veeco Instruments (VECO 0.00%↑). The charts here reveals the exact same story, pretty much:
The point here is that it may not matter which AI chip name you choose, or if you choose to ‘diversify’ through an ETF. They all seem to follow Nvidia anyway. Sure, some are more volatile than others with The Contrarian’s one holding CAMT apparently the most volatile of the bunch.
More important is if you buy the AI hype story. If so, you will probably want to take an opportunity like this to get long. The Contrarian took the opportunity yesterday to buy more CAMT. That’s just him. You do you. Not investment advice. Do your own research, make your own decisions.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Fed Day, Opportunity in AI Chip Stocks?