Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Thursday, July 18. The Bottom Line segment of today’s podcast starts at (3:04) for listeners who want to skip ahead. Be sure to check out the brand new ‘Stocks on the Contrarian Radar’ segment at the bottom of this page and (4:24) on the podcast.
State of Play
Stocks dropped yesterday as tech got beaten up. The Nasdaq fell by almost 3% for its worst day since late 2022. The selling was not broad-based however as Dow Industrials closed at fresh record highs. As we look at our board of indicators for signs of direction at 0640, it’s mostly risk-off:
Stock index futures aren’t doing much but tech is encouragingly showing some signs of life with the Nasdaq up 0.4%. S&P 500 and Russell 2000 are unchanged;
Commodities are dropping with copper down 1.3% and WTI crude oil down 0.3% to trade around $81/barrel;
Cryptos are down a bit with Bitcoin off 1% to trade around $64,500;
Bonds are seeing a little bit of selling as well, with the 2-year yield up 3 basis points to 4.46% whilst the 10-year is up 4bps to 4.18% (yields move inversely to prices).
Today’s Known Events
Earnings are once again the main story:
Taiwan Semiconductor (TSM 0.00%↑) beat earnings across the board, citing demand for AI chips, so maybe that story isn’t quite dead yet after all. However the stock is barely moving in the pre-market. This after dropping 8% yesterday;
Domino’s Pizza (DPZ 0.00%↑) reported mixed earnings and that stock is getting punished in the pre-market, down 8% at the time of this writing;
D.R. Horton (DHI 0.00%↑ ) and Snap-On (SNA 0.00%↑) are due to report before the open at 0930;
After the close at 1600 we’ll hear from Netflix (NFLX 0.00%↑).
It’s Thursday so we’ll get initial jobless claims at 0830. Economists who were surveyed expect 229,000 new claims, an increase over the 222,000 recorded last week at this time, but still below the four-week average of 234,000.
Philly Fed Manufacturing Index is out at 0830 as well. The expectation here is for a reading of 2.7, which is an improvement over the 1.3 recorded last month.
The European Central Bank decides on interest rates at 0815. The ECB is widely expected to keep its key policy rate at 4.25%.
The Bottom Line©️
Is the move in tech a blip? Or signs of something more sinister? The fact that other parts of the market are doing well means this isn’t an all-out move to risk-off. It may be a ‘sector rotation’ but frankly that may be far-fetched as well. Two days do not a sector rotation make.
Remember that financial media will hop onto any narrative that is likely to get clicks, regardless if it is real or not. Not saying this ‘rotation out of tech’ story can’t turn out to be real, but it is certainly very premature at this point.
Stocks on the Contrarian Radar
AI chip names are still front and center after yesterday’s sell-off. ASML Holdings (ASML 0.00%↑) was the worst offender, dropping 13% on the day, but Applied Materials (AMAT 0.00%↑), Marvell Technology (MRVL 0.00%↑), and Lam Research (LRCX 0.00%↑) all declined by double-digit percentages as well.
The Contrarian did finally pull the trigger on one of his ‘undiscovered’ AI chip names, specifically Camtek (CAMT 0.00%↑) at a price of $115.50/share. The stock is still quite expensive trading at >40x forward earnings and 12x sales. Its next earnings are due Aug. 8. As you can see this thing is effectively a Nvidia (NVDA 0.00%↑) proxy:
Finally Domino’s Pizza (DPZ 0.00%↑) also has The Contrarian’s attention after this beat down after earnings. But the stock still trades at 29x forward earnings, which is hardly cheap. However it may be added to the watchlist if this continues. Demand for lousy pizza may be limited, but it certainly has space for one leader. Plus Domino’s wings are pretty good and their deals are great. Yes, even a pizza connoisseur like The Contrarian has had to make good of Domino’s when he found himself in areas lacking the fare he is accustomed to.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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