Wall Street Breakfast

The (dis)inflation report the market was waiting for

Core CPI falls to the lowest level in three years. (0:16) Treasury yields tumble, along with the greenback. (1:45) Delta warns of lower fare discounting. (2:55)

Show Notes
S&P 'defiant' behavior
Pfizer advances development of once-daily weight-loss pill
Who could potentially replace Tesla in Magnificent 7?
MicroStrategy to execute 10-for-1 stock split

Episode transcripts: seekingalpha.com/wsb
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Duration:: 5m
Broadcast on:: 11 Jul 2024
Audio Format:: mp3

Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action, news and analysis. Good afternoon, today's Thursday, July 11th, and I'm your host, Kim Khan. Our top story so far, it's all about inflation, or disinflation to be precise. The June CPI numbers may just be the report that breaks the hawks' backs. The consumer price index unexpectedly fell 0.1% last month, compared with expectations for a 0.1% rise. It was the largest monthly decline since May 2020. That brought the annual CPI back down to 3%, more than 6 percentage points below its high in June 2022. The core CPI, which excludes food and energy, rose 0.1%, softer than the forecast for a 0.2% rise. At 0.6%, the rise was a hair's breadth of being rounded down to no change. The annual rate dropped to 3.3%, the lowest level since April 2021. There was broad-based disinflation in the report, including in shelter. Eric Merliss, co-head of Global Markets at Citizen, says, "If the dual trends of a weakening labor market and lower inflation continue, it will likely put the first rate cut in years firmly on the table for the FOMC's September gathering." Fed funds futures are now pricing in an 80% chance of a September cut, with another November cut now in play, and a near certainty of two cuts by year end. But Skylar Wyman, chief investment officer at Reagan Capital, warns that investors are underestimating the risk that the Fed raises interest rates in the near term. If we were to see a few back-to-back readings that show a re-acceleration in inflation, the Fed's next move might be an interest rate hike, as Main Street is getting pummeled from high prices. The bond market reaction to the CPI was predictable, but the stock market's moves were anything but. Treasury yields tumbled back to March levels, with the 10-year falling below 4.2%. Stock futures rallied sharply after the numbers hit pre-market, but then bounced around in early trading, and the S&P and NASDAQ are now selling off. It could be a sell-the-news reaction after the rally in the previous session, or it could be a further indication that this is a game-changing report for the markets as stock valuations become untethered from Fed expectations. All the inflation excitement overshadowed another sign of a resilient labor market, though, weekly jobless claims fell by $17,000 to $222,000. Among active stocks today, MicroStrategy announced a 10-for-one stock split of its Class A and B common stock. The stock will trade on a post-split basis, starting on August 8th. Quantum Scapes skyrocketed after Volkswagen announced that it would dramatically ramp up production of solid-state batteries developed with the company. A new agreement will see Volkswagen battery unit PowerCo receive the license to mass-produce battery cells based on quantum-scape technology. Delta Airlines slid after rattling investors with cautious guidance. Delta sees Q3 EPS of $170 to $2 versus $205 consensus, and fully-adjusted EPS of $67 versus $660 consensus. Free cash flow of $3 billion to $4 billion is also anticipated. During a media appearance, Delta CEO said lower fare discounting was impacting the company. In Pepsi posted NYXQT results, the beverage giant reported organic sales were at 1.9% during the quarter versus 3% consensus. Total revenue was up 0.8% year-over-year during the quarter to $22.5 billion in line with forecasts. Volume was down 2% during the quarter for the convenient foods part of the business and was flat in the beverage business. The biggest drop by segment was the 17% slide for Quaker Foods, North America. In other news of note, buoyed by encouraging data from an ongoing study, Pfizer has decided to proceed with the development of a once-daily formulation of its oral weight loss drug, DiMulopron. An ongoing, open-label, randomized study is evaluating the pharmacokinetics and safety of immediate and modified release formulations administered orally in healthy adults 18 years or older. The drug banker plans to conduct dose optimization studies in the second half of 2024. The Wall Street Breakfast Monthly Sentiment Survey results are in, and the nearly 1,000 respondents have ideas on which spot might replace Tesla in the Magnificent Seven. Tesla has been the mega cat laggard, with many saying it no longer deserves its spot on the list. Since Q2 deliveries arrive, analysts have scrambled to catch up with price targets in the middle of an 11-session winning streak. But if Tesla were to get the boot, Broadcom, an AI play, and Eli Lilly, a weight loss play, saw the most support to take the mantle. Their contenders include Super Microcomputer and Taiwan's semi. And in the Wall Street Research Corner, as the S&P keeps rising so does the chatter about the narrower nature of the rally. More than at any time since 1928, the S&P is moving one way while its stocks do the opposite, according to sentiment trader, founder, and chief research analyst Jason Gopfert. Oppositional Defiant Disorder is how he characterized what's happening under the hood. In 14 of the past 30 days, the index has moved one way, while the net advanced decline line, an indicator of market breadth, has moved in the opposite direction. So far this year, roughly 40% of the S&P's components have lost ground. Society General strategist Albert Edwards, a noted bear, says, "The equity market's behavior is particularly odd, ODD, get it?" At the moment, reflecting a market having sprinted to a record altitude, and now it's grasping for breadth. Check out a great chart of these dynamics in our story on Seeking Alpha. I'll put the link at the top of show nets. That's all for today's Wall Street Lunch. Look for links for stories in the show nets section. Don't forget, these episodes will be up with transcriptions at seekingalpha.com/WSB. And for a full suite of news, analysis, ratings, and data on stocks and ETFs, go to seekingalpha.com/subscriptions. [BLANK_AUDIO]