The View from 5th Avenue – 9 August 2022

As soon as Micron (MU -3.5%) announced they would be following in the footsteps of NVDA’s (-4%) warning from yesterday, investors knew markets would be on shaky ground today. Especially since semis have been a bit of a leading indicator for the broader tech sector lately. But, as much as further evidence of a slowdown in chips was not what investors wanted to hear, semis weren’t the only sector dragging major indices. Consumer Durables underperformed as well after Ralph Lauren (-5.5%) and Signet Jewelers (-12%) both posted disappointing outlooks, with the latter also announcing a purchase of Blue Nile. Energy stocks were the strongest sector, despite crude in the red, after Berkshire Hathaway increased their stake in OXY (+4%) to 20%. Higher yields also meant financials sat towards the top of the S&P. But the stronger sectors were unable to save the Nasdaq from suffering its third down day in a row and the S&P from closing down 40bps. Especially since there was also some negative data. Apparently, optimism among small US business owners barely improved in July, and remained well below pre-pandemic levels. Furthermore, 37% of business owners reported that inflation is still their single biggest problem. Thus, the real focus remains on tomorrow’s CPI, which will be quite binary in nature. One major risk is that LO’s haven’t participated in this rally and a lower number could produce a real squeeze towards 4400 (even 4600) on the S&P. Worth keeping an eye on 2 things: food prices and DXY. While input costs are easing as crop futures have retreated to pre-war levels, the U.S. Dept. of Ag is expected to cut its outlook for US corn & soybean yields - the real effects of the heat wave being revealed. In terms of the DXY, a break below 105.50 would be a sure sign of change.