Wall Street Breakfast: What Moved Markets

The Nasdaq and the S&P 500 both posted a second straight weekly decline, as hotter than expected U.S. producer prices data pushed Treasury yields higher and sank rate-sensitive megacap growth stocks. The much anticipated consumer inflation report on Thursday showed that the headline and core consumer price index was unchanged from June, bolstering bets among market participants that the Federal Reserve would hold off on further rate hikes. However, hotter-than-anticipated producer inflation data on Friday played spoilsport for risk-on appetite, with both the headline and core producer price index for July rising from the previous month. Still, the overall picture points to a slowdown in inflation, and has even led to hopes of disinflation. There is a rising consensus among traders that the Federal Reserve will be able to deliver a so-called “soft landing.” For the week, the Dow Jones Average scored a 0.6% gain, while the S&P edged 0.3% lower and the Nasdaq Composite lost 1.9% for its biggest back-to-back weekly loss since December. The energy sector had the strongest return of the week on the back of higher oil prices, while the technology sector saw the biggest drop. Read a preview of next week’s major market events in Seeking Alpha’s Catalyst Watch.

2023 was the year that China’s economy was supposed to come roaring back following the end of its zero-COVID policy, but all indicators are pointing in the opposite direction. Data has shown slowing growth and soaring youth unemployment, while the economy slipped into deflation and trade surplus plunged in July. “Here’s what we do know: Investment in China has fallen sharply… there is a huge debt load… and China’s population is now falling,” SA analyst Logan Kane noted. Adding to China’s woes, the White House on Wednesday restricted U.S. investments in the country, which also raised concerns of aggressive retaliation. A day after, President Biden called China a “ticking time bomb” that puts the rest of the world at risk. (38 comments)

Tapestry’s (TPR) purchase of Capri Holdings (CPRI), which came close on the heels of Amazon’s (AMZN) move to cut private-label brands, drew largely positive reviews. The combination of Coach, Kate Spade, and Stuart Weitzman together with Versace, Jimmy Choo, and Michael Kors is said to create a new powerful global luxury house that is anticipated to deliver immediate value. Wells Fargo said the $8.5B deal positions Tapestry to own the affordable luxe handbag market in the U.S., but the threat to high-end behemoth LVMH (OTCPK:LVMHF) seems limited for now, given the latter’s sheer size and diversification. Knee-jerk trading on Thursday saw TPR shares end down 16%, while CPRI finished the session 56% higher. (3 comments)

Disney (DIS) initially dipped 2% AH on Wednesday after posting the third straight quarterly drop in Disney+ subscribers. While cost cuts helped push profit past estimates, subscriber growth continued to stagnate across streaming platforms. Later on, the stock reversed course to rise 3% after Disney raised prices for its ad-free streaming services. CEO Bob Iger also said additional terms on password sharing policies will be rolled out this year, following in Netflix’s (NFLX) footsteps. Third Bridge analyst Jamie Lumley said the streaming business faces a long road to profitability, warning that 2025 may be a more realistic timeline for that goal than 2024. Meanwhile, Disney’s ESPN moved firmly into sports betting, teaming up with PENN Entertainment (PENN) for an ESPN-branded sportsbook. Investors cheered the deal, with PENN rising 30% AH on Tuesday, but the Street had mixed views. (65 comments)

The odds of the Federal Reserve leaving its current policy rate unchanged rose after the latest inflation data showed prices continuing to moderate. The Consumer Price Index held steady in July, rising 0.2% as expected, though services inflation remained sticky, driven by elevated rental costs. Following the prints, Victor Dergunov said in a Wall Street Lunch podcast that similar readings could lead to a Fed pivot early next year, adding that “we pretty much hit the Goldilocks zone.” Traders also initially cheered the CPI report, but Fed speaker Mary Daly’s hawkish-leaning comments led the markets to lose some steam. (195 comments)

If you’re going to San Francisco, be aware of a supercharged initiative for driverless vehicles that will likely transform the automotive industry and the ways people operate across the nation. In a contentious vote, California regulators gave the green light to Alphabet’s (GOOGL, GOOG) Waymo and General Motors’ (GM) Cruise to expand the breadth and location of their operations. California Public Utilities Commissioner John Reynolds said self-driving technology will increase road safety, and technologists agree, given the elimination of human error. On the other side of the debate were residents, as well as police and fire departments, frustrated at the potential for traffic interference, and job threats to human drivers of Uber (UBER) and Lyft (LYFT) – which are also based in San Francisco. (21 comments)

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