CPI READING LIVE, KEVIN WARSH TESTIFIES, IBM DOWN 20%, DO SEMIS REBOUND | MARKET OPEN

SUMMARY

Amit Kukreja provided live coverage of a pivotal market session featuring a lower-than-expected CPI print, record-breaking bank earnings, a dramatic 20%+ drop in IBM shares, and testimony from new Federal Reserve Chair Kevin Worsh. The session explored sector rotations, AI infrastructure deals, and the interplay of macroeconomic policy, inflation, and geopolitical tensions impacting global markets.

MAIN POINTS

• Preview of the upcoming CPI release and its potential impact on rate cut expectations amid rising oil prices due to Iran conflict. [1:30]
• Discussion of IBM's preliminary Q2 results, with revenue and consulting flat and infrastructure down, citing capex shift to servers and memory. [5:00]
• CPI report released: headline inflation at 3.5%, below expectations, sparking an immediate positive reaction in risk assets. [9:00]
• Energy index posts first monthly decline in three months, offsetting increases in shelter and food; core CPI unchanged. [13:00]
• AI infrastructure deals highlighted, including Nebius's $1 billion contract with Reflection and CleanSpark's $6.6 billion data center lease. [18:00]
• Meta increases Louisiana data center investment forecast, reinforcing the ongoing capex boom in AI and data infrastructure. [22:00]
• Market rotation observed from software to semiconductors, with software stocks falling sharply on IBM's warning. [26:00]
• Fed rate hike probabilities recalculated post-CPI, with hikes increasingly priced out for the coming months. [28:00]
• IBM's revenue growth disappoints at 5%, with consulting flat and infrastructure down 7%, fueling sector-wide software selloff. [32:00]
• Major U.S. banks report record earnings: Citi, Bank of America, JP Morgan, Wells Fargo, and Goldman Sachs all beat estimates. [35:00]
• Despite strong earnings, bank stocks show muted pre-market reactions, raising questions about market expectations and sector rotation. [39:00]
• Google announces major solar energy purchase, boosting First Solar and highlighting the intersection of energy and data center capex. [42:00]
• Market open approaches with anticipation of continued volatility as software, semis, and banks react to earnings and macro headlines. [45:00]
• Keybank raises price targets for major semiconductor stocks, reinforcing bullish sentiment in the hardware sector. [49:00]
• Meta's AI leadership publicly celebrates stock gains, but concerns raised about potential equity dilution to fund massive capex. [53:00]
• GameStop CEO Ryan Cohen argues for an eBay acquisition, citing improved financials and strategic transformation. [56:00]
• South Korean retail investors face margin calls as the Kospi index endures a 30% drawdown, highlighting risks in global leverage. [1:01:00]
• Market open: software stocks continue to fall on IBM news, semis and select banks show resilience, and macro assets like gold and crypto rally. [1:05:00]
• Semiconductor rally is uneven, with some names losing pre-market gains; software stocks show signs of stabilization. [1:14:00]
• CrowdStrike and other cybersecurity stocks outperform as IBM cites cybersecurity concerns as a distraction for clients. [1:21:00]
• Panelists debate whether IBM's capex warning signals a broader software slowdown or a company-specific issue. [1:35:00]
• Bank of America CEO details strong consumer spending, robust pipelines in investment banking, and positive outlook for the U.S. economy. [1:38:00]
• Kevin Worsh begins testimony, emphasizing Fed independence, commitment to price stability, and the launch of five task forces for reform. [1:50:00]
• Worsh highlights rapid growth in AI-related business investment and the Fed's monitoring of AI's impact on productivity and inflation. [1:59:00]
• Congressional questioning focuses on Fed independence, regulatory scope, and the need to avoid political interference in monetary policy. [2:12:00]
• Worsh reiterates the dual mandate of price stability and full employment, arguing they are not in conflict and supporting a resilient labor market. [2:29:00]
• Trump announces the removal of a proposed 20% cargo tariff on Strait of Hormuz traffic, replacing it with Gulf States investment deals. [2:42:00]
• Market stabilizes post-Worsh testimony, with semiconductors regaining strength and software stocks taking a breather. [3:00:00]
• Session closes with reflections on sector rotations, the impact of macro policy, and the importance of Fed transparency and independence. [3:16:00]

DETAILED ANALYSIS

The session opened with heightened anticipation for the June Consumer Price Index (CPI) report, which was expected to set the tone for the day’s trading and influence Federal Reserve policy expectations. The context was complicated by geopolitical tensions in the Middle East, with oil prices surging above $80 per barrel following renewed U.S. military action against Iran. This raised concerns about the persistence of inflation and the potential for delayed rate cuts.

Expectations for the CPI were for a headline figure of 3.8% and a core reading of 2.8%. However, the actual print surprised to the downside: headline CPI came in at 3.5% and core at 2.6%, both below consensus. Month-over-month, the headline figure was negative 0.4%, marking the largest monthly decline since the early days of the COVID-19 pandemic.

The core CPI was unchanged, matching the smallest change since January 2021. The energy index, which had risen sharply in previous months, fell 6% in June, more than offsetting increases in shelter and food. This drop in energy prices was attributed to a decline in oil prices during the month, although the recent rebound in oil due to geopolitical events was flagged as a potential headwind for future inflation readings.

The immediate market reaction was positive, with risk assets such as equities, gold, and cryptocurrencies rallying. The S&P 500 and technology stocks saw a brief surge, while Bitcoin and Ethereum also posted gains. However, the positive momentum was tempered by sector-specific developments, most notably a dramatic selloff in IBM shares.

IBM released preliminary Q2 results showing revenue growth of just 1% year-over-year, with consulting revenue flat and infrastructure revenue down 7%. The company attributed its miss to clients shifting capex from software to hardware—specifically servers, storage, and memory—in anticipation of supply constraints and price increases. Additionally, IBM cited rapidly evolving cybersecurity concerns as a distraction for clients.

IBM’s explanation triggered a broad selloff in software stocks, as investors feared the company’s warning signaled a sector-wide slowdown in enterprise software demand. However, the analysis presented argued that IBM’s issues were likely company-specific, reflecting a lack of compelling product differentiation rather than a systemic decline in software demand. The host suggested that unless other major software firms such as Palantir, Zeta, Figma, or ServiceNow echoed IBM’s rationale in their own earnings, the selloff in the broader software sector could represent a buying opportunity for long-term investors.

The market’s tendency to extrapolate single-company warnings to entire sectors was highlighted as a recurring theme, with parallels drawn to past episodes in both software and hardware industries.

Meanwhile, the semiconductor sector experienced a rotation of capital, benefiting from the narrative that enterprise capex was being redirected from software to hardware. Key players such as Micron, Nvidia, SK Hynix, and Broadcom saw gains, buoyed by multiple factors. Notably, Nebius, a leading neocloud provider, announced a $1 billion deal to supply AI computing capacity to Reflection, a startup founded by ex-DeepMind engineers.

CleanSpark also secured a $6.6 billion data center lease with a major tech client, and Meta increased its investment forecast for its Louisiana data center to $250 billion over the next decade. These deals underscored the ongoing capex boom in AI infrastructure, reinforcing the bullish thesis for semiconductors and data center-related companies.

Despite the strong macro and sector-specific tailwinds, the session was marked by volatility and uneven performance within sectors. While some semiconductor stocks rallied, others struggled to hold pre-market gains. Similarly, software stocks initially plunged but began to stabilize as the session progressed, with cybersecurity names like CrowdStrike and Palo Alto Networks outperforming after IBM highlighted cybersecurity as a key client concern.

This divergence suggested that the market was becoming more discerning, rewarding companies with clear growth drivers and punishing those perceived as vulnerable to shifting enterprise priorities.

Bank earnings were another major highlight. Citi, Bank of America, JP Morgan, Wells Fargo, and Goldman Sachs all reported record or near-record results, with year-over-year revenue and earnings growth far outpacing many technology firms. JP Morgan’s EPS was up 47%, Bank of America’s up 36%, and Goldman Sachs reported a 92% increase in earnings.

Trading and investment banking revenues were particularly strong, reflecting robust capital markets activity and the ongoing AI buildout. Despite these stellar results, bank stocks showed muted reactions, suggesting that much of the good news was already priced in or that investors remained cautious about the sector’s future trajectory in a potentially higher-for-longer rate environment.

The session also included a detailed look at international developments, particularly in South Korea. Retail investors there faced a wave of margin calls as the Kospi index endured a 30% drawdown from its peak, with hundreds of thousands of brokerage accounts forcibly liquidated. The concentration of the Kospi in just two companies—Samsung and SK Hynix—was cited as a structural vulnerability, with further declines potentially triggering additional forced selling and systemic risk in the region.

At 10 a.m., newly appointed Federal Reserve Chair Kevin Worsh began his testimony before Congress. Worsh emphasized the Fed’s independence, a resolute commitment to restoring price stability, and the launch of five task forces aimed at reforming Fed communications, balance sheet policy, data usage, productivity and jobs, and inflation frameworks. He argued that inflation is ultimately a choice determined by monetary policy and pledged to avoid passing blame for inflation on external factors.

Worsh also highlighted the rapid pace of AI-related business investment and the need for the Fed to monitor the implications of AI for productivity, employment, and inflation.

Congressional questioning focused on Fed independence, the scope of regulatory authority, and the need to avoid political interference in monetary policy. Worsh repeatedly affirmed the Fed’s dual mandate of price stability and full employment, arguing that the two are not in conflict. He also addressed concerns about mission creep, stating that the Fed would stick to its statutory responsibilities and avoid venturing into areas such as climate policy or social issues.

During the session, former President Trump announced the removal of a proposed 20% cargo tariff on ships passing through the Strait of Hormuz, replacing it with investment deals from Gulf States. This announcement provided a brief boost to risk assets, particularly in the semiconductor and energy sectors, as it alleviated concerns about a potential inflationary shock from higher shipping costs.

As the session drew to a close, the market appeared to stabilize, with semiconductors regaining strength and software stocks taking a breather. The day’s events underscored the complex interplay of macroeconomic policy, sector rotations, and geopolitical developments in shaping market sentiment. The lower-than-expected CPI print provided relief on the inflation front, while record bank earnings and ongoing AI infrastructure investment reinforced the resilience of key sectors.

However, the dramatic selloff in IBM and the volatility in both software and semiconductor stocks highlighted the market’s sensitivity to company-specific news and the challenges of navigating a rapidly evolving investment landscape. The testimony of Fed Chair Worsh signaled a new era of central bank communication and policy, with a focus on transparency, reform, and a steadfast commitment to the Fed’s core mandate.

LINKS

• Amit Kukreja's Twitter/X profile for real-time market commentary and updates.
• Amit's Deep Dives Substack for in-depth analysis and market research.

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