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“The most effective leader is the one who satisfies the psychological needs of his followers.” – David Ogilvy
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Paul Hickey appeared on CNBC’s Squawk on the Street yesterday to discuss the sell-off in tech and rotation into other sectors. To view the segment, click on the image below.
Stocks are looking to recoup some of Tuesday’s losses as Nasdaq futures rally 0.6% and the S&P 500 stands to gain 0.3%. Bond yields are lower, with the 10-year Treasury falling back down to 4.5% while WTI oil prices drop 3% to $71 per barrel. Gold prices are also down over 2% and not far from breaking the psychologically important level of $4,000 per ounce. Bitcoin is moving in the opposite direction, rallying nearly 1%.
It’s a slow day for data, with New Home Sales being the only economic report on the calendar, but after the bell, investors will be focused on Micron (MU) earnings, which are sure to cause some big moves in the memory sector.
Asian stocks generally rebounded overnight, except for Japan, which fell 0.9%. South Korea bounced 3.3%, erasing one-third of its losses from Tuesday’s session, while Chinese stocks were up fractionally. Traders in South Korea were somewhat comforted by news that Samsung would buy back $58 billion in stock, while SK Hynix said it would proceed with its US listing in early July.
In Europe, the STOXX 600 is slightly lower. French stocks are outperforming with a slight gain, while Germany is the big laggard, falling over 1%. Weakness in Europe’s largest industrial economy comes on the heels of reports that the German government cancelled plans to build six new warships, and that Rheinmetall shares plunging more than 15%.
Crude oil prices are lower again this morning, and WTI is down below $72 per barrel for the first time since March 3rd and below its 200-day moving average for the first time since April. Consider this: in May, crude oil prices averaged over $98 per barrel. Today, WTI is 27% lower.
Yesterday’s decline in WTI ended a streak of 54 trading days where the commodity closed above its 200-DMA. As shown in the chart below, that’s far from extreme on a historical basis, but it was the longest streak in nearly three years.
Outside of Energy, S&P Global announced last night that Alphabet (GOOGL) would replace Verizon (VZ) in the Dow Jones Industrial Average. While both stocks are in the Communication Services sector, it will have a notable impact on sector representation in the index. Not because GOOGL has a market cap that’s more than 20 times greater than VZ’s, but instead because its share price is 7.5 times greater (and the Dow is a share price-weighted index).
As the chart below illustrates, every other sector in the will see its weighting decline marginally while Communication Services will see its weighting increase from 1.8% to 5.2% of the index.
At the individual stock level, based on yesterday’s closing levels, GOOGL will enter the Dow as the sixth-largest component in the index with a weighting of just under 4%. As shown in the chart below, thirteen of the index’s 30 components have weights of between 3% and 5%, but the big outliers are Goldman Sachs (GS) and Caterpillar (CAT). With GS having a share price of nearly $1,100 and CAT closing yesterday just below $1,000, both stocks have weightings of more than 11% each. At the other end of the spectrum, after VZ’s removal, Coca-Cola (KO) and Nike (NKE) will be the only two stocks in the index with weightings below 1%.
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