The latest producer price index in June showed inflation rose less than anticipated and built on trader optimism from the June consumer price index data, which came out Wednesday. Investors are now considering whether a strong economy, illustrated by the recent data, could push stocks higher by the end of the year.
Most stock and bond prices rose recently as economic data indicates inflation has fallen quickly, and the labour market remains strong. Optimism that inflation will continue to fall prompted investors to bid up stocks as we await second-quarter earnings results. Investors also bid up bond prices as investors anticipate only one more rate hike from the Fed before they begin cutting rates in early 2024 based on interest rate pricing.
Indeed, the second half of the year could still be strong. Regardless of the volatility, with the year-to-date strength and macroeconomic challenges, second-half underperformers may get even louder.
The three major averages are well on their way to gains every week. The S&P 500 is up 2.5%, while the Dow is up 1.9%. The Nasdaq Composite is the outperformer, leaping 3.5% and on pace for its best week since March 17.
Meta: Stock prices may climb too much as enthusiasm on Threads seems to fade.
Last week, the text-based social media platform reported a record of 100 million sign-ups in just five days. According to Sensor Tower and Similarweb, the service has seen some dropoff in growth and engagement.
Sensor Tower data suggests a significant pullback in user engagement since Threads’ launch: On Tuesday and Wednesday, the platform’s number of daily active users was down about 20% from Saturday, and the time spent for a user was down 50% from 20 minutes to 10 minutes.
These early returns signal that despite the hoopla during its launch, it will still be an uphill climb for Threads to carve out space in most of the users’ social network routines. The backing of Meta and the integration with Instagram likely gives Threads a much higher flood than other services, and it will need a more compelling value proposition than simply "Twitter, but without Elon Musk".
Netflix: High expectation means high disappointment?
Netflix stock may have overheated heading into second-quarter earnings. Wall Street expectations for revenue, net subscription growth and earnings per share are reasonable as the risks might be inflated due to higher traders’ expectations.
Expectations, however, are almost certainly higher than before, with the market likely looking for more like 4MM-5MM Subs in Q2 and similar to a modestly higher level in Q3, which creates expectations risk.
Tesla: The same price that it was three years ago, and the business is three times bigger.
Tesla shares have been on a tear, rallying more than 100% in 2023. That runup led many traders to downgrade the stock to equal weight from overweight. But if you are a long-term investor, you should notice that: "It’s the same price that it was three years ago, and the business is three times bigger,” he said.
Tesla recently made deals with Ford and General Motors to allow the carmakers to use Tesla’s charging network. There is an opportunity for growth in the US as only 6% of cars are now electric, highlighted by the opening of Tesla’s charging stations.
Fullerton Markets Research Team
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