Stocks were volatile Thursday as market participants weighed mixed signals from the tech sector. Wall Street also sifted through the latest inflation data, which came in better than expected, but is unlikely to change the trajectory for interest rates this year.
At the close, the blue-chip Dow Jones Industrial Average was up 0.1% at 51,920, while the broader S&P 500 was fractionally lower at 7,357 and the tech-heavy Nasdaq Composite was down 0.5% at 25,358.
Caterpillar (CAT) was the best Dow Jones stock today, adding 6.3% to bring its daily win streak to seven. The industrial stock is also the best-performing Dow component of the year, up nearly 85% so far, on expectations that the heavy equipment maker will capitalize on demand for the artificial intelligence/data center buildout.
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UBS Global Research analyst Steven Fisher thinks power generation opportunities will remain strong in the U.S. “until either grid investment ramps up materially or large turbine production capacity ramps up.”
And this should support Caterpillar’s “earnings growth, along with continued dealer inventory build in construction, a pickup in the mining cycle, and more oil & gas customer investments.”
However, Fisher has a Neutral (Hold) rating on the blue chip stock and a $900 price target — below its current price — noting that its upside potential is likely limited from here given CAT’s strong run up the price chart.
Apple sinks on MacBook, iPad price hikes
Apple (AAPL), on the other hand, was the worst-performing Dow stock on Thursday, sinking 6.2% on news the company will be hiking prices on several of its products, including the MacBook and iPad.
Earlier this month, outgoing CEO Tim Cook warned that “price increases are unavoidable” given higher costs for components such as memory chips. And the company implemented the hikes today, raising prices for most of its products by $100 to $200.
For instance, as Tech Radar reports, the new MacBook NEO is now priced at $699, up from $599. And the 12-inch MacBook Air costs $1,299 to start, up from $1,099 previously.
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Passing these “increased costs onto consumers is emblematic of the substantial expenses associated with AI technologies, which have raised concerns about the capital-return prospects of the initiatives,” says José Torres, senior economist at Interactive Brokers. “Also, the need to increase prices is undermining hopes that related projects will offer deflationary relief.”
Micron soars 16% on memory chip demand
One company that is benefiting from higher semiconductor costs is Micron Technology (MU), which soared 15.8% — and gained $186 billion in market value — after the memory chipmaker reported its fiscal third-quarter results.
For the three months ending May 28, Micron said earnings rose to $25.11 per share from $1.91 per share in the year-ago period. Revenue surged nearly 350% to $41.5 billion. Analysts expected earnings of $20.05 per share on $35 billion in revenue.
“Micron’s record fiscal Q3 financial results and even stronger outlook for Q4 reflect the strategic value of memory in the AI era,” said Micron CEO Sanjay Mehrotra in the earnings release.
For fiscal Q4, the company guided for earnings of $31 per share at the midpoint and revenue of $50 billion.
“MU delivered another strong quarter, reinforcing our constructive view on memory’s role in AI and the increasing supply-side discipline supporting a more durable cycle,” says BofA Securities analyst Vivek Arya.
Even with the tech stock up more than fourfold for the year to date, Arya believes its “valuation remains compelling,” and raised his price target to $1,550 from $1,500 — representing implied upside of 27% from current levels.
PCE comes in better than expected, but keeps rate cuts out of reach
In economic news, the Bureau of Economic Analysis (BEA) this morning said the Personal Consumption Expenditures Price Index (PCE) — the Federal Reserve’s preferred measure of inflation — rose 0.4% from April to May and was 4.1% higher from the year prior.
Core PCE, which excludes volatile food and energy prices, was 0.3% higher month over month and up 3.4% year over year.
“Oil prices are heading lower but the inflation problem remains, as core PCE is up 3.4% since last year and showing no signs of abating,” says Sonu Varghese, chief macro strategist at Carson Group. “This isn’t about energy and tariffs either, as AI-related bottlenecks are also pushing inflation higher.”
Varghese believes that the Fed’s job only gets harder from here, especially as the labor market continues to improve. “But we think the committee will avoid rate hikes this year as a majority wait for inflation to pass, allowing the economy (and markets) to run hot.”
Futures traders, however, expect the next move to be a rate hike. According to CME Group FedWatch, betting odds are for the Fed to raise the federal funds rate by a quarter percentage point by year’s end.
