Stocks Steady as Treasury Yields Slip After CPI | Closing Bell

Market Close – Friday, February 9th, 2024

Key Concepts:

• Volatility: Fluctuations in market prices over a period of time.
• Risk-On Sentiment: Investor preference for assets perceived as riskier, typically associated with economic optimism.
• CapEx: Capital Expenditure – funds used by a company to acquire, upgrade, and maintain physical assets.
• Basis Points: A unit of measurement used in finance to describe the percentage change in an interest rate or yield (1 basis point = 0.01%).
• AI-Proof Basket: A portfolio constructed by Goldman Sachs designed to capitalize on sectors less susceptible to disruption by Artificial Intelligence.
• CPI: Consumer Price Index – a measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.

Market Overview & Volatility

The trading day concluded with a relatively quiet finish to a volatile week, coinciding with the start of a long weekend. While major equity averages ended slightly in the green, they retreated from their session highs. Carol Massar noted a potential pullback as investors position themselves ahead of the extended break. The S&P 500 finished with 367 names advancing and only 136 declining. Sector performance was mixed, with Utilities, Real Estate, and Materials outperforming, driven by a decline in yields. Conversely, Communication Services and Technology lagged, largely due to the performance of the “Magnificent Seven” stocks.

Equity Performance – Major Indices

• S&P 500: Finished marginally higher.
• Nasdaq Composite: Closed down approximately 0.2%.
• Dow Jones Industrial Average: Ended up around 0.1%.
• Russell 2000: Showed the strongest performance, gaining approximately 1.2%, indicating outperformance among smaller capitalization stocks.

Cryptocurrency Market – Bitcoin Surge

Bitcoin experienced a significant rally, increasing by 4.5% to nearly $69,000, exceeding its previous day’s closing price of $65,000. This surge positively impacted cryptocurrency-related stocks, notably Coinbase. Bailey Lipschultz likened the market’s current state to “waiting for the S&P,” highlighting the minute-by-minute fluctuations.

Individual Stock Highlights – Gainers

• Applied Materials (AMAT): A top performer, gaining approximately 8% and hitting a record high. This was fueled by a surprisingly optimistic sales forecast, indicating strong demand for AI and memory semiconductors. The company also announced a settlement of a U.S. Commerce Department investigation into improper exports to China, paying $252.5 million. The stock is up almost 40% year-to-date.
• Coinbase (COIN): The top gainer in the S&P 500, surging approximately 16% on triple average trading volume. This increase occurred despite the company reporting weaker-than-expected fourth-quarter revenue (a 20% decline to $1.8 billion) and a net loss of $667 million. The rally was attributed to the concurrent rise in Bitcoin prices, as Coinbase often trades in tandem with the cryptocurrency.
• Rivian Automotive (RIVN): Experienced a substantial jump of nearly 27%, marking its largest increase since 2024. This was driven by better-than-expected fourth-quarter results and the achievement of its first annual gross profit – a significant milestone after years of losses. The company remains on track to launch its R2 midsize SUV in the second quarter.

Individual Stock Highlights – Losers

• Nvidia (NVDA): Shares fell by 2.2% and are down about 2% year-to-date. Concerns are growing that revenue growth may not keep pace with the substantial capital expenditure (CapEx) announced by big tech companies investing in AI infrastructure. Nvidia’s valuation is facing compression as revenue growth is expected to slow. Investors are awaiting the company’s upcoming earnings report for guidance.
• DraftKings (DKNG): Shares declined by 13.5% after the company’s full-year sales and profit forecasts fell short of Wall Street estimates. DraftKings stated it hasn’t seen a discernible impact from prediction markets on revenue, viewing them as a significant opportunity, despite increased competition from platforms like Robinhood.
• Pinterest (PINS): Shares tumbled nearly 17% after projecting current-quarter sales below expectations. The company attributed this to the impact of Trump-era trade policies and tariffs on home furnishings, which are reducing marketing spend by businesses.

Fixed Income Market – Yields Decline

Following the release of CPI data, which came in slightly below expectations, both two-year and ten-year Treasury yields decreased by approximately five basis points. The ten-year yield is now back on “4% watch,” having fallen by around 15 basis points this week.

Goldman Sachs’ “AI-Proof” Basket

Goldman Sachs launched an “AI-proof” software basket, aiming to identify companies less vulnerable to disruption by Artificial Intelligence. The basket includes:

• Long Positions: Cloudflare, CrowdStrike Holdings, Microsoft (companies requiring physical execution, regulatory entrenchment, or human accountability).
• Short Positions: Monday’s Money.com, Salesforce, Duolingo.

Anecdotal Discussion & Market Sentiment

A lighthearted discussion arose regarding a private auction of a golden doodle named Tucker following a couple’s breakup. The ex-boyfriend won the auction, highlighting a humorous anecdote about personal relationships impacting market-like transactions. The conversation also touched on the potential for future investment in professions less susceptible to automation, such as plumbing and dentistry.

Notable Quote:

“I feel like I'm at a horse track right now where waiting for the S&P we're up three points right now. Are we going to give them away? I don't know.” – Bailey Lipschultz, reflecting on the minute-by-minute market fluctuations.

Conclusion

The market concluded the week on a mixed note, with a slight overall gain offset by sector rotation and individual stock performance. Bitcoin’s rally and the strong performance of companies like Applied Materials and Rivian provided positive catalysts, while concerns surrounding Nvidia, DraftKings, and Pinterest weighed on the market. The decline in Treasury yields suggests a shift in investor sentiment, and the launch of Goldman Sachs’ “AI-proof” basket highlights the growing focus on identifying companies resilient to technological disruption. Overall, the market appears to be cautiously optimistic as it heads into a long weekend.