Memory chips are dragging technology stocks down this morning. Western Digital, SanDisk, Micron, and Seagate all sit in the technology hardware and storage part of the sector, and their weakness is pulling the NASDAQ lower. Western Digital trades near $80 pre-market, and that drop spreads to the other memory names.
Great earnings, flat or falling stocks
The core problem is not bad results. It's price. Many of these charts look the same: a huge run up this year, then a pullback. Western Digital ran from $73 to $799 this year. SanDisk hit a record of $23.54 in June and now trades around $12.11 after this move. RBC gave SanDisk a sector perform rating and raised its price target to $13 from $10, only a bit above where the stock trades now. Other targets have come down: Jefferies at $17.50, another at $19.
When the bar is set this high, nothing is good enough. It doesn't matter how healthy a company is or how strong its earnings are; if the valuation is stretched and the stock has already run too far, no good news can hold it up. We're off to a great earnings season, and these companies are doing extremely well, but strong earnings are not turning into higher stock prices. The US market still sits at or near all-time highs, with the NASDAQ only about 3% to 4% off its peak, so the market overall remains strong. This pullback on good news is normal behavior when stocks have climbed too far.
The SpaceX share unlock
A lockup expiration hits today, August 6th, releasing 911.5 million private shares to be sold. That's a jump of 141% over the current 646 million public shares, described as a mini IPO because of its size, possibly the largest such unlock of any S&P 500 company. Some of this is already priced in, which is why the stock closed at $108 yesterday rather than the $150 to $200 range where it once traded. Eligible to sell doesn't mean willing to sell. Some shares will hit the market, the stock may go through a rough patch, but the market should absorb it. Volume was already 40 million shares pre-market before the open, so expect big volume and volatile trading. Shorts have piled in: 35% of the float has been sold short, per S3 Partners data. The unlock is dilutive. The recent low was about $104 and the high $225. Earlier this morning the stock was up about a dollar, then slipped back toward unchanged.
Jobless claims and the labor market
First-time jobless claims came in at 199,000, staying historically low under 200,000. Last week's 197,000 was revised up to 198,000. The four-week average is now 198.75, also under 200,000. Continuing claims stand at 1.801 million. This points to a strong labor market. The open question: does this reflect the "low hire, low fire" economy we're in, or will unemployment tick down again like last month? A month ago non-farm payrolls missed, yet unemployment fell from 4.3% to 4.2%. The forecast now calls for about 88,000 jobs and a 4.2% unemployment rate to hold, but these claims numbers raise the chance of another downtick.
Gold and oil
Gold sits near seven-week highs, around $4,300, driven by a weaker US dollar, with silver rising too. The dollar is the main force behind gold's strength.
Crude oil trades at about $76.68 and has come down toward the $75 level. The market waits for a fragile deal between the US and Iran, with Oman helping broker it, as Iran and Oman reportedly move closer to a Strait of Hormuz agreement. The trouble is knowing who you negotiate with, since Iran is run by political, military, and religious factions, and the IRGC could still fire missiles even during talks. Any announced deal will stay fragile, as past ones have. One forecast sees oil holding in a tame range: Ben Cook of the Energy Transition Fund called for $70 to $80 for West Texas and $75 to $85 for Brent, naming Exxon, Williams, and Expand Energy as energy picks he likes. Oil could have spiked when the ceasefire broke, but it didn't.
The names to watch today: crude oil, memory stocks, and the SpaceX share unlock. Memory will keep weighing on technology, so tread carefully there.
