A Week Crowded With Risk
Investors wanted to focus on inflation data and bank earnings this week. Geopolitics won't let them. Over the weekend a container ship was bombed, and the U.S. answered by hitting several spots in Iran. Rhetoric keeps going back and forth. Crude oil is up this morning on the U.S.-Iran tensions. The situation is fluid.
Tomorrow morning is packed. CPI data comes out. The consensus calls for month-over-month CPI down 0.1%, and the year-over-year rate dropping from 4.2% to 3.8%. It could beat those numbers, which would paint a better picture on inflation. Kevin Warsh speaks, which will raise inflation and the chance of rate hikes.
Earnings Kick Off
Earnings start tomorrow with the banks. Delta already reported early in the season. Banks and airlines lead off; United Airlines reports tomorrow. Netflix comes Thursday and matters because the stock has badly underperformed.
The banks should post strong numbers. IPOs and market volatility drive a lot of their earnings. Jamie Dimon will play risk manager as he usually does, warning on inflation and geopolitics, but the banks will still put up solid numbers. The U.S. consumer is holding up. Bank of America consumer insights have been strong over recent months and this month. JP Morgan and Bank of America read the daily swipes of cards, and those swipes show the consumer is still spending. Add IPOs and volatility, and the setup for banks looks good.
Memory Chips Get Slammed
Memory chip makers are the biggest story, news or not. SK Hynix, now trading under the symbol SK HY, is indicated at 153 after closing near 168 - almost a 10% drop in its ADRs. Micron and SanDisk are also under pressure. These stocks have been the market's leadership.
Part of the SK Hynix move may be mispricing between the South Korea listing and the U.S. ADR, with some arbitrage at work. But SK Hynix fell hard in South Korea overnight, and that throws uncertainty into the memory names here. Memory has been the market's darling for the last few months while software got destroyed. That may be starting to shift. Even in a down market, Microsoft is up $2. Whether memory stays in favor and software stays out, or that corrects, is worth watching.
Reading Geopolitical Risk
The two moments that matter most for markets in a conflict are the start, when a surprise hits, and the finish, when it's truly over and you can move on. Right now we sit between those two points. Inside that middle zone, each headline brings diminishing volatility. The tail risks are set: it either ends or gets worse. Russia-Ukraine has run four years, and the market largely forgot about it.
When an event first hits, markets price in huge uncertainty. It showed up in crude oil and in the grain markets. Then the uncertainty dissipates over time. Each U.S.-Iran incident still moves things, but less each time. Crude oil once spiked well over $100; despite renewed U.S.-Iran tensions, it now sits just over $70. Markets price in the worst case, then work off it. A dramatic change in the status of a conflict could flip this, but for now each event lands with a smaller impact than the first one did.
Apple Sues OpenAI
Apple is suing OpenAI, alleging the company stole trade secrets and hardware designs to build its own consumer AI devices. The claim: a 24-year Apple employee who moved to OpenAI brought employees over for interviews and told them to bring products and hardware for a "show and tell," handing over secrets during the job interview. Elon Musk chimed in, since he is no fan of Sam Altman. Whether it's true is unknown - some of it could be competitive back-and-forth - but the price tags involved are large, and if true it says a lot about how competition in AI is playing out.
