Markets extended yesterday's equity gains, helped by a slight pullback in crude oil. Geopolitical risk stays a headwind, and volatility will likely hold until there is more clarity. A 90-minute barrage hit Iran along the coast and struck some of its infrastructure. There was talk that President Trump may move toward targeting Iran's power, which would be a negative. Crude topped $80 a barrel this morning, then fell just below that, a positive sign. The blockade is back in place, but some ships are getting through with military help.
Earnings drive the tape
Trading now hinges on earnings after a cooler-than-expected CPI report. PPI is due today and may not fall as sharply, but CPI came in with prices to the downside. CPI expectations dropped a bit, yet some traders are eyeing possible interest rate hikes later this year, which is stirring volatility on the interest rate side.
Major financial companies keep blowing numbers out of the water, even against high valuation bars. Trading, M&A, and IPO activity all support the group through this first wave of earnings. Chip names rose about 1% (SMH) on ASML's results. IBM fell 25% yesterday, denting software names; that pre-announcement triggered price target cuts on Microsoft this morning.
ASML
Revenue grew 21% year-over-year, beating on the top and bottom lines. ASML guided higher. It has no real competitor for its extreme ultraviolet lithography machines, which sell for roughly $180 million to $400 million each. Guidance was raised on AI demand as hyperscalers and chip makers expand capacity across memory and CPU. Full-year sales are seen at about $49 billion with gross margins between 54% and 56%, above the roughly $45 billion (43 billion euro) originally forecast. The CEO said demand is outstripping supply. As Micron ramps memory, and AMD and Intel build out foundry work using ASML machines, cornering this hardware niche means good things for ASML. Shares rose about 3% post-earnings, down from overnight highs.
Morgan Stanley and the banks
It is hard to find faults in these reports. Goldman Sachs reported yesterday, handily beating EPS with revenue nearly $2 billion above expectations and equity trading revenue up 69% from a year ago. These will be hard comparables going forward. Trading is taking over from investment banking; Goldman beat investment banking estimates, including high whisper numbers.
Morgan Stanley hit a record yesterday and rose again pre-market. Equity trading set a record at $6.3 billion, about $1.9 billion above expectations. Fixed income rose 13% to $2.46 billion, matching consensus. Investment banking revenue climbed 58% year-over-year to $2.44 billion, about $270 million above the street. The results reflect heavy volatility, parabolic moves in chips and AI, and rotation as investors shift between winners and losers, take profits in chips, and move into blue chips, industrials, and materials. Option volumes are at record levels. Morgan Stanley also reauthorized a $20 billion share repurchase.
Is this as good as it gets? Hard to say. Continued volatility and geopolitical tension keep trading active. Summer usually brings a lull and less market depth, but heavy news flow, headline risk, and rising earnings season may stunt the usual seasonal downside.
PayPal and the Stripe bid
PayPal shares jumped double digits pre-market. The stock hit multi-year lows a couple of months ago before ticking up. A Reuters report says Stripe, along with private equity firm Advent, plans to buy PayPal for $60.50 per share, more than $53 billion, about 27% to 28% above yesterday's close. Stripe mainly serves businesses rather than individuals, but the two overlap. PayPal's growth has stagnated, and the new CEO is trying to split the company into three parts. Founded in 1998, PayPal led peer-to-peer transactions but lost its way; its push into crypto did not work out, and it stepped back from that model. The stock was over $90 less than a year and a half ago and now trades near $47. The deal is unconfirmed by the companies. This is essentially Stripe taking out a competitor.
