Technology is bouncing back and leading the market. Information technology led sectors, followed by consumer discretionary stocks. Memory names are the headline movers, with DRAM as the proxy showing a strong move, and other semiconductor names also doing well. The market shifted from a broadening-out trade back to a concentrated trade. Small caps advanced well, and the Russell broke a downtrend line that held for about a month and a half to two months - an encouraging sign.
The Fed Decision
Today's Fed meeting looks contentious and likely to bring volatility. The market prices in a rate hold. The key question: is the Fed holding because economic data improved, or because of politics? That back-and-forth will shape Fed chair Kevin Warsh's comments. The September PCE number comes out tomorrow. Headline PCE is expected at about 3.6% year-over-year. Core PCE is expected at about 3.05%, up about 0.3% month-over-month. Inflation has gotten worse since the last meeting, and that prior meeting already wasn't great.
Volatility has eased a bit, sitting near 17.5. The tech trade works for now but still has a lot of technical damage to repair. There could be fireworks in volatility and yields moving back up as the Fed admits inflation is not stalling but still accelerating.
SK Hynix (SKHY)
Shares rose about 7.6% in pre-market. Operating profit on a dollar-equivalent basis came in at $62.55 billion, about a 632% year-over-year increase. Revenue rose 328% year-over-year, and operating margins hit 80%. High memory prices fuel top-line growth. AI server demand keeps outstripping supply. The company expects a chip shortage, with demand above available supply, through 2030, which is why guidance rerated higher.
Seagate (STX)
Shares fell about 2% in pre-market. Seagate beat on both top and bottom line, but the whisper number was higher than the street's expectations. Demand for its heat-assisted magnetic recording (HAMR) hard disk drive technology outstrips market supply, and it continues to see record profitability. The sell-off reflects a high bar going into the report; fundamentals stay strong.
Vertiv (VRT)
Shares rallied nearly 16%. Net sales rose 61% year-over-year and adjusted earnings per share rose about 78% year-over-year. Operating margin sits near 25.2%. The company keeps spending on capex while organic growth rose 55% year-over-year - the big driver. The Americas segment grew 75%, the APAC segment grew about 50%, and operating profit rose 90%. The order backlog keeps building. Vertiv is a direct player in a long infrastructure buildout.
The strong results from SK Hynix (SKHY), Seagate (STX), and Vertiv (VRT) raise the bar for Microsoft (MSFT) and Alphabet (GOOGL).
Oil Prices
Oil is elevated, in triple digits - WTI above $101, Brent crude also well into triple digits. Yemen's Houthis struck Saudi Arabia's largest refinery, which produces about 550,000 barrels per day, pushing prices up. Uncertainty around the Israeli elections adds unease over Middle East conflict, with back-and-forth talks between Iran and other Gulf states. Logistics disruptions continue, and there is concern the supply story from recent months could keep playing out. Russian supply hitting the market could be curtailed over the next month and a half as its refiners shift toward diesel output to fill orders in the United States and worldwide. Higher oil pressures inflation, and the Fed will likely address this geopolitical risk.
S&P 500 Levels
Upside level to watch: 7790. Downside: 7650 - a wide range implying about a 1% move either way. Puts are gaining steam this morning, likely hedging for today's Fed event. The S&P 500 needs to hold its 20-day and 50-day moving averages to build confidence for a return to all-time highs.
