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Bank of America reiterated a buy rating on Microsoft following earnings. The firm, as quoted by CNBC, said, “The key takeaway from 2Q results is increasing validation of Microsoft’s AI strategy. Revenue grew 17% YoY in constant currency, and EPS reached $4.74, ahead of Street expectations of 14.8% and $4.25, respectively.”
Markets are attempting to pivot higher after a massive pullback.
In fact, this morning, the S&P 500 is up about 0.63%, or by 49 points. The SPDR S&P 500 ETF (SPY) is up by 0.64%, or by $4.67. The Dow is up by 0.4%, or by 208 points. The Nasdaq is up about 1.57%, or by 430 points. And oil, despite the war, is down by 60 cents at $83.86.
The U.S. economy grew slower than expected
Gross domestic product (GDP) increased by 1.5% from April through June. Economists had expected growth of 1.8%, after a 2.1% increase in the first quarter.
At the same time, inflation remained above the Federal Reserve’s target. The Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of inflation, showed prices were 3.7% higher than a year ago, even though they dipped 0.1% in June.
When food and energy prices are excluded, core PCE inflation rose 0.1% for the month and was 3.3% higher than a year earlier.
The Federal Reserve Left Analysts Confused
Federal Reserve Chair Kevin Warsh faced a tough reaction from investors after the Federal Reserve meeting, where officials voted 9-3 to keep interest rates unchanged. And unfortunately, investors became less convinced that the Fed will raise interest rates at its next meeting, while long-term Treasury yields climbed to their highest levels in years.
In addition, Warsh declined to explain what economic conditions would convince him to raise interest rates. Economists said his comments were difficult to follow and, at times, appeared to contradict themselves. Inflation remains well above the Fed’s 2% target, even though some recent reports showed prices cooling. Warsh acknowledged inflation is still elevated but said one month of lower inflation data was not enough to change the Fed’s outlook.
He also suggested the Federal Reserve could eventually reconsider using the Personal Consumption Expenditures (PCE) index—its preferred measure of inflation—as its main target.
That surprised many economists and added to concerns about the Fed’s future strategy.
Several analysts said the chairman’s lack of clear guidance raised questions about whether the Fed can successfully bring inflation back under control.
Market Movers: Wells Fargo Reiterated Target as Overweight
Analysts at Wells Fargo just raised its price target on Target to $165 from $140. The firm noted that, “TGT stock run is enough to give anyone w/ history on the name pause, but Q2 beat/raise, self-help runway, easy 2H compares, and reasonable multiple keep us positive. Fundamental debate continues, but momentum is on the side of the bulls. Remain OW,” as quoted by CNBC.
Analysts at Bernstein reiterated an outperform rating on Advanced Micro Devices and Nvidia, noting that both companies benefit from neocloud companies building out AI infrastructure, as noted by CNBC. The firm added, “Neoclouds don’t have the balance sheets to build their own facilities at scale, nor do developers (including Emerging AI Infra providers) want to take the risk on them for a 15- year lease term … enter NVDA and AMD.”
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