foxex: Support

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. U.S. Markets Rip Higher, Erasing Monday Losses

2. Never Mind the Yield Curve

3. AMD Chips Up

4. CBS and Viacom Reuniting

Markets Closed

Dow
26,378.19 +1.43%

S&P
2,938.09 +1.88%

Nasdaq
8,039.16 +2.24%

VIX
16.91 -13.24%

Bitcoin
$11,717.43 -1.60%

US 10-Yr Yield
1.716 +1.90%

Maja Hitij/Getty Images

Markets Today

Stocks shoot higher as rates cool
China pegs yuan to lowest level since 2008
AMD soars on new customers

Maybe we did find that support level we were talking about yesterday, after all. U.S. markets shot higher this morning as concerns about falling bond yields and China's currency moves were pushed aside as stock investors plowed back into equities. The DJIA and the S&P 500 both ended the day up 1.43% and 1.8%, respectively, while the Nasdaq climbed 2.2%.

It's not as if the factors driving pessimism earlier in the week went anywhere.

Hardly...

Earlier today, China pegged the yuan at 7.0039 per dollar, its weakest level since 2008. (Remember—the higher the yuan, the weaker it is against the dollar.) There was concern that China might've even pegged it higher, so perhaps there was relief that it came in where it did. Global treasury bond yields also bounced off of yesterday's lows. Wednesday's late turnaround for stocks might've had something to do with that, once investors realized it was safe to swim in the stocks pool again.

Investors, especially institutional investors, operate in herds or flocks. As soon as one big investor makes a bold move in any given direction, the rest usually follow, which produces momentum. It looks kind of like this:

On a technical stock chart, it looks more like this:

Never Mind the Inversion

Investors were even willing to ignore dire warnings coming out of the bond market. Plunging yields are one thing, but yield curve inversions are typically kryptonite for the stock market. We've written a lot about the inversion between the short three-month U.S. Treasury bond and the 10-year U.S. Treasury bond. That's happened several times this year, yet the stock market went on to make new records. It's happening right now, and investors seem unfazed by the past two days.

It's the inversion between the 10-year and the two-year that has traditionally been the harbinger of impending doom and recessions. We haven't seen yield on the 10-year and the two-year invert since 2007, but it came dangerously close this week. Given the pressure on Treasury yields over the past two weeks, we should not be surprised to see it happen soon. It's a concern because it signals very low confidence in near-term economic growth. When investors pile into the 10-year U.S. Treasury instead of the two-year, they are telling us that the near term is too risky.

It's also a concern because a yield curve inversion between the 10 and the two often precedes a recession. Not every time—but often enough to earn a reputation.

Here's the Federal Reserve's chart of every time that has happened since 1975. The black horizontal line indicated the inversion. The vertical gray bars indicate a recession.

Holy Chip!

Good news out of the semiconductor sector is always good news for the technology sector, yield curve inversions be damned. AMD got some really good news yesterday in the form of two big customers, Google and Twitter, acknowledging that they are using the chipmaker's new microprocessors.

At an event in San Francisco on Wednesday afternoon, AMD announced the launch of the second generation of its EPYC chips designed for high-performance uses, like in the cloud or inside large enterprises. This is typically Intel's territory, and Intel and AMD are bitter rivals. But by signing Google and Twitter up as customers, AMD takes a giant step into that market with two companies that rely heavily on managing vast quantities of data.

Shares of AMD shot up 16% on the news, which helped propel the entire Nasdaq higher today.

CBS and Viacom Reuniting

The latest in the decades-old soap opera that brings the two media giants in 96-year-old Sumner Redstone's empire back together to battle AT&T, NBCUniversal, Verizon, Apple, and Amazon.

From 2000 to 2006, CBS and Viacom were one company inside Sumner Redstone's National Amusements holding company. They were brought together at the end of the dot-com bubble, when media companies realized they need to go big, or go home. In fact, the personalities running those companies were too big to work together, and Redstone eventually broke them up into two separate public companies in the hopes that they would run faster on their own.

Now Redstone's daughter, Shari Redstone, runs National Amusements, and wants to reunite them to take on the new wave of media giants, including AT&T, NBC Universal, Verizon, Apple, Amazon, and Disney.

Key Points:
The two companies need each other for scale and content. CBS can leverage Viacom's content across broadcast and cable, including Paramount, BET, and Nickolodeon on broadcast and terrestrial cable. Viacom can leverage CBS's content across Pluto, the streaming content player it purchased in January for $340 million.

They also need each other to maximize their advertising footprint.
A combined company would control more than 11% of major advertiser spending across all media types and more than 20% of all ad spending on national television.

This helpful graphic (click to zoom) from the WSJ illustrates the competitive landscape in U.S. media today. CBS and Viacom have been left behind in the recent mass merger party of media companies. Expect them to reunite as one publicly traded company soon.

More News:

Lumber Liquidators Stock Sets New Floor Despite Solid Earnings

Why Food Stocks are Crushing the Market as Economy Slows

Lamar Advertising Stock Pops Above Its 200-Day Moving Average

chart courtesy www.koyfin.com

Shares of Advanced Micro Devices rose by over 16% after the semiconductor company introduced the highest-performing x86 processor to hit the market yesterday, and at about half the price of Intel's equivalent product (not to mention their two newest customers, Google and Twitter). Broadcom is reportedly nearing a deal to purchase Symantec's enterprise business, resulting in a more than 12% stock price increase for the latter company.

Kraft Heinz plunged to a record low of almost 9% today after reporting steep declines in earnings for the first half of 2019. Shares of CenturyLink fell by nearly 8% as a result of the company's overall mixed second quarter.

Argentina and India were the two biggest success stories today, amongst many top performers. Conversely, Italy and Qatar lost the most within a much smaller group.

Word of the Day

Yield Curve

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year, 10-year, and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is used to predict changes in economic output and growth. Yield curve rates are usually available at the Treasury's interest rate websites by 6:00 p.m. ET each trading day.

Illustration courtesy Frank Leslie

Today in Financial History

Aug. 8, 1896: The Dow Jones Industrial Average, less than three months old, hits the lowest level ever recorded: 28.48, down 30.5% in just ten weeks. (And we get freaked out when we see a 5% drop!)

Phyllis S. Pierce, ed., The Dow Jones Averages 1885-1980 (DowJones Irwin, Homewood, IL, 1982), introduction, not paginated.