This report is from today’s CNBC Daily Open, our international market newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. As you see? You can subscribe here.
New York Stock Exchange.
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What you need to know today
A record high
The tech-heavy S&P 500 and Nasdaq Composite closed at record highs in the shortened session ahead of the July 4 Independence Day holiday. Megacap tech stocks, Tesla and Nvidia, led the charge. The Dow Jones Industrial Average was little changed, weighed by UnitedHealth. The yield on the 10-year Treasury fell as the latest economic data showed the job market was cooling. U.S. oil prices edged higher as demand surged ahead of the holidays.
‘Greater confidence’
Federal Reserve officials at their June meeting noted that while inflation has improved, it has not been enough to lower interest rates, according to minutes released Wednesday. “Participants stressed that additional data is expected to be needed to provide greater confidence that inflation is moving towards 2 percent,” a summary of the meeting revealed. Despite some officials advocating for a potential rate hike, the Federal Open Market Committee ultimately decided to keep rates unchanged.
job growth slows
Personal payrolls growth slowed in June, with firms adding 150,000 jobs compared to May’s 157,000, according to ADP. This fell short of expectations and marked the weakest growth since January, potentially signaling a cooling labor market. “Job growth has been solid, but not broad,” he said ADP chief economist, Nela Richardson. “If not for the rebound in hiring in leisure and hospitality, June will be a downbeat month.” The ADP report comes ahead of the Labor Department’s nonfarm payrolls data due Friday, which is expected to show 200,000 jobs were added.
Poison pill
Southwest Airlines adopted a “poison pill” shareholder rights plan in response to activist investor Elliott Management’s stock and push for leadership changes. The plan, which is triggered if an investor acquires 12.5% or more of the company, allows other shareholders to buy discounted shares, effectively diluting the activist’s stake. Elliott currently holds about 11% of Southwest and has criticized the airline’s performance compared to competitors and pushed to oust CEO Bob Jordan and Chairman Gary Kelly.
JPMorgan’s Kolanovic leaves
Marko Kolanovic, JPMorgan’s chief global market strategist and co-head of global research, and one of the biggest bears in the bull market, is leaving the company. Known for accurately predicting stock market rebounds during the Covid-19 pandemic, Kolanovic is now bearish despite market highs. JPMorgan’s year-end S&P 500 forecast is 4,200, the lowest among major companies. Officially the call was credited to Dubravko Lakos-Bujas, who will take over as head of market strategy. The S&P 500 is up nearly 17% this year, closing above 5,537 on Wednesday.
(PRO) Tesla bull case
Wedbush analyst Dan Ives raised his price target for Tesla to $300 from $275, with a bull case for $400 in 2025. This comes after Tesla’s second-quarter deliveries were stronger than expected. The new price target indicates a potential upside of 30% from the stock’s current price.
Bottom line
“Tesla’s AI story could be worth $1 trillion+ and is the most underrated AI name in our view,” wrote Wedbush analyst Dan Ives, raising his 12-month price target to $300.
Not all analysts agree. Tom Narayan, an analyst at RBC Capital Markets, lowered his price target on Elon Musk’s Tesla to $227, 9% below Wednesday’s closing price of $247.56, valuing the EV maker at $785 billion. Over the past three trading sessions, Tesla has gained more than 24%.
“I doubt many investors who do this have done the rigorous math,” Narayan told CNBC.
Narayan believes that Tesla’s second quarter delivery numbers are being “analyzed” and insists the real opportunity lies in autonomy. He highlighted the importance of August 8, when Musk will present Tesla’s robotaxis, although he warned that the financial return of the robotaxis is still a long way off.
Despite the uncertainty in short-term growth, Narayan sees promise in Tesla: “I like it,” he said. Narayan considered the release of Full Self-Driving (FSD) version 12 a “breakthrough,” noting Musk’s shift in the company’s strategy toward autonomy. He believes Tesla has the edge with its largest fleet and extensive autopilot miles, despite competition from Intel Mobileye, GM, and Alphabet’s Waymo.
“The overall market is in trillions of dollars. I just said they will get $400 billion from this game-changing market,” Narayan said.
While Tesla and Nvidia dominated the S&P and Nasdaq to new records, the latest minutes from the Fed stated that more evidence is needed to conclude that inflation is receding.
Jim Paulsen, author of the “Paulsen Perspectives” newsletter, said the S&P 500 has been “narrow,” with only a few stocks gaining as the Fed has raised rates, which is rarely seen in a bull market.
“(The bull market) is missing a lot of other pieces that could come if the Fed goes easy, the biggest of which is certainly lower bond yields and lower interest rates,” Paulsen told CNBC’s “Squawk Box” Wednesday. “If the Fed finally declares victory on inflation, which I think it will, and we cut rates, then I would see more stimulus for the stock market, which could signal the start of a new bull market. We never got it.”
– CNBC’s Jeff Cox, Brian Evans, Yun Li, Alex Harring, Hakyung Kim, Spencer Kimball, Leslie Jospehs, Rohan Goswami and Jesse Pound contributed to this report.
