On September 14, 2024, the sun rises behind the skyline of Lower Manhattan and One World Trade Center in Jersey City, New Jersey.
Gary Hershorn | Corbis News |
This report is from today's edition of the CNBC Daily Open, our newsletter covering the international markets. CNBC Daily Open informs investors what they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Record close for Dow
US markets were mixed on Monday. S&P500 And Dow Jones Industrial Average rose, and the Dow posted a record close. But the Nasdaq-Composite fell. The pan-European Stoxx 600 index lost 0.16%. The British FTSE 100 closed unchanged. The Bank of England meets on Thursday to make its latest monetary policy decision.
Intel breaks new ground for foundries
Intel Shares rose about 8% in extended trading on news that the chipmaker plans to structure its foundry business as an independent entity with its own board and the ability to raise outside funding. The company may even spin off the business as a public company, according to a person familiar with the matter. Separately, the Biden administration on Monday awarded Intel up to $3 billion under the CHIPS Act.
Flawed Apple
Apple Shares fell 2.78% after TF Securities analyst Ming-Chi Kuo reported Demand for Apple's new iPhone 16 is down 12% year-on-year compared to the first weekend sales of the iPhone 15. Kuo also said consumers are not enthusiastic because Apple intelligence was not available at the iPhone's launch and competition from Chinese manufacturers would dampen demand for iPhones.
Unrestful flight
Boeing is imposing a hiring freeze as part of cost-cutting plans, such as suspending non-essential employee travel. This year alone, Boeing has had to contend with: a 737 MAX door panel bursting in midair; the space shuttle Starliner returning to Earth without its two scheduled passengers; and a strike by more than 30,000 workers.
[PRO] Short-lived record?
The S&P 500 is less than 1% away from its record high in July. The upcoming Federal Open Market Committee meeting, where the Fed is expected to cut interest rates by at least 25 basis points, could lift the S&P to new highs. However, analysts warn that the new high could be short-lived.
The conclusion
According to conventional market wisdom, technology stocks benefit most from low interest rates.
That's because technology companies tend to promise future profits in exchange for existing money. When interest rates are low, this offer seems attractive because returns elsewhere are low. But when interest rates are high, these promises don't seem as attractive as less risky returns from assets like government bonds.
The last two years have shattered that picture. The technology sector has experienced a rapid boom despite 23 years of high interest rates, thanks to excitement over the prospect of new and explosive revenue streams from artificial intelligence.
Nvidia, the linchpin of AI, has seen a gain of almost 136% this year alone. Meta, which has its own AI model called Llama, has seen a gain of about 51%.
With the market pricing in a 62% probability (up from 30% last week) that the US Federal Reserve will make a larger-than-usual 50 basis point cut in key interest rates, according to the CME FedWatch tool, it is likely that the technology sector will continue to gain.
However, the sector has been unstable in recent weeks. VanEck Semiconductor ETFFor example, fell by 1.31% on Monday, while NVIDIA fell by 1.95%.
The technology-heavy Nasdaq-Composite fell by 0.52%, while the S&P500 rose by 0.13% and the Dow Jones Industrial Average rose 0.55% and closed at a new record high.
This suggests that investors are moving out of the technology sector and into other sectors that could benefit from lower interest rates. Case in point: The financials and energy sectors rose more than 1% on Monday, outperforming the broader market.
Goldman Sachs noted that hedge funds' weekly purchases of financial stocks last week were the highest since June 2023.
“Other areas of the market are starting to recover, and that has a lot to do with the impending rate cuts,” said Christopher Barto, senior investment analyst at Fort Pitt Capital.
That's not to say that technology is no longer in demand. It will likely continue to drive the market. But other sectors could also jump on the bandwagon.
—CNBC's Hakyung Kim, Pia Singh and Yun Li contributed to this story.
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