Stocks Near Highs on Chip Strength, but Data Mixed

(Thursday market open) With Middle East fears retreating and the S&P 500 index nearing all-time highs, focus turns to an avalanche of data today along with Nike (NKE) results after the close. Though major indexes took a breather yesterday, chip stocks continued to pile up gains and rose again this morning on upbeat earnings late Wednesday from Micron (MU).

The final government estimate for first quarter gross domestic product (GDP) unexpectedly declined to –0.5% compared with the consensus view and previous estimate of –0.2%. The weakness was related to heavy imports ahead of tariffs, and analysts widely expect a rebound in the second quarter. Weekly initial jobless claims fell to 236,000, below expectations for 247,000. That sounded benign, but continuing claims rose to a new three-year high of 1.974 million. Durable goods orders for May jumped a surprising 16.4%, though the core number that's watched more closely rose 1.7%—a sharp rebound from –1.5% in April.

That's a lot to digest and sends mixed signals, but major indexes ticked higher after the news. "Good news on durable goods orders," said Cooper Howard, director, fixed income strategy, at the Schwab Center for Financial Research. "GDP, although backwards looking, was revised lower, suggesting the economy wasn't as strong as originally expected. Unemployment numbers suggest it's more difficult to find a job after getting let go, providing more evidence the labor market is weakening."

1. Be careful what you wish for with rates: President Trump makes it no secret he wants the Fed to lower interest rates, and two Fed policy makers recently said they are biased toward a July cut. Still, a rate trim doesn't necessarily mean lower borrowing costs, as investors learned last year. "We need to be mindful that with pressure to cut too soon, we could have an experience like last fall when the Fed cut by 100 basis points and over that same period of time we had a 100 basis point increase in the 10-year yield," said Liz Ann Sonders, chief investment strategist at Schwab, speaking on CNBC earlier this week. "The 10-year market was saying, 'Wait a minute, you may be loosening too quickly or by too much.' I don't know if that's exactly what would happen, but part of the reason the market is doing well is that the Fed is reinforcing why they put themselves in a time out and that's probably the right decision for now. I think the fact that Powell is being pragmatic and sticking to his guns on the Fed's dual mandate—the market is keying off that in a positive way."
    
2. Nike at starting line as shares remain underwater: Nike (NKE) laces up after today's close, an important earnings milestone in tracking consumer sentiment both at home and abroad. Nike's big business in China is under a microscope due to U.S. tariffs, and its U.S. business could be affected by higher costs associated with importing goods made abroad. Shares remain underwater this year and are only up slightly from April lows, with investors apparently unenthused by the gloomy guidance Nike shared when it last reported in March. However, at that time, executives said they expected the quarter ending in May—the one Nike reports today—to be the worst in terms of headwinds to revenue and gross margins. CEO Elliott Hill, who took the reins last fall, is trying to regain market share and could give new insight on how he'll accomplish that. Hill said last year the retailer needs to rebuild relationships with its wholesale partners, so investors might be interested to hear the latest on that initiative.
    
3. Breadth a concern as indexes near highs: More and more, it appears the market is being carried by the largest tech and industrials firms, while the rest of the S&P 500 index isn't keeping up. This can mean a top-heavy rally prone to stumbles if the biggest players disappoint with earnings next month. Expanding breadth would likely indicate more investor enthusiasm, but some might be cautious with the July 4 budget and July 9 tariff deadlines ahead. While the S&P 500 is up almost 3% over the last month and now just below its record closing high of 6,144, the S&P 500 Equal Weight Index (SPXEW)—which weighs all stocks equally rather than by market cap—is up less than 1%. There's similar concern with the tech-packed Nasdaq-100^® (NDX), which recently hit all-time highs. Despite those fresh peaks, only 10% of NDX stocks were at 52-week highs, suggesting the biggest names dominate the rally.

• Micron climbed 2% in early trading, which could buoy other chip stocks if it continues. Some Wall Street firms raised their target prices as it reported data center revenue doubled, its new guidance topped estimates, and said it's shifting more focus to AI.
   
• Nvidia (NVDA) climbed another 1.4% this morning after posting a new all-time high yesterday amid enthusiasm over its shareholder conference, a positive media report about its cloud business, and hopes for strong results from Micron. Shares also received a boost from Loop Capital raising its target price on NVDA to $250 from $175.
   
• Alphabet (GOOGL) added another 1% in early trading following a more than 2% climb yesterday as Citi Research reiterated its Buy rating and raised its financial forecast for the company. This came after it sparked optimism about YouTube ads and its AI offerings at an online advertising conference in France last week, Barron's reported. Shares of Meta Platforms (META) might also have received a boost from the conference.
   
• Tesla (TSLA) flattened this morning but shares plunged nearly 3.8% yesterday following poor May European sales data. Investors await the company's report on overall quarterly deliveries due early next month.
   
• McCormick & Company (MKC) jumped 4.8% as the spice maker's earnings surpassed Wall Street's expectations. It also reiterated its previous outlook.
   
• Super Micro Computer (SMCI) gained another 1.7% in pre-market trading. Shares rebounded nearly 9% Wednesday as the company priced a $22 billion convertible senior note offering.
   
• ASML (ASML) fell 1.4% ahead of the open. Jefferies downgraded shares to Hold from Buy.
   
• Acuity (AYI) popped 6.8% after the lighting company's earnings easily topped the average analyst estimate.
   
• Worthington Steel (WS) soared more than 16% ahead of the open following strong earnings results.
   
• PENN Entertainment (PENN) added 2.5% in pre-market trading, buoyed by an upgrade from Citizens JMP to Outperform from Market Perform. The firm believes there's "light at the end of the tunnel" and sees several catalysts.
   
• The VIX declined 4% yesterday and lost another 0.3% this morning to remain below 17 and near its early-June lows. A falling VIX can be a bullish signal for equities.
   
• The U.S. Dollar Index hit a new three-year low below 98, possibly on ideas the Fed might be more prone to lower rates sooner. As of early Thursday, chances of a July rate cut were just under 25%, according to the CME FedWatch Tool. Odds of at least one cut by September reached nearly 90%. Futures trading bakes in two to three rate cuts by year-end.

Both the S&P 500 Industrial Sector Select Index ($IXI—candlesticks) and the S&P 500 Information Technology Select Sector Index ($IXT—blue line) posted new all-time highs this week. But over the last year, in what may surprise some investors, industrials have easily outpaced tech, rising more than 18% versus just 7% for tech. The tech sector got sidetracked earlier this year by China's Deep Seek technology, and also took a bigger hit in April from tariff worries. Tech's recovery since April, however, has been dramatic and led by semiconductors that are up almost 30% from lows.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week.

June 27: May PCE prices, May core PCE prices, and final June University of Michigan Consumer Sentiment.
June 30: No major earnings or data expected.
July 1: May construction spending, June ISM Manufacturing, May Job Openings and Labor Turnover Survey (JOLTS), and expected earnings from Constellation Brands (STZ).
July 2: June Challenger job cuts report and ADP National Employment Report.
July 3: June nonfarm payrolls, June unemployment, June ISM Services, May factory orders.