Nasdaq tumbles as Jackson Hole jitters hit tech stocks
The Nasdaq fell as megacaps lost, after having rallied for much of the year. Nvidia fell 3.5%, the biggest drop in nearly four months.
The key event this week is the Fed's annual symposium at Jackson Hole, Wyoming, from Aug. 21-23, where Powell's comments will be scrutinized for any clues on the central bank's outlook on the economy and monetary policy.
'It seems like folks are hedging a little going into Jackson Hole, thinking Powell might be more hawkish than markets currently appreciate,' said James Cox, managing partner at Harris Financial Group.
Interest rate futures point to a total of two rate cuts this year worth 25 basis points each, with the first expected in September, according to data compiled by LSEG.
Some market participants also expressed some concerns about AI-related stocks after OpenAI's CEO Sam Altman said they are in a bubble in an interview with 'The Verge' late last week.
The Dow Jones Industrial Average rose 10.45 points, roughly flat, to 44,922.27, the S&P 500 lost 37.78 points, or 0.59%, to 6,411.37 and the Nasdaq Composite lost 314.82 points, or 1.46%, to 21,314.95.
Steve Sosnick, chief strategist at Interactive Brokers, said some investors are taking some profits from tech stocks and rotating into other sectors. '(This move) spills into the broader market because of those stocks' weight in major indices,' he added.
Still, six of the S&P 500 sectors rose. Real estate led the pack, up 1.8%, helped by better-than-expected housing data. On the other hand, technology and communications services lost over 1.9% and 1.2%, respectively.
A Reuters poll showed on Tuesday that the S&P 500 will end 2025 just below current near-record levels, at 6,300 points, reflecting tempered optimism amid ongoing concerns over the economic impact of President Donald Trump's global tariffs and uncertainty surrounding Fed rate cuts.
The blue-chip Dow briefly hit a record high on Tuesday, aided by a rise in Home Depot's shares after the retailer kept its annual forecasts intact.
Home Depot rose 3.17% despite missing quarterly results estimates, while rival home-improvement chain Lowe's also gained 2.18%.
Earnings from Lowe's and big-box retailers Walmart and Target later this week are now in focus as investors await more insight on the health of the American consumer.
'Consumers are still not really spending at full speed ahead, they're a little bit cautious,' said Peter Cardillo, chief market economist at Spartan Capital Securities.
'They're waiting to see the full results of the tariffs' impact on the upcoming holiday sales in a couple of months from now.'
Intel jumped roughly 7% after the chipmaker got a $2 billion capital injection from Japan's SoftBank Group.
Palo Alto Networks rose 3.06% after the cybersecurity company forecast fiscal 2026 revenue and profit above estimates.
Medtronic lost 3.13%, after the company said it would add two new directors to its board after Elliott Investment Management took a large stake in the medical-device maker.
Advancing issues outnumbered decliners by a 1.06-to-1 ratio on the NYSE. There were 205 new highs and 62 new lows on the NYSE.
The S&P 500 posted 13 new 52-week highs and one new low while the Nasdaq Composite recorded 56 new highs and 88 new lows.
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Chicago Tribune
5 minutes ago
- Chicago Tribune
Wall Street drifts in premarket trading while Target tumbles on sluggish sales and a CEO change
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NBC News
6 minutes ago
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Forbes
6 minutes ago
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The More Trump Bashes Powell, The More This 15% Dividend Wins
Could the Fed cut rates—and actually cause interest rates to rise? Absolutely. In fact, it's a setup I see as very much in play. Today we're going to talk about a 15%-yielding (!) stock that's well-positioned to benefit. Powell Vs. the 10-Year, Round 2 How would this 'rate split' come about? To get at that, we need to bear in mind that the Fed only controls the effective Federal funds rate. That's the 'short' end of the yield curve—or the rate at which financial institutions lend to each other. Meantime, the 'long' end—pacesetter for consumer and business loans (including mortgages—more on those shortly) is tied to the 10-year Treasury yield—and has a mind of its own. This wouldn't be the first time the 10-year has called out Jay Powell. Last September, the Fed cut rates for the first time since 2020, after hiking to counter the 2022 inflation spike. Powell Gives the 'All-Clear.' Bond Market Says 'Not So Fast' The bond market was having none of it. Even as the Fed cut, 10-year Treasury rates jumped, sending Powell a clear message: Slow your roll. When the Fed cut rates, it ironically sparked a rally in long yields. Once Powell backed off, leaving the Fed's rate where it is now, the 10-year yield steadied, too. History doesn't repeat, as the saying goes, but it does rhyme. As I write this, inflation is still above target. But even so, July's CPI report came in below expectations. That's another point in favor of a lower Fed rate—and a higher 10-year Treasury rate. And yes, producer prices did jump in July, and tariffs likely played a role. But as we've written before, recent studies have found that tariffs are not inflationary, because rising prices depend on a hot economy. A trade war brings in the opposite, since tariffs are a short-term headwind on growth. And don't forget that Powell's term ends in nine months, and whoever the administration appoints is likely to cut quickly—inflation or no. Mortgage REITs Borrow 'Short' and Lend 'Long' In my August 5 article, we looked at business development companies (BDCs) as contrarian plays on this 'rate split.' But there are other options, like mortgage REITs (mREITs). When most people think of REITs, they think of equity REITs—landlords of buildings, such as warehouses and apartments. mREITs deal in paper—buying mortgage loans and collecting the interest. They make money by borrowing at short-term rates to buy mortgages that pay income tied to long-term rates. The profit is in the difference, so management always wants short-term rates to be lower than long-term ones (which they typically are). Moreover, the value of these loans gets a nice bump when short-term rates decline and long-term rates hold steady or, better yet, move lower. That's because lower rates mean mREITs' mortgages—issued when rates were higher—yield more than newly issued ones, so they're worth more. That, in a nutshell, is the setup we're looking at now. Look at this chart of 30-year mortgage rates. You can see they're drifting lower now, but not quickly enough to encourage a wave of refinancing or prepayments. The sweet spot for mREITs! This comes at a time when mREITs, as measured by the iShares Mortgage Real Estate ETF (REM), in purple below, have lagged the REIT pack, as measured by the Vanguard Real Estate Index Fund (VNQ), in orange. However, as you can also see toward the left of the chart above, mREITs have outperformed for long stretches, such as during the low-rate 2010s. In the coming months, with the gap between mREITs and REITs as a whole still wide and the Fed set to lower rates, we've got a nice setup for another run of mREIT outperformance. To add an extra layer of safety, we're going to focus on an mREIT dealing in 'agency' mortgage-backed securities (MBS)—those guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. A 15% Dividend About to Get 'Backup' From the Fed That would be AGNC Investment Corp. (AGNC), which yields 15% now. It buys MBS (often through repurchase agreements) and profits off the spread between its loan cost and the yield these assets deliver. Its profits are easy to spot: In the second quarter, its average asset yield was 4.87%, while its average repo cost was 4.44%, down slightly from Q1. Falling short-term rates would cut its repo costs almost immediately, further widening this spread (and boosting AGNC's profits). The mREIT did post a modest loss in Q2, but we love the fact that management added to its assets at attractive prices as a result of the April 'tariff terror': Now let's talk about that 15% dividend. As you can see below, management cut the payout (in purple) when the Fed hiked rates (in orange) through to the end of 2019 and into the COVID lockdown period. We'd expect that, as rising rates boosted repo costs and COVID uncertainty—especially in the early days—put the real estate market on ice. But look to the right and you'll see that AGNC did hold the line on the dividend as the Fed drove rates higher in response to the inflation surge of 2022/2023. That's a great sign—and shows the payout likely got an assist from the hedging programs AGNC uses to cut its rate risk: Now that the Fed looks to be headed back into cutting mode, the dividend should get some extra backup on lower borrowing costs. Going forward, analysts have the mREIT pegged for $1.60 per share in earnings for this fiscal year. The monthly dividend—$0.12 per month for a total of $1.44 annually—accounts for 90% of that. That is a bit high, but bear in mind that a falling Fed funds rate would add to profits and therefore reduce that number. It may even open the door to a dividend increase, especially if 10-year Treasury rates hold steady or gradually move lower, as I expect. Finally, as I write this, AGNC trades at 1.1-times book value and six times forward earnings. A wider gap between the Fed rate and 10-year Treasury yield would boost both numbers—putting a lift under the share price as it does. Brett Owens is Chief Investment Strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: How to Live off Huge Monthly Dividends (up to 8.7%) — Practically Forever. Disclosure: none
