Markets rally after strong consumer and labor data

Dow shot up 554 (near session highs), advancers over decliners better than 3-1 & NAZ jumped 401.  The MLP index was up 3+ to the 278s & the REIT index stayed in the 412s, held back by higher interest rates.  Junk bond funds continued to be in demand & Treasuries continued under selling pressure which raised yields significantly.  Oil added 1 to 78 & gold went up 17 to 2497 (more on both below).

Dow Jones Industrials 

Cisco (CSCO), a Dow stock, jumped & headed for their best day since 2020, after the computer networking company said it's cutting 7% of its workforce & reported quarterly results that beat estimates.  CSCO reported $13.64B in revenue for the qtr, ahead of estimates for $13.54B.  Revenue fell 10% from the year-ago qtr, marking the 3rd straight qtr of sales declines.  Net income plummeted 45% from a year earlier, but profit still exceeded expectations.  Analysts at Bank of America noted that networking sales were down 28.1% year-over-year but said that was mostly due to tough comparisons, & that the focal point of the qtr was on order recovery.  “Data center switching orders were up double-digits YoY, while orders for campus switching and routing were up high-single digits,” the analysts wrote & added that orders tied to artificial intelligence crossed $1B & revenue will start to ramp in the first ½ of 2025.  Its core networking business, which includes routers & switches, has struggled since large companies started moving to the cloud.  Sales have been partially offset by recurring revenue from its software & securities businesses.  CSCO is implementing a restructuring plan with layoffs that will result in $1B in pretax charges to its financial results & will “allow it to invest in key growth opportunities and drive more efficiencies in its business.”  CEO Chuck Robbins said that the company will try to move some employees into other jobs at the firm.  “The big question that we talked about going into this is, is everybody going to think that this is AI-driven?” Robbins added.  He noted that there's an aspect of AI that could be used to make general & administrative tasks more efficient using automation systems.  It's the 2nd major round of layoffs this year for CSCO.  The company said in Feb that it was eliminating 5% of its workforce (4000) jobs.  CSCO had 85K employees at the end of fiscal 2023, before the initial cuts.  The stock jumped 3.09.

Cisco heads for best day since 2020 on earnings beat, plans to cut 7% of workforce

Lockheed Martin (LMT) is buying Terran Orbital, with the defense giant reaching a deal to take the struggling spacecraft manufacturer private.  The agreement will see LMT acquire Terran at an enterprise valuation of nearly $450M, below its previous bid of nearly $600M in Mar.  LMT would acquire Terran Orbital's outstanding common stock at 25¢ a share in cash.  Additionally, LMT will pay off Terran's debt & established a $30M capital facility to keep the company going while the deal closes.  Expected to close in the 4th qtr, the deal would help Terran dodge a cash-&-debt cliff that the company is staring down.  Terran's cash reserves were less than $15M at the end of Jul, it reported in a filing on Mon & it also has about $300M in debt.  The small spacecraft maker went public via a special purpose acquisition company in early 2022 at a $1.8B valuation.  Like several other space stocks that debuted in the past few years, the yet-unprofitable company has been hit hard by the shifting risk environment in the market.  LMT is already a significant stakeholder in Terran Orbital, having bought in during the company's SPAC process & again in late 2022.  LMT made up 70% of Terran's $30.4M in revenue during the 2nd qtr.  Terran signed a blockbuster spacecraft production contract 18 months ago from prospective satellite communications operator Rivada Space Networks, worth $2.4B for 300 satellites.  But the deal has yet to drive meaningful funds for Terran, which reported that it recognized just $6.2M from the Rivada agreement in the first ½ of this year.  On Mon, Terran said it was removing the Rivada deal from its total contract backlog, which reduced the backlog of orders by 88%, from $2.7B to $312M.  Of its non-Rivada orders, 91% of Terran's contracts are “programs associated with Lockheed Martin.”     LMT stock was off 3.23 & Terran (LLAP) fell 16¢ to about 24¢.

Lockheed Martin to take struggling spacecraft manufacturer Terran Orbital private in $450 million deal

Mortgage rates moved up a bit this week but are still at the lowest point they have been in more than a year.  Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate on the benchmark 30-year fixed mortgage edged up to 6.49% this week from 6.47% last week.  The average rate on a 30-year loan was 7.09% a year ago.  "While rates increased slightly this week, they remain more than half a percent lower than the same time last year," said Sam Khater, Freddie Mac's chief economist.  "In 2023, the 30-year fixed-rate mortgage nearly hit 8 percent, slamming the brakes on the housing market. Now, the 30-year fixed-rate hovers around 6.5 percent and will likely trend downward in the coming months as inflation continues to slow."  The average rate on the 15-year fixed mortgage rose to 5.66% from 5.63% last week.  1 year ago, the rate on the 15-year fixed note averaged 6.46%.

Mortgage rates tick up but remain at one-year lows

Gold prices pared gains as the $ & Treasury yields rose after stronger-than-expected US economic data that could influence the size of interest rate cuts from the Federal Reserve.  Spot gold was up 0.3% at $2454 per ounce after rising as much as 0.9% earlier in the session.  US gold futures settled 0.5% higher at $2492.  US retail sales increased 1.0% last month after a downwardly revised 0.2% drop in Jun, the Commerce Dept's Census Bureau said.  Separately, a Labor Dept report showed the number of Americans filing new applications for unemployment benefits dropped to a 1 month-low last week.  Following the US data, the $ rose 0.5% against its rivals, making gold more expensive for other currency holders, while benchmark 10-year Treasury yields also jumped.

Gold Pares Gains As Dollar, Bond Yields Climb After Strong US Data

West Texas Intermediate (WTI) crude oil closed higher, rebounding from day-prior losses that followed a report showing US oil inventories rose last week, as expectations the Federal Reserve will be ready to cut interest rates next month firm while Middle East tensions continue.  WTI crude oil for Sep delivery closed up $1.18 to settle at $78.16 per barrel, while Oct Brent crude, the global benchmark, was last seen up $1.30 to $81.06.  Oil's rise comes after a report yesterday showed US consumer prices rose less than expected last month, firming expectations the Federal Reserve will begin cutting interest rates at next month's meeting of its policy group, offering an economic stimulus that is bullish for oil demand.  As well, data today showed US retail sales rose more than expected in Jul, showing the economy remains solid as inflation slows.  Taut Middle East tensions are also supporting oil, as Iran is still expected to retaliate against Israel following the assassinations of leaders in the Hezbollah & Hamas militant groups it backs, threatening a spreading war that could affect Persian Gulf oil supply.  Still, weak demand from China & an unexpected 1.4M barrel rise in US oil inventories last week reported by the Energy Information Administration is checking prices.

WTI Oil Rises On Rate Cut Hopes and Middle East Tensions

Dow began trading with a strong gain boosted by WalMart (WMT) earnings & stayed higher for the entire session.  However high interest rates weighed on interest sensitive stocks (i.e. REITs).  The heavy selling of stocks in early Aug is largely forgotten.  Also, at the end of Aug the Fed officials & their fans will have their annual pow-wow in Wyoming.  That should produce numerous comments about rate cuts.