Tale of Two Cities: Semiconductor Selloff, Hormuz Hostilities (E268)

For the week ended July 17, DoubleLine Portfolio Manager Eric Dhall and Macro Asset Allocation Strategist Ryan Kimmel delve into rotating stock leadership amid a route in chipmakers (0:45), a clip-the-coupon bond world (4:47) and stronger commodities (5:55) as war drums spiked energy prices. Notwithstanding losses in erstwhile tech leadership, Ryan Kimmel sees positive signals for the U.S. economy in the form of broadening gains in equities, stellar bank earnings and robust corporate lending. Copper, an economic bellwether, while weak on the week, still is holding up for the month.

Topping the week’s macro news (10:23) was outright month-over-month deflation in the June headline CPI and even 2 basis points of deflation in Core CPI. “Generally speaking, it was a positive for the Fed and abated inflation fears from the prior months,” Ryan notes. “Heading into this print, the market was expecting almost a 50% probability of a July 29 rate hike. Following the report, we saw that number drop to 10%.”

Fed funds futures are still pricing in a single 25-basis point rate hike by year end. “In my opinion, that’s hedging,” Eric Dhall opines. “It’s tough to see the Fed hiking based on the last CPI, but you just don’t know. If WTI prices were driven again to the $100 level, hawks could be emboldened, but Chairman Warsh might throw cold water on that. I don’t think he thinks raising rates in an energy-shock inflation cycle makes sense.”