(Sherwood Media)

Stocks sink in worst day of 2024

Tesla’s slump, doubts about AI, and potatoes all contributed.

7/24/24 3:47PM

We’ve waited 587 days for a day this bad.

The S&P 500 had its worst loss since December 2022, shattering the 8th-longest streak without a 2% drop in the more than 70-year history of the benchmark index.

The pain was squarely in tech, with the Nasdaq 100 off 3.7%.

The Magnificent Seven had a no-good, very bad day — tumbling 5.9% in the group’s worst showing since September 2022.

Tesla was at the epicenter after reporting lower-than-expected profits for the fourth consecutive quarter while Elon Musk delayed a robotaxi showcase, part of a long-running theme in which he’s promised that good things will be ready “next year.”

The AI trade seemed to completely disintegrate, with standard bearers of the hype surrounding artificial intelligence such as Nvidiaand Super Micro Computertaking it on the chin with losses of 6.8% and 9.2%, respectively. Perhaps investors are beginning to wonder about the “buy-anything-vaguely-AI-related-and-hope-someday-it-becomes-a-business” strategy, as some Wall Street analysts covering Alphabet are starting to question. Alphabet fell 5% on the heels of its earnings report released after the close on Tuesday.

But it wasn’t just tech: 7 of the 11 S&P sector ETFs fell at least 1% on the day.

Lamb Weston, in fact, was the worst-performer in the S&P 500, shedding nearly 30% of its value after reporting abysmal earnings and warning that consumers pushing back against high prices at restaurants crimped demand for its potato products.

Small caps — which have been beneficiaries of a violent rotation in recent weeks — did relatively better than their large cap peers, but just barely. The Russell 2000 was down 2.1%.

There were, however, some bright spots in the traditionally defensive Utilities and Health Care S&P sector ETFs, which gained 1.1% and 0.8%, respectively.

A drop of 2.3% in the S&P 500 isn’t exactly a crash. But given how downright muted the swings in the stock market have been this year, it represents a jolt all the same.

And in fact, on a technical basis, the S&P 500 did pierce its 50-day moving average, a sign of a significant — if not particularly drastic — downshift in moment for the market. We’re still up nearly 14% for the year, but about a week ago that figure was 19%.

Max Knoblauch22m

Airline stocks climb as oil prices retreat on easing US-Iran tensions

West Texas Intermediate crude futures fell more than 5% on Monday, following President Trump’s comments over the weekend that Iran was “seriously talking” with the US — a sign that tensions between the countries could be easing.

That drop-off boosted major US airlines, which stand to benefit from lower fuel costs. Shares of carriers including Frontier, United Airlines, JetBlue, and Delta Air Lines were all up in the mid- to high single digits.

Max Knoblauch41m

Gaming stocks rebound from sell-off as analysts dismiss Google’s new AI project as merely “a one-minute-long walking simulator generator”

Investor fears about the impact of Google’s Project Genie on the broader gaming market may have been an overreaction, analysts at mBank said in a note on Monday.

According to analyst Piotr Poniatowski, Friday’s sell-off was “unjustified.”

Unity Software shed 24%, Roblox lost 13%, and Take-Two closed down 8% heading into the weekend. All three are up at least 3% on Monday.

Project Genie, Google’s new generative-AI prototype, can create interactive worlds from a text or image prompt, and users are already testing its ability to recreate copyrighted worlds. But, as Poniatowski noted, interactivity within those generated worlds is very limited:

“Control is limited to movement and jumping. Users cannot perform complicated actions such as crouching, climbing, dodging, evading, shooting, etc. It is simply moving and jumping around the generated world. There are no NPCs, no interactions and no depth. As of writing, Project Genie is essentially just a one-minute-long walking simulator generator.”

The note mirrors a post on X by Unity CEO Matthew Bromberg on Friday, in which the exec said models like Google’s are “unsuitable on their own for games that require consistent, repeatable player experiences.”

Gaming stocks plunge following release of Google’s AI tool that can create playable, copyrighted worlds

Unity Software shed 24%, Roblox lost 13%, and Take-Two closed down 8% heading into the weekend. All three are up at least 3% on Monday.

“Control is limited to movement and jumping. Users cannot perform complicated actions such as crouching, climbing, dodging, evading, shooting, etc. It is simply moving and jumping around the generated world. There are no NPCs, no interactions and no depth. As of writing, Project Genie is essentially just a one-minute-long walking simulator generator.”

Luke Kawa2h

An options trade to benefit from a potential turnaround in beaten-down Palantir after earnings

Palantir Technologies, the richly valued AI darling, hasn’t been immune from the persistent waves of selling that have drowned software stocks.

Last week, the stock broke below its 200-day moving average for the first time since August 5, 2024, and ended January with its lowest close since July. Needless to say, the defense data and AI software company has rarely traded worse heading into an earnings report, with its Q4 results due out after the close on Monday.

“It appears that expectations coming into this earnings print are lower than they have been in the last year or so,” Dean Curnutt, CEO of Macro Risk Advisors, wrote. “And this potentially sets the shares up for post-earnings volatility and directional follow-through to the upside.”

His recommendation:

Buy call options with a strike price of $162.50 that expire on Friday;
Sell the same amount of calls with a strike price of $182.50 that expire on Friday.

As of the time of recommendation, the potential payout on this trade was roughly 10.5 to 1.

Curnutt noted that when Palantir has been this beaten-down ahead of earnings, shares have usually performed very well thereafter.

Palantir Pre/Post Earnings — Source: Macro Risk Advisors

“As of right now, PLTR T-3 move is -11%,” he concluded. “If you look at the last 8 quarters in the attached table, the only 2 times where the T-3 was negative (8/6/24 and 11/5/24), the T+5 moves were +22% and +45% respectively.”

Claire Yubin Oh

Elon 🤝 Elon

SpaceX’s planned $1.5 trillion IPO is on track to be gargantuan enough

But a potential merger with xAI or Tesla would create a Musk-centric megaplanet.

Luke Kawa5h

Rare earth stocks surge on report the US will launch a $12 billion critical minerals stockpile

Rare earth and critical minerals stocks are soaring as Bloomberg reports that President Donald Trump will soon launch a $12 billion initiative to stockpile critical minerals.

Think the Strategic Petroleum Reserve, but for the likes of gallium, cobalt, and lanthanum.

MP Materials, USA Rare Earth, Critical Metals, NioCorp, and United States Antimony Corp. are all soaring in premarket trading on this report.

The purpose of this project, reportedly dubbed “Project Vault,” is to secure a sufficient domestic supply of these strategically important materials for the private sector. Three commodities trading houses and more than a dozen companies (including Google, General Motors, and GE Vernova) are said to be participating in this venture.

Here’s how the mechanics would reportedly work:

“Under the arrangement, companies that make an initial commitment to purchase materials at a specified inventory price later — and pay some up-front fees — will be able to present Project Vault with a shopping list of preferred materials they need.

The project, in turn, will seek to procure and store the materials, with the manufacturers charged a carrying cost for the expenses associated with interest on the loan and holding the elements.

Manufacturers will be allowed to draw down their material stash as long as the firms replenish them. In the case of a major supply disruption, they will be able to access all of it, the officials said.”

The Trump administration has invested in many critical minerals stocks, most recently USA Rare Earth, in a bid to bolster North American output. China currently dominates the production and processing of many strategically important minerals, which are used in everything from fluorescent lights and EV batteries to semiconductors. Access to rare earths was a particularly contentious issue as the US and China ironed out a trade agreement late last year.