In 30 seconds: Brent crude has fallen below $75 for the first time since the US-Iran war began, as oil flows through the Strait of Hormuz partially recover toward pre-war levels, though fresh Gulf loadings remain too low to sustain current outflow rates. The homebuilder ETF entered a new bull market with a 21% gain since mid-May, while broader equity market gains remain heavily concentrated in AI-related stocks, with new home sales missing estimates and private equity names under pressure from rate hike expectations. Micron reported blowout Q4 revenue guidance of $49-51 billion against a $43.24B consensus estimate, with gross margins exceeding even Nvidia's best quarter, prompting discussion of broader semiconductor capital raises. A slate of US economic indicators including Richmond Fed manufacturing, Philly Fed services, and S&P Global PMI output prices point to persistent inflation pressures ahead of the key May PCE release, with debate over the Fed's reaction function.
WTI Crude Oil: $69.88. Oil has now reversed all of its Iran-war gains. Strait of Hormuz flows have partially recovered. Fresh loadings have climbed from 2.5 to 4.5 million barrels per day. Not yet sustainable. The Brent prompt spread flipped to contango for the first time since February. Diesel at the pump sits around $5 a gallon. The US Treasury Secretary expressed hope that the Fed would keep "an open mind" on what inflation looks like after the Iran-related energy increases have reversed. US government yields fell 9 basis points on the day.
Homebuilders don't seem to be too worried about near-term rate hikes lately. New home sales printed at 580,000, well below the 640,000 consensus. Meanwhile the broader equity rally remains, to put it politely, narrow. The S&P 500 rally of the past 12 to 18 months has been mostly AI-driven. Market breadth: 69. Semis have really been messing with market internals lately, distorting the signal for anyone trying to read the tape honestly. QQQs down 1.1% since 11 AM ET. On the other side of the rate sensitivity spectrum, publicly-traded private equity and private credit stocks have pulled back again as rate hike expectations have increased and software stocks struggle. Apollo is still up 25% from its March low. The supply and demand picture for equities broadly remains constructive. The market, in other words, is still eating its own supply. It is just doing so very selectively.
Micron gross margins 84.9% vs Nvidia best-ever gross margin 77.4%. Meanwhile, SK Hynix — described as the last company to need funds given its free cash flow — went ahead and raised 29 billion anyway. SK Hynix issuance: 29 billion.
The regional Fed surveys are painting a split screen. The Richmond Fed Manufacturing Index (ISM-adjusted) printed at 53.3 in June, still firmly in expansion after spending years oscillating between contraction and expansion. That is a genuinely encouraging manufacturing read. Philly Fed Services Index: 25.8. Manufacturing is expanding, services are contracting. Pick your narrative. The inflation components are less ambiguous, and less cheerful. The prices paid component of the Richmond Fed Manufacturing Index is settling at a higher floor this cycle, right above 6%. Meanwhile, the output prices component of the S&P Global U.S. Composite PMI is suggestive of CPI remaining elevated. If you are hoping the disinflation story resolves itself cleanly before the next Fed meeting, these readings are not cooperating. All of which sets the stage for the PCE inflation measure, widely regarded as the Federal Reserve's favorite inflation indicator. The question is what the Fed does with a number that ticks higher. One school of thought — call it pulling a Greenspan — means allowing stronger productivity to pull inflation to target rather than easing to push demand. The other school, less a school than a complaint, notes that Fed following the 2-year yield is a circular exercise, because the Fed is unable to weight the two sides of the dual mandate without officials revealing their reaction function. If the market is pricing the Fed and the Fed is watching the market, you have a hall of mirrors. Someone eventually has to say something concrete. So far, nobody has volunteered.
Here is what your portfolio did this session.
S&P 500: 7,358.22, down 0.10% on the day
10-Year Treasury yield: 4.40%, down 5 bp on the day
30-Year Treasury yield: 4.86%, down 5 bp on the day
13-Week T-Bill yield: 3.69%, up 3 bp on the day
Gold: $4,016.20, down 2.75% on the day
Fed funds rate: 3.75%, flat 0.00% on the day
Long bonds (TLT): $87.38, up 1.37% on the day