The Nasdaq Composite slumped on Monday as investors sold shares of technology companies that have outperformed this year and the final trading week of the first half commenced.
A pullback in technology giants contributed heavily to the Nasdaq's sharp decline. Nvidia, Alphabet and Meta Platforms lost more than 3% each. Tesla sank 6% as Goldman Sachs downgraded the electric car maker, citing pricing headwinds.
"The market is in digestion mode," said Adam Sarhan, CEO of 50 Park Investments. "We've had a very big run this year, led primarily by the big cap tech stocks and the Nasdaq 100."
A pullback looks healthy after a significant rally as long as equities refrain from the "waterfall" selling seen last year, Sarhan said.
Technology stocks have rebounded this year after a difficult 2022 as investors bet on the promise of artificial intelligence and hope for an end to the Federal Reserve's hiking campaign. Rotation back into popular growth names has lifted the Nasdaq 27.4%, putting it on pace for its best first half since 1983.
Other segments of the market are also on track for a banner first half even after the market rally stalled last week, and major averages snapped multiweek win streaks. The S&P 500 has gained 12.7%, while the Dow is up about 1.7%.
The final week of June is a relatively light one for economics reports, highlighted by the personal consumption expenditures index for May out Friday. Corporate earnings reports are on deck from Walgreens Boots Alliance on Tuesday and Nike on Thursday.
Traders are monitoring the situation in Russia following a brief rebellion by a private military group over the weekend. Uncertainty about the situation there could keep the markets on edge.
Nasdaq drops nearly 1.2% to start the week
Stocks finished lower on Monday to kick off the final trading week of the second quarter and first half.
— Samantha Subin
Can pickleball hurt health insurance stocks?
Health care stocks took a hit earlier this month after UnitedHealth warned of higher-than-expected utilization of care from customers. UBS analyst Andrew Mok said in a note to clients that the rise of pickleball may at least partly to blame.
"We estimate $250-500 mn of medical costs directly attributable to pickleball and see potential for greater medical costs indirectly linked to pickleball," the note said.
Read more about the theory on CNBC Pro.
— Jesse Pound
Walmart+ sees record memberships, Morgan Stanley estimates
Walmart's membership service hit a new high, according to estimates from a Morgan Stanley consumer survey.
The latest AlphaWise survey estimated Walmart+, a service that includes free delivery and shipping, has about 21.4 million members. That equates to about 17% of U.S. household penetration.
It marks a nearly 3-million subscriber increase from May and is more than 1 million higher than the previous record.
"The positive inflection continues the broader trend of membership growth despite some brief blips," analyst Simeon Gutman said in a note to clients Sunday.
The "TAM," which gauges the number of actual members as well as respondents who reported being very likely to join, also rose but was still off previous highs.
— Alex Harring
'Crypto is far from dead' after institutions enter the market, says Bernstein's Chhugani
Bitcoin is coming off one of its strongest weeks of the year after it climbed 17% thanks to enthusiasm around financial institutions giving crypto their stamp of approval. ETF applications from WisdomTree, Invesco and others got the most attention but Wall Street is also optimistic about opportunities for custody, wealth management and tokenization using blockchains.
"Crypto is far from dead," Bernstein analyst Gautam Chhugani said in a note Monday. "Institutional interest has remained alive through the crypto winter and we are seeing some early news flow with the current announcements. We will continue to see continued institutional participation in new crypto products and offerings, including institutions building tokenized products on public blockchains."
Despite the crypto industry's anarchist roots, much of the industry has been waiting and hoping to see institutions join the crypto market in a meaningful way that would bring about greater legitimacy of the asset class and more ways for more people to gain access to crypto. While the biggest institutions have done research and testing of blockchain-based products for years, most have been cautious to declare it as a priority for their businesses.
"Strong crypto-native survivors from this cycle, willing to play the long regulatory game as clarity evolves, are well placed," Chhugani added. "The institutions are not just here for 'regulatory capture' but they see the commercial impact – both revenue and costs."
— Tanaya Macheel
JPMorgan lifts price target on Las Vegas Sands
JPMorgan boosted its price target on shares of Las Vegas Sands on Monday ahead of second-quarter earnings out next month from the casino operator.
"We like the entry point for LVS, with its shares flattish since it reported its 1Q23 earnings in mid-April," wrote analyst Joseph Greff, as he upped his price target to $72 from $71 a share. The increase implies 26% upside from Friday's close.
"The lack of positive share price momentum quarter-to-date is, unsurprisingly, related to mixed China non-Macau related macroeconomic signals, and provides a buying opportunity for investors willing to ignore the noise and focus on the [gross gaming revenue] recovery and what we think will be a positive estimate revision story," he said.
— Samantha Subin
Russia turmoil 'supportive of oil prices in the near term,' UBS says. Others less sure.
While the crisis between Russian President Vladimir Putin's Ministry of Defense and the the private mercenary Wagner Group "appears over as soon as it began, there will be questions and suppositions about what all of this means for days and weeks to come," UBS analysts led by Roger Read wrote Sunday.
"Given that Russia is a major oil producer and exporter, we expect this uncertainty to be supportive of oil prices in the near term," although the price effect will be seen in "the form of a risk-premium for future barrels as there are no indications of disruptions to production or exports at this time," he said.
UBS and other Wall Street investment banks also considered the idea that internal dissent in Russia over the conduct of the war in Ukraine might conceivably lead to either an end to the conflict or, at least, a ceasefire — either of which might eventually lead to an easing of Western sanctions and lower oil prices.
But immediately, "this weekend's events are not a cause to relieve sanctions, particularly with energy prices significantly lower" year over year, wrote Wolfe Research's Sam Margolin on Saturday.
Goldman Sachs analysts agreed that the likely immediate effect of the Wagner Group mutiny will be on future crude oil pricing, not spot prices. "Markets may price a moderately higher probability that domestic volatility in Russia leads to supply disruptions or has a sizable negative impact on oil supply at some point in the future," analysts led by Daan Struyven wrote Sunday.
One consideration noted by Goldman: the Wagner Group has provided protection for the Libyan National Army faction in eastern Libya since 2019, "entrenched in and around oil facilities," with the ability "to disrupt oil production, although the incentives to do so seem unclear should revenue depend on these flows." Libya produces about 1.1 million barrels of crude per day. Russia pumps about 11 million barrels.
— Scott Schnipper, with reporting by CNBC's Michael Bloom
Texas bankers seeing declining conditions, Fed survey shows
Banking conditions are deteriorating in Texas, with loan demand and volume falling while nonperforming loans are on the rise, according to a survey the Federal Reserve in Dallas released Monday.
"Loan demand declined for the seventh period in a row, and most bankers expect a further deterioration over the next six months. Overall loan volumes continued to fall, with particular weakness seen in consumer lending," the Banking Conditions Survey stated.
The one bright spot was residential real estate, which was stable, though commercial and industrial loan volumes declines.
"Bankers' outlooks remained pessimistic, with contacts expecting a further contraction in business activity and an increase in nonperforming loans over the next six months," the survey said.
— Jeff Cox
Lululemon's Chinese store revenue could nearly double this year, Piper Sandler says
Lululemon could double its store revenue in China as the country recovers from stringent Covid-19 lockdowns, according to Piper Sandler.
Analyst Abbie Zcejnieks wrote in a Monday note that because roughly 80% of Lululemon stores in the region were opened since the start of the pandemic, the company could be poised to benefit from a strong rebound in foot traffic.
"We think store productivity has been significantly impacted by store closures and lower traffic due to lock downs, and we estimate that store productivity could improve by ~35% in FY23," Zcejnieks said. The firm reiterated an overweight rating on Lululemon stock.
— Brian Evans
Three key changes are helping the market this year, chart analyst says
Frank Cappelleri of Cappthesis pointed to three key technical changes that are helping the market this year:
- Bullish chart patterns are working, while bearish ones aren't
- Big market moves are happening less often than last year
- "The number of big GAINS noticeably outnumber the number of big DECLINES."
Despite last week's decline, the S&P 500 is still up 13% for the year and more than 20% above its October low.
"Can the market keep up this pace? That's been the question since a few days after the October'22 lows." Cappelleri wrote in a note Monday. "While it would be 'easy' to pound one's chest and declare it's either a bull market or the mother of all bear market rallies, that wouldn't help."
"The key is understanding the vital changes that have taken place to get us here and what needs to happen to keep it going," he added. "The bottom line is that these three points simply were not present in 2022, and the market floundered."
— Fred Imbert
Barclays says impact from failed Russia coup looks 'limited'
Don't be surprised if markets "largely ignore" the events occurring over the weekend in Russia, according to Barclays.
"While the short-lived Russian insurrection dominated weekend headlines, we think the market impact is limited, and macro factors are likely to remain the main drivers of risk assets," wrote Ajay Rajadhyaksha in a Monday note.
Although the events may signal that Russia appears more unstable than anticipated, Rajadhyaksha said that markets seem more focused on implications for the war in Ukraine.
— Samantha Subin
Berenberg says the tech rally is 'running out of steam'
The tech rally is 'running out of steam' as challenges start to build, according to Berenberg.
"We highlight how US tech has outperformed US equities ytd without any support from falling bond yields – either there is a new and independent tech cycle (eg AI domination) or the break in this macro relationship needs to repair somewhat given tech's role as a long-duration