Market snapshot: Micron earnings beat eases AI fears

The S&P 500 and Nasdaq dipped as AI-related concerns on demand and the tsunami of capital investment persisted, but it seems for the moment at least that investors need not have worried.

After the closing bell, Micron Technology Inc (NASDAQ:MU) shot the lights out with its latest earnings report. The shares had been stumbling leading up to the release on stellar expectations – perhaps unsurprising given a rise of over 730% this year – but surged by almost 15% in extended trading. Revenues of $41.46 billion (£31.5 billion) for the quarter flew past estimates of $35.84 billion, with Micron expecting $50 billion this quarter, as compared to $11.3 billion a year previous, and against expectations of $43.58 billion. Of equal importance was the company’s statement that it could not anticipate when memory supply would catch up with increasing demand, which read across to other stocks as far away as Asia, such as SK Hynix and Samsung Electronics Co Ltd DR (LSE:SMSN).

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As a result, at this early stage Dow futures are indicating a strong opening for today’s trading session later, with gains of more than 2% for the Nasdaq and almost 1% for the S&P 500. In related news, a rare alteration to the constituents of the Dow Jones Industrial Average will see Google parent Alphabet Inc Class A (NASDAQ:GOOGL) replacing Verizon Communications Inc (NYSE:VZ) on Monday, joining fellow Magnificent Seven members Apple Inc (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT) and NVIDIA Corp (NASDAQ:NVDA) in the more traditional index.

Today will also herald the latest release of the Personal Consumption Expenditures index, the Federal Reserve’s preferred gauge of inflation. The headline number is expected to have risen 0.5% in May, compared to 0.4% in April, and annualised to 4.1%, while the core reading which excludes energy and food prices may rise by 0.3%, or 3.4% year-on-year, which is still well ahead of the Fed’s 2% target, one which has not been reached for several years. While recent developments have eased some of the likelihood of monetary tightening, the traditionally more pessimistic bond traders are sticking to their guns and continuing to price in at least one interest rate hike from the Fed over the remainder of the year.

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Meanwhile, the fragile truce between the US and Iran appears to be holding firm, as does a return to something like normality in the movement of oil through the Strait of Hormuz. The oil price has all but returned to its pre-war level, with international benchmark Brent currently trading below $73, as compared to around $70 when the conflict began, which has put inevitable pressure on global oil majors over recent days, even though the move is positive in terms of inflationary pressure.

In the meantime, and notwithstanding what could be a firm opening later, the main indices are holding on to decent gains in the year to date, whereby the Dow Jones, S&P 500 and Nasdaq have added 7.9%, 7.5% and 9.6% respectively. In addition, investors are also pointing to a broadening out of the technology trade which is a positive development for concentration risk, with a rise of 19% for the smaller-cap Russell 2000 index so far this year.

Over recent weeks, the FTSE 100 has struggled to replicate the gains being seen by its international counterparts, largely due to its relative lack of exposure to big tech which served it so well earlier in the year amid the height of global market volatility. The premier index is currently some 4.3% away from the record high which it set in late February, although it is has nonetheless achieved a gain of 5.3% in the year to date, with further progress currently being capped by the larger growth opportunities which investors are chasing elsewhere.

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The index limped to another flat open, with the recent fall from grace of the gold price being an additional factor, weighing on the likes of Endeavour Mining (LSE:EDV) and Fresnillo (LSE:FRES). Experian (LSE:EXPN), Metlen Energy & Metals (LSE:MTLN) and United Utilities Group  Class A (LSE:UU.) also all found their way on to the loser board having been marked ex-dividend today, although International Consolidated Airlines Group SA (LSE:IAG) escaped an ex-dividend decline due to a drop in the oil price which was sufficient to tempt investors back into the fray. 

Any losses for the main index were offset by a well-received trading update from 3i Group Ord (LSE:III), which topped the leaderboard, with some strength in the likes of Howden Joinery Group (LSE:HWDN), Kingfisher (LSE:KGF) and the housebuilders all providing a counterpoint.