CNBC Daily Open: Are markets overly optimistic?

In Asia

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., December 1, 2023.

Brendan Mcdermid | Reuters

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Market record highs
S&P 500 and the Nasdaq Composite ended the session at all-time highs as investors waited for inflation data to assess the U.S. monetary policy path. Apple continued its winning streak with a fifth consecutive record close and Nvidia also saw gains. However, the Dow Jones Industrial Average dipped slightly. The yield on the 10-year Treasury was little changed, while U.S. oil prices fell as Tropical storm Beryl made landfall.

Elliott proxy fight threat
Activist investor Elliott Management has threatened a proxy fight with Southwest Airlines unless its board agreed to negotiate leadership changes. Elliott seeks to oust CEO Bob Jordan and Executive Chairman Gary Kelly, citing underperformance and cultural issues. The investor claims the board’s recent actions, including adopting a poison pill and expanding the board, are “entrenchment maneuvers.” While open to collaboration, Elliott plans to give shareholders a say in leadership changes if the board remains unresponsive.

Corning’s AI pop
Corning‘s stock surged 12% on Monday, its biggest jump since March 2020, after the company raised its second-quarter forecast. Corning attributed the growth to increased demand for its optical connectivity products, which support generative AI networks. “We’ve invented new fibers, new cables, new connectors and new custom integrated optical solutions to dramatically reduce installation costs, overall time and space and carbon footprint,” Corning CEO Wendell Weeks said on CNBC’s “Squawk Box.”

Germany’s bitcoin sell-off
The German government has been selling off hundreds of millions of dollars worth of bitcoin, contributing to the cryptocurrency’s recent price drop. Police in the eastern German state of Saxony seized close to 50,000 bitcoins in mid-January, worth about $2.2 billion at the time of the seizure. Despite selling $379 million worth of bitcoin in recent weeks, Germany’s Federal Criminal Police Office still holds roughly 32,488 bitcoins — worth around $1.9 billion at today’s prices.

Boeing plea deal
Boeing has agreed to plead guilty to criminal fraud in relation to the fatal 737 Max crashes. The plea deal, pending court approval, will label Boeing a felon but allows it to avoid trial. The company will likely pay a fine of $243.6 million and have an independent compliance monitor oversee its operations for three years. This conviction could impact Boeing’s ability to sell products to the US government, though it could seek waivers.

[PRO] Beryl’s risk
Tropical storm Beryl’s landfall in Texas has heightened concerns about the upcoming hurricane season, prompting Wall Street analysts to scrutinize insurance stocks with the most potential exposure to future storm damage.

The bottom line

As the S&P 500 continues to soar, hitting its 35th record high this year, Oppenheimer’s chief investment strategist, John Stolzfus, has raised his S&P 500 target to 5,900 — the second highest on Wall Street. Yet, a sense of caution is brewing. Goldman Sachs’ trader Scott Rubner is on alert for a market correction. He believes the market, including himself, is overly optimistic.

Rubner isn’t alone in his concerns. Investors are increasingly questioning the massive investments being poured into artificial intelligence. Roger McNamee, managing director of Elevation Partners, warned that investors may want to find a “safe place to land” as the end uses of AI may not justify the investment.

“Microsoft is investing, I think, roughly $10 billion a month in data centers and the industry is putting in about $15 billion. We need a number roughly close to $600 million of revenue to justify the amount of money that’s going in,” McNamee said.

“We are making assumptions about what this technology can do, that we haven’t proven, and we are applying it in places where it may not work. If that’s true, the mania is going to come to an end, and the largest stocks in the S&P 500 are all going to be heavily affected.”

Ed Yardeni, president of Yardeni Research, describes the market as being in a “slow-motion melt-up.” Investors seem to believe that the Federal Reserve will quickly lower interest rates if the economy significantly slows down or enters a recession, Yardeni said.

This week could offer more clarity on the market’s direction, with Federal Reserve Chairman Jerome Powell set to testify before Congress on Tuesday and Wednesday, and crucial inflation data due on Thursday, potentially influencing interest rate expectations. 

Former Dallas Fed President Robert Kaplan expects the Fed to cut rates in September.

“If I were sitting in my former seat, I’d be getting ready to cut the rates in September,” Kaplan said Monday on CNBC’s “Squawk Box.” “I wouldn’t make any commitments between now and then, but I think they’re going to position to cut rates in September, and they’ll take it then one meeting at a time.”

 — CNBC’s Jeff Cox, Brian Evans, Pia Singh, Scott Schnipper, Leslie Josephs, Katie Bartlett, Ryan Browne, Fred Imbert, Spencer Kimball and Rohan Goswami contributed to this report.

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