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What’s Driving Stocks This Morning

With the government shutdown, there were no major developments over the weekend and economic reports that were due out this week – such as tomorrow's U.S. trade deficit report – have been delayed. Analysts, though, were expecting the deficit to shrink from $78.3 billion to $60.7 billion as President Trump's tariffs continue to shift the balance.

Stocks moved higher again last week and inched up incrementally on Friday, but many of the biggest tech names were lower, which caused the Nasdaq to finish the day in the red. Nvidia (NVDA) ended off 0.7%, Amazon (AMZN) was down 1.3%, and Meta Platforms (META) fell 2.3%. Those that managed to gain – Apple (AAPL), Alphabet (GOOG, GOOGL), and Microsoft (MSFT) – were only barely positive.

Other high-profile tech names were also lower, including Palantir Technologies (PLTR), which fell 7.5% on a Reuters report of a "fundamental security" flaw found in a U.S. Army battlefield communications program related to the AI shop.

There is also a cyclical rotation under way as small cap stocks are getting their due. The iShares Russell 200 ETF (IWM) closed Friday at its highest level in four years. Since the April correction, the small cap index has gained more than 34%, outpacing the S&P 500, which is up 30%.

The Big Picture: Maybe it's the calm before the storm, but the markets are sleepy heading into the Monday open, even if futures are pointing higher. The government shutdown is keeping reports on economic health from being released, but without any major events occurring, there is no real sense of market anticipation, other than that the Federal Reserve will cut rates again at its October meeting. Betting markets say the odds of a 0.25 bps cut are 89%.

Gold is also pushing higher as a result with investors moving towards safe haven assets, and is moving up more than $57 an ounce to $3,968, a 1.5% gain, making the $4,000 per ounce level possible this week. 
 

Stocks on the Move (Pre-Market)

• Micron Technology (MU) $194.65 +3.7% - The chipmaker is recovering from its earnings report that sent shares lower, despite a strong result, and it closed on Friday 2.2% higher..
• Palantir Technologies (PLTR) $178.25 +3.0% -  the AI-powered data analytics leader is recovering from Friday's shock of a "fundamental security" flaw reportedly found in a communications program related to the company.
• Tesla (TSLA) $439.79 +2.3% - The EV maker teased a big announcement for tomorrow, possibly the unveiling of a new lower cost model.
• Advanced Micro Devices (AMD) $166.33 +1.0% - The chipmaker is reportedly negotiating with Intel (INTC) on foundry cooperation.
• International Paper (IP) $45.36 - 3.9% - The paper company is dropping on no company-specific news this morning, but has been largely underperforming the consumer discretionary sector..
• Plug Power (PLUG) $4.56 +20.0% - The hydrogen power stock has been on a tear, rising 60% last week, and it added 35% on Friday after analysts at HC Wainwright reiterated their buy recommendation and raised their price target from $3 to $7 per share.
   

Upgrades & Downgrades

Upgrades:

• Alibaba (BABA) upgraded to Buy at Erste Group
• Bank of America (BAC) upgraded to Buy at Erste Group
• Coinbase Global (COIN) upgraded to Buy at Rothschild Co & Redburn, $417
• Johnson & Johnson (JNJ) upgraded to Overweight at Wells Fargo, tgt $212
• Occidental Petroleum (OXY) multiple upgrades to Buy at Mizuho and HSBC Securities, tgt $55 to $60

Downgrades:

• Apple (AAPL) downgraded toUnderperform at Jefferies, tgt $205.16
• BlackBerry (BB) downgraded to Hold at TD Securities, tgt $5
• Instacart (CART) downgraded to Neutral at Piper Sandler, tgt $41
• PayPal (PYPL) downgraded to Peer Perform at Wolfe Research
   

Today’s Bottom Line:

As the biggest names that have been driving the markets higher take a breath on valuation concerns and worry about when artificial intelligence will begin to show a return on investment for all the money being poured into it, now might be the time to look at stocks that have been depressed.

A small cap rebound has been expected for some time and the IWM's performance since April suggests the rotation into these stocks is finally at hand.

Over long periods, small caps tend to outperform their larger brethren, but the high-interest rate environment has sapped their strength. As the Fed seems to be moving into a period of rate easing, small caps are perking up.
 

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