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What’s Driving Stocks This Morning

Stocks marked their third day of losses yesterday after Q2 GDP was revised higher, showing the economy was actually much stronger than previously indicated. The Bureau of Economic Analysis said the economy grew 3.8% – rather than the 3% earlier projections showed – marking a robust recovery from the 0.6% decline in Q1.

Coupled with a surprise drop in jobless claims, and the pace of Federal Reserve interest rate cuts was thrown into doubt. The central bank may not be as aggressive as previously hoped, and that was already seemingly more timid that originally thought.

However, stock futures are up this morning after President Trump imposed a new round of tariffs on imported pharmaceuticals, heavy trucks, and furniture. 

Drugmakers could see duties of 100% imposed on pharmaceuticals shipped to the U.S. unless the companies have already begun construction on new facilities in the country. 

Heavy-duty trucks face tariffs of 25% that are set to take effect next week in a bid to protect U.S. manufacturing and national security while imported kitchen cabinets and bathroom vanities face duties of 50% and upholstered furniture see 30% tariffs imposed. They follow Trump's pledge to "bring back" America's furniture business. 

Oil prices also moved higher after Ukraine successfully targeted Russian oil infrastructure, part of a wave of drone attacks on refineries, pipelines, and export terminals that have occurred over the past few weeks.

The latest salvo was directed at Salavat – one of Russia's largest petrochemical complexes – and the Black Sea port town of Novorossiisk.

It follows the EU committing at the United Nations to importing less Russian oil, which Trump maintains is helping Russia finance its war in Ukraine. NATO also warned Russia it would respond to future airspace violations while Russia itself began halting key fuel exports.

Oil could mark its largest weekly gain in over three months.

Adding to the upbeat outlook, Trump signed an executive order approving the spinoff of China's ByteDance spinning off its U.S. operations in a $14 billion transaction. Details on how the spinoff will actually work remain murky and Beijing still needs to sign off on the deal.

The Big Picture: While a strong U.S. economy may temper Fed rate cuts, stocks apparently won't keep that from allowing them to march higher if early futures moves hold. While tariffs bolstering manufacturing and oil's strength are contributing to the early rise, the apparent culmination of the TikTok drama will bring closure to millions of Americans who consume content on the social media site.

Of course, there are still dark undercurrents flowing strongly, such as the sustainability of the AI boom, and August personal consumption expenditures (PCE) data will be published this morning. Economists expect PCE inflation to dip to 0.2% sequentially, matching July’s 2.9% on an annualized basis.
 

Stocks on the Move (Pre-Market)

• Nvidia (NVDA) $175.72 -1.1% - Concerns about the length and breadth of the AI boom are weighing on the AI accelerator leader.
• Intel (INTC) $35.09 +3.2% -  The chipmaker and foundry stock is extending its winning streak to a fourth day as it continues to be buoyed by outside investments and reports it wants Apple (AAPL) to invest in the company.
• PACCAR (PCAR) $180.00 +5.5% - The owner of Kenworth trucks is getting a lift from Trump imposing 50% tariffs on heavy-duty truck imports.
• Eli Lilly (LLY) $727.33 +1.8% - The pharma giant is also riding the wave of new tariffs Trump is imposing, this time 100% duties on imported pharmaceuticals.
• Super Micro Computer (SMCI) $45.31 -2.0% - Possible tariffs on tech companies that don't match their domestic sourcing with foreign imports is weighing on the industry.
• Warner Bros Discovery (WBD) $19.53 -1.3% - After rocketing higher on rumors of a potential buyout by Paramount Skydance (PSKY), the entertainment studio is easing back as no deal has emerged yet.
   

Upgrades & Downgrades

Upgrades:

• Arista Networks (ANET) upgraded to Outperform at BNP Paribas Exane, tgt $172
• Chewy (CHWY) upgraded to Buy at MoffettNathanson, tgt $48
• CrowdStrike (CRWD) upgrade to Sector Outperform at Scotiabank, tgt $600
• Intel (INTC) upgraded to Neutral at Seaport Research Partners
• Ulta Beauty (ULTA) upgraded to Buy at Argus, tgt $570

Downgrades:

• Adobe (ADBE) downgraded to Equal Weight at Morgan Stanley, tgt $450
• Bloom Energy (BE) downgraded to Underperform at Jefferies, tgt $31
• Lululemon Athletica (LULU) downgraded to Neutral at Needham
• Lithium Americas (LAC) downgraded to Hold at TD Cowen, tgt $5
• Freeport McMoRan (FCX) multiple downgrades to Neutral and Sector Perform at Clarksons Platou and Scotiabank, tgt $42-$45
   

Today’s Bottom Line:

There is significant uncertainty at play. Critical economic factors such as interest rates, tariffs, and oil prices will be key, of course, but there remain strong riptides, less noticeable on the surface, that will play just as big of a role.

The Wall Street Journal, for example, says the Trump administration plans on imposing new tariffs on domestic tech stocks unless they match their semiconductor imports with U.S.-produced output. It threatens to roil the global semiconductor market, which is why companies such as Dutch equipment maker ASML (ASML) was down as much as 1.5% in premarket trading this morning.

Yet the protectionist policies are not that much different than what Beijing is supposedly doing with its semiconductor industry, strongly advising Chinese companies to not use Nvidia (NVDA) AI chips, but instead buy from local producers.

Yet there are questions about the sustainability of actual AI demand too. While Nvidia has seemingly been locking up deals to continue dominating the market, it's also a bit circular as many of the transactions involved customers and suppliers all feeding one another.

Nvidia agrees to a $100 billion deal with OpenAI to building out its data centers using NVDA's advanced AI chips.  OpenAI then turns around and expands its deal with CoreWeave to $22 billion to provide AI datacenters and technology over five years. And just prior, CoreWeave and Nvidia enter into a $6.5 billion agreement to let the chipmaker access to any of CoreWeave's remaining unsold cloud computing capacity.

Are these companies all just financing their partner's businesses? If actual AI demand falters, all could tumble.

While some analysts say the market is different this time, that AI has changed the game, justifying the S&P 500 hitting unprecedented premiums, we've heard that before in prior tech bubbles.

It's why investors need to remain wary and watchful – and protect their downside.

 

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