The big news last week was Micron Technology’s (MU) earnings announcement on Wednesday, marking the grand finale to a stunning earnings announcement season. According to Earnings Insight from FactSet, year-over-year earnings for the S&P grew by 23.1%, the second straight 20%+ quarterly earnings surge. Micron’s revenues rose 345.8% to $41.46 billion (vs. $9.3 billion in the same quarter a year ago), and in the same period, earnings soared by an astronomical 1,368% to $28.24 billion or $24.67 per share (vs. 1.89 billion or $1.68 per share last year). Excluding extraordinary items, Micron’s operating earnings were $25.11 per share. The analyst community was expecting revenue of $35.25 billion and operating earnings of $20.28 per share, so Micron Technology posted a 17.6% revenue surprise and a 23.8% earnings surprise. The company also raised its quarterly guidance to between $49 billion and $51 billion in revenue, substantially higher than the analysts’ consensus estimate of $43.2 billion. The stock is up 300% so far this year, but last Friday’s Barron’s said Micron “Could Still Double from Here.” Despite seeing two phenomenal 20%+ earnings growth quarters in a row, the overall S&P 500 is off 3% in June and up only a bit over 7% in the first half. The sell-off in memory-related stocks last Tuesday was triggered by a questionable report on Substack emanating from South Korea, hitting Micron Technology’s competitor, Samsung. However, Samsung resurged on Wednesday, which helped lift the memory stocks.
Here are the most important developments recently and what they mean: - I realize that Europe has been hot and miserable lately. However, that is no reason to trash America. Let me give you an example of the negative media emanating from Britain. The Telegraph reported that “The Bank for International Settlements (BIS) said on Sunday that “excessive” spending on new AI data centers and opaque transactions risked a financial meltdown similar to the global credit crunch nearly two decades ago. The BIS, known as the bank for central banks, said there was growing “peril” in financial markets from the complex web of financial ties between AI giants, shadow banks and data center builders unravelling.” The BIS concluded by saying “Financial stability could ... be at risk in the event of an AI bust.” - New Fed Chairman Kevin Warsh is braving the heat in Portugal to attend a European Central Bank (ECB) Forum this week. The real question is whether Warsh will confront ECB President Christine Lagarde about the Vienna speech she gave implying that AI will trigger a financial crisis. I suspect that any Warsh criticism will be done privately, since he is still building a consensus within the Fed and his central bank peers. However, I am hoping that Warsh will give a speech reiterating how AI is boosting productivity and U.S. GDP growth, which is largely not inflationary, so central bankers should not worry about surging U.S. GDP growth and a surging U.S. dollar, which is naturally inflationary. - In the meantime, the technology war between Europe and the U.S. persists. President Trump on Truth Social recently said, “Numerous European Countries have been discussing the imminent implementation of a Digital Services Tax on American Companies. Some of these Countries are close to actually doing this. Please let this statement serve to represent that any Country that imposes such a Tax will immediately be met with a 100% TARIFF on any and all Goods sent to the United States of America. This TARIFF will supersede Trade Deals made with the Country, whether implemented, signed, or not. Additionally, the 100% TARIFF will be immediately imposed if they proceed.” Apparently, we are at war with the EU and the fight over taxing America’s technology companies persists. - The Iranian National Guard Corps (IRGC) attacked two ships traveling through the Strait of Hormuz, and the U.S. Navy responded with overwhelming force. At this moment, the ceasefire between Iran and the U.S. is back on, and WTI crude oil prices are around $70 per barrel. Countries around the world are striving to replenish their depleted crude oil inventories, so worldwide demand is expected to remain strong for the next few months. Europe’s LNG inventories also remain at a 15-year low and have likely been exacerbated by the recent heatwave, so that bodes well for U.S. LNG exports. So, although things are not yet normalized in the Middle East, commerce is picking up.
Overall, I want to remind investors the U.S. remains an economic oasis and is the primary driver of worldwide economic growth. The stock market is now benefiting from the Russell index realignment that created buying in small-to-mid capitalization stocks. Additionally, SpaceX (SPCX) was added to the Russell 1000 at the start of the week. Furthermore, we are also in the midst of quarter-end window dressing, where fundamentally superior stocks typically benefit from institutional investors making their portfolios “extra pretty” before they do their quarter-end reviews. Finally, we typically rally into holiday weekends, and it would be downright un-American not to be optimistic heading into the 4th of July, especially considering it is the 250-year anniversary celebration that is expected to be spectacular in Washington, D.C.
