Market Snapshot

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📉 Banana Bits

• Fed hiked 25 bps to 3.75%–4.00%, unanimously; 16 of 18 officials see at least one more this year.

• Dow fell 631 points as stocks reversed during Warsh’s press conference; S&P -0.45%, Nasdaq nearly flat.

• August retail sales jumped 1.2% vs. 0.9% expected as consumers kept spending despite sour sentiment.

• WTI fell 3.2% to $102.43 as Saudi Arabia rerouted crude through Oman after pipeline attacks.

Market News

First Hike Since 2023, and the Dots Say Another One’s Coming

The Fed raised rates a quarter point on Wednesday to a range of 3.75%-4.00%. Nobody dissented. It’s the first increase since 2023, when Powell’s Fed wrapped up the post-pandemic cycle, and nobody was surprised either, since CME FedWatch had it at 92.5% odds going into the day. The statement stayed short, said inflation is elevated, and said the move should get them back to 2% sooner.

Then the dot plot came out. Sixteen of 18 officials see at least one more hike this year, four of them see two, and two think this was it. After that, the Fed’s median projection, basically the middle estimate among officials, keeps rates at 4.1% through the end of 2027 before easing to 3.9% in 2028 and 3.6% in 2029. Core PCE inflation was also marked up to 3.4% for this year. Warsh said in the presser that price stability is the predominant focus right now and that the summer inflation numbers didn’t show him any real improvement. His line of the day: “The plain fact is that inflation is too high and has been for too long.” He also said the labor market is roughly at full employment, giving the Fed room to focus on prices and when asked about the White House, he declined to bite.

The market went into 2pm green. It stayed green through the statement. Then Warsh started talking and it came apart. Dow lost 631 points (1.21%) to 51,461.90, S&P fell 0.45% to 7,551.81, Nasdaq closed a hair lower at 25,978.42. Russell 2000 -0.40% to 2,858.81. Financials took some of the worst damage: Goldman and AmEx fell almost 4%, while BofA and Wells dropped nearly 3%. Higher rates can weigh on loan demand and increase credit risk if the economy slows.

The bond market is the actual story this week. The 10-year closed at 5.01%, and on Tuesday it got above 5.04%, which it hadn't done since 2007. A 30-year mortgage is now 7.19% per Mortgage News Daily, up 38 bps since Jackson Hole and more than a full point from a year ago. One strategist told CNBC the 10-year back over 5% is a massive psychological level, and that this plus stickier inflation are both near-term headwinds for stocks. 

Oil was the one thing that helped. WTI fell 3.2% to $102.43, while Brent dropped 2.7% to $105.83. Saudi Arabia is doing ship-to-ship transfers off Oman’s Sohar port to keep Asian refiners supplied while the East-West pipeline gets repaired, and the weekly inventory report showed a draw of just 640,000 barrels against expectations for 1.62 million. The U.S. average diesel price crossed $6 a gallon last Thursday for the first time ever.

Peel Take: Everyone knew the hike was coming. What people didn’t have a plan for was Warsh giving them nothing to hold onto. He didn’t submit his own dot, gave no forward guidance, and said summer inflation still hadn’t meaningfully improved. But forget fed funds for a second. The 10-year at 5% is the number running through mortgages, corporate borrowing costs, and Nasdaq multiples, and while the Fed can lean against demand and inflation expectations, it can’t repair a Saudi pipeline or add barrels to the market.

What's Ripe

Lumentum (LITE) 9.59% 

• Optics and photonics ripped. Credo +7.4%, Coherent +6.4% intraday (closed +6.9%), and Benzinga's read was short covering after a brutal month, which sounds right to us. Semtech +11.0%, Dell +3.6% for good measure. 

• BofA put out a note saying AI infra spending still looks solid across chip vendors, labs and data-center operators, and named interconnect (the fabric that lets GPUs talk to each other) as one of the key bottlenecks. Lumentum sells optical and photonic components used in those high-speed interconnect systems.

• Context for the bounce: SOXX is down 17% over three months while the software ETF is up 15%. Chips also had a 5% day on Monday, in the wrong direction. 

• Peel Take: Optics are the picks and shovels for the picks and shovels. A 9.6% pop on a day the Fed hiked and the Dow lost 600 tells you how oversold this stuff got, not that the AI trade is fixed. We buy the bottleneck argument. We also know this group moves like a leveraged ETF on whatever the AI mood is that week.

Intel (INTC) 4.03% 

• As per Reuters: SK Hynix is talking to Intel about making memory chips in the U.S. for the first time. One version has Hynix leasing part of Intel's long-planned Ohio fab. Another has a venture with Intel plus big cloud companies who want their memory supply locked in. 

• Exploratory, nothing decided, and Seoul might not love the idea of HBM or DRAM tech leaving the country. 

• Washington has been leaning on chipmakers to build here as AI data centers eat memory. Hynix's U.S. shares gave back a 3% premarket pop and closed flat. Intel didn't. 

• Peel Take: It wasn’t that long ago that Intel was the chip industry’s punchline. Now it owns a half-built fab in Ohio that a Korean memory giant, a few hyperscalers and the White House all apparently have opinions about. That’s a lot of people who want a deal done, and one government that may not. We'd just point out that Intel with a major memory partner using its Ohio capacity is a different story than Intel without one, and today the market started pricing that possibility. 

What's Rotten

J.B. Hunt (JBHT) 13.30%

• CFO Brad Delco told the Morgan Stanley conference that Q3 EPS will drop 5–10% from Q2. About $25M of that is driver recruiting, onboarding and sign-on bonuses. At least $10M is fuel. 

• Midpoint math gets you around $1.77 vs. $2.10 consensus, roughly 16% light. Barclays cut its target to $285 from $300; BofA went to $302 from $340 and kept its Buy. 

• Stock was up 41% YTD coming into the day. ODFL, KNX, XPO, SNDR, LSTR and RXO all sold off with it. Old Dominion closed -3.65%.

• Peel Take: Delco said they've seen "some of the most radical and abnormal swings" in fuel they've ever dealt with, and management framed the whole thing as timing: fuel surcharges lag a week, intermodal pricing lags truckload by about two quarters, so costs land now and pricing catches up later. Could be true! The problem is investors have to eat the cost hit now while waiting for those pricing mechanisms to catch up.  

Diamondback (FANG) 8.03%

• Diamondback dropped 8.03% to $194.54 on massive volume after SGF FANG Holdings sold 9.1 million shares in a block trade worth roughly $1.9 billion. The shares were sold at $205.80 each, about a 2.7% discount to Tuesday’s close.

• SGF represents interests tied to the family of late Endeavor Energy founder Autry Stephens, which received Diamondback shares when the companies merged in 2024. The sale cut the holder’s stake to roughly 23%.

• Falling crude made the backdrop worse. WTI dropped more than 3%, dragging the broader energy complex lower at the same time.

• Peel Take: Crude hurt the whole group. A $1.9 billion shareholder sale is what made Diamondback special. That is a huge chunk of stock hitting the market at a discount, so Wednesday’s 8% drop was about both weaker oil and a very real company-specific supply overhang. The Permian economics didn’t suddenly break overnight.

🧠 Technical Trip

Interview Q&A from Goldman Sachs

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🦈 Deal Dispatch

M&A, IPOs, And Other Notable Transactions

• Cohere and Aleph Alpha signed a definitive merger agreement, combining the AI companies in a deal previously valued around $20 billion.

• May Mobility agreed to go public through a $1.4 billion SPAC deal with ACP Holdings Acquisition.

• India’s NSE launched its $2.3 billion IPO, valuing the exchange around $46 billion at the top of the range.

• Orion180 is expected to price its IPO today, with 20 million shares at $15–$17 for up to $340 million before a planned Nasdaq debut Sept. 18.

Student Success Corner

Banana Brain Teaser

Previous

A company earns $100 million of net income and has 50 million shares outstanding. It repurchases 10 million shares with excess cash. Assuming net income is unchanged, by what percentage does EPS increase?

Answer: 25%

Today

A stock trades at $50 and is expected to generate $5 of EPS next year. If its forward P/E multiple compresses from 10× to 8×, but expected EPS rises 20%, what is the implied new stock price?

How Would You Rate Today's Peel?

Happy Investing,
Chris, Elie, Mitchell, Fernanda, Nick, & Patrick

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