CNBC Daily Open: Boeing's ‘moment of reckoning'

Microsoft

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

Megacap high
The S&P 500 closed at a record high, led by megacap technology stocks Microsoft and Apple. The Nasdaq Composite jumped nearly 1%, continuing an upward trend of seven weeks of gains in the past eight for both the S&P 500 and Nasdaq. The Dow Jones Industrial Average also broke a four-day losing streak. Meanwhile, the yield on the 10-year Treasury rose after Minneapolis Federal Reserve President Neel Kashkari suggested the central bank might delay rate cuts until December. U.S. oil prices also increased, rising almost 3% to surpass $80 a barrel due to expectations of higher demand during the summer.

Immigrants, jobs and inflation
Immigration has helped the U.S. job market sustain a strong run in recent months without reigniting inflation, economists and analysts say. As CNBC's Rebecca Picciotto writes, the U.S. economy added a whopping 272,000 jobs in May, but the consumer price index was unchanged. This dynamic — a hot job market and cooling inflation — is in part the result of increased inflows of immigrants. Recent spikes in immigration at the southern border and elsewhere in the U.S. have helped keep the labor pool full even as job gains kept apace.

No game plan
Shares of GameStop dropped as much as 17% after the company's shareholder meeting concluded without a detailed strategy to revive the video game retailer. CEO Ryan Cohen reiterated plans to cut costs and boost profits, hinting at further store closures. The return of Keith Gill, also known as Roaring Kitty, fueled a frenzy in the meme stock, allowing the company to raise over $2 billion which it could use for potential acquisitions and investments.

Rebalancing
Nvidia's surge will compel the Technology Select Sector SPDR Fund to buy over $10 billion of its shares while significantly reducing its Apple holdings. Microsoft will lead the index after rebalancing based on Friday's market cap, followed by Nvidia and then Apple, says Matthew Bartolini, head of SPDR Americas Research. Due to diversification rules, Microsoft and Nvidia will each hold around 21%, while Apple's weight will drop to about 4.5% from 22%.

BYD sale
Berkshire Hathaway continues to trim its stake in BYD, China's leading electric vehicle maker. The conglomerate sold 1.3 million shares for $39.8 million, reducing its holding to 6.9%. This follows a series of sales in 2022 and 2023 after BYD's value soared over 600% from Berkshire's initial investment of $230 million for 225 million shares in 2008. This investment, made at the suggestion of the late Charlie Munger, proved highly lucrative as BYD surpassed Tesla as the top EV maker in 2023.

[PRO] S&P 500 to hit 6,000
Evercore ISI predicts the stock market will soar to unprecedented heights, setting a new year-end target for the S&P 500 at a record 6,000. Citing robust company fundamentals and strong earnings growth, Evercore ISI's bullish outlook suggests a potential 10.5% surge from current levels.

The bottom line

The outgoing CEO of Boeing, Dave Calhoun, will be in front of a Senate panel today to testify about its recent safety scandals. Boeing seems to be constantly in the headlines: on Thursday, the Federal Aviation Authority launched an investigation into a 737 Max flown by Southwest Airlines, which suffered substantial damage from a Dutch roll at nearly 38,000 feet. While the plane was carrying 175 passengers and six crew traveling from Phoenix to Oakland on May 25, the tail wagged side to side and the wings rocked violently. A Dutch roll, while rare, can potentially be dangerous.

Safety concerns have extended to other planes as well. A whistleblower, Sam Salehpour, alleged the plane maker took "shortcuts" to speed up 787 production. Allegations that have been denied by Boeing.

Meanwhile, Boeing's Starliner finally managed to launch after numerous scrubbed attempts. The spacecraft designed to carry crew to the International Space Station is years behind schedule, while Elon Musk's SpaceX Dragon capsule has been flying astronauts for NASA regularly since 2020. To date, Boeing has absorbed $1.5 billion in costs due to Starliner setbacks and nearly $5 billion of NASA development funds.

These are humbling moments for a company that once delivered leading-edge travel with its iconic 747 and dominated the aircraft manufacturing industry. Last month, Boeing received no orders for its 737 Max and just four orders in total, compared to Airbus's 27. Boeing is currently facing several investigations — including from the Justice Department — after a panel blew out on a 737 Max 9 plane in January.

"Years of putting profits ahead of safety, stock price ahead of quality, and production speed ahead of responsibility has brought Boeing to this moment of reckoning, and its hollow promises can no longer stand," said Richard Blumenthal, D-Conn., chairman of the Senate Permanent Subcommittee on Investigations.

Boeing already burned through $4 billion in cash in the first quarter as it attempted to rectify production issues. CFO Brian West warned last month that figure could be similar or "possibly a little worse" in the second quarter. The company's stock, which has fallen by almost a third since last year, edged higher ahead of the Senate hearing.

In the broader market, megacap stocks powered the S&P 500 to a record high. While Goldman Sachs and other Wall Street banks raised their year-end targets for the index, there are continued concerns about the breadth of the current rally.

"For equities to avoid a 20%+ correction, you have to believe that tech will become a much more meaningful driver of growth for the broad economy in short order," Marko Kolanovic, JPMorgan's chief global market strategist, told clients.

— CNBC's Leslie Josephs, Samantha Subin, Tanaya Macheel, Sean Conlon, Jesse Pound, Alex Harring and Yun Li contributed to this report.

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