Ban talk lifts networking names
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It's good to have you here on this Tuesday edition of Wall Street Lunch. Today is August 4th. I'm Julie Morgan.
What is the proposed U.S. ban on Chinese optical transceivers and why does it matter?
The Trump administration is in the process of drafting a ban on the import of Chinese optical transceivers, a key component in the building of data centers. According to a Reuters report which cited sources familiar with the issue, the import ban is being drafted to prevent Chinese hardware manufacturers from installing malware, collecting data, or disrupting services at U.S. data centers via these optical transceivers. Several networking stocks are higher on this Tuesday. Lumentum is up 7 percent, Coherent is up 13 percent, and Ciena is 5 percent higher midday. Optical transceivers serve as pluggable hardware modules that convert electrical signals into light pulses for fiber optic networks. They combine a transmitter and a receiver into a single housing unit to link switches, routers, and servers.
The report said the U.S. Federal Communications Commission is the body in charge of drafting the measure and could publish it before the year is out. The FCC has recently imposed similar import bans on drones, inverters, robots, and routers manufactured in China. InnoLight Technology, which is based in China, ranks as the world's top supplier of optical transceivers. Some of its major clients include Google, Meta, and NVIDIA. Cisco, Broadcom, and Intel also produce these devices. These stocks are up 3%, 4%, and 8% respectively. Among other active stocks, Snap is up 13% after the social media company beat Q2 estimates, reported stronger-than-expected user growth, and issued solid Q3 guidance. Palantir Technologies is up 24% after the software company crushed Q2 results and raised its full-year outlook.
Looking to the economy, in June, U.S. factory orders slipped 0.3% to $656.5 billion versus the consensus for an increase of 0.4%. We also told you on Wall Street Breakfast that the job openings and labor turnover survey numbers would be released today. In June, U.S. job openings declined to 7.359 million from 7.537 million prior and were slightly higher than the 7.35 million consensus. The job openings rate of 4.4% ticked down from 4.5%. Hiring increased to $5.348 million from $5.252 million in May. In other news of note, CoreCivic announced on Tuesday that it won a five-year contract with US ICE to operate a 1,600-bed facility in Appleton, Minnesota. The contract starts August 11th of this year and it reactivates a facility that has been idle since 2010.
The agreement includes a fixed monthly payment and an additional per diem payment based on detainee population. The company expects the contract to have an immaterial impact on 2026 earnings due to startup activities and a phased intake process. Once the facility is fully operational, CoreCivic expects it to generate approximately $75 million in annual revenue. McDonald's Corporation moved higher on Tuesday after reporting its second quarter earnings. Global comparable sales rose 1.3% in Q2 to miss the consensus estimate for an increase of 1.5%. Operating income was up 3% year-over-year to $3.34 billion. Earnings per share of $3.38 beat the consensus estimate of $3.32. Shares of McDonald's are up 1% midday.
In the Wall Street Research Corner, Apollo Global Management's chief economist has argued that the classic 60-40 portfolio, long the cornerstone of balanced investing, has lost its effectiveness. They said that equity performance is no longer primarily tied to the broader business cycle.
Which networking stocks surged after ban talk and what companies are affected?
Instead, returns have become heavily concentrated in a narrow set of artificial intelligence leaders. They go on to say that at the same time, bond returns are increasingly dictated by fiscal pressures and rising government debt rather than traditional economic fluctuations. Apollo's Economist also says that the greater danger lies in a potential reversal of the AI trade or heightened market concern over fiscal deficits. They say in either case, stocks and bonds could come under simultaneous pressure, stripping investors of their traditional hedge and forcing a fundamental reassessment of asset allocation strategies.
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