Dovish tone

The latest comments from Fed Chair Jerome Powell are continuing to reassure markets after the major averages closed higher on Tuesday and the Nasdaq scored a fresh record. The gains held overnight, with U.S. stock index futures marginally higher and the yield on the 10-year Treasury note unchanged at 1.47%. Not only did the Fed Chair soothe investors who were worried about price pressures, but he said that fear of inflation alone would not be enough to prompt interest rate increases.

Transitory: "What we're seeing now, we believe, is inflation in particular categories of goods and services that are being directly affected by this unique historical event that none of us have ever lived through before," he told the House Select Subcommittee on the Coronavirus Crisis. Inflation is being caused by "extremely strong demand for labor, goods and services," compounded by a "supply side caught a little bit flat-footed," though it's "very, very unlikely" the U.S. will see 1970s-style inflation.

Room for caution? "This is a precarious time - stocks have gone a relatively long period without any major sell-off, and there is heightened sensitivity to every utterance from the Fed as it attempts to transition to the start of normalization," Invesco chief global market strategist Kristina Hooper wrote in a research note.

On the calendar today: PMI surveys of U.S. manufacturing and service firms are due to be released at 9:45 a.m. ET, while data on sales of new homes comes out at 10 a.m. Advisors to the CDC are also set to meet today and tomorrow to discuss a link between rare cases of heart inflammation and the mRNA coronavirus vaccines from Pfizer and Moderna. More than half of the 800 cases of myocarditis and pericarditis occurred in people younger than 30, including about 75 teens.

$2T club

Microsoft (NASDAQ:MSFT) joined Apple (AAPL) in the exclusive $2T market cap club on Tuesday - before pulling back - as investors bet on long-term growth for both earnings and revenue. The two are the only American companies to have ever reached such a valuation, though the other Big Tech names are close behind, including Amazon's (AMZN) market cap of $1.8T and Alphabet's (GOOG, GOOGL) $1.7T.

Putting it in perspective: While it took Microsoft three decades from its IPO to reach its first $1T in value in 2019, the next trillion only took two years.

The coronavirus pandemic helped boost MSFT shares during the stay-at-home trade of 2020. Heavy demand was seen for Microsoft's computer enterprise software (Windows), gaming systems (Xbox) and its cloud computing platform (Azure). Microsoft is also one of the only Big Tech giants to have so far avoided the latest wave of antitrust scrutiny from American regulators (maybe it already had its turn in 2001?). That gives it more liberty to expand its products, and flexibility regarding investments and acquisitions.

Analyst commentary: "Microsoft checks all the boxes: it is in the markets that investors favor, it offers strong and sustainable growth, and it remains very well positioned to capitalize on the long-term secular trends we see in technology," said Logan Purk of financial advisory Edward Jones. A $2T valuation "is warranted, given how it has pivoted toward the cloud, and it remains attractively valued even given the strong performance."

Delta is spreading

"Similar to the situation in the U.K., the Delta variant is currently the greatest threat in the U.S. to our attempt to eliminate COVID-19," White House chief medical advisor Dr. Anthony Fauci said at his latest press conference. "Good news, our vaccines are effective against the Delta variant... We have the tools, so let's use them, and crush the outbreak."

Stats: Delta, first identified in India, now makes up about 20% of all new cases in the U.S., up from 10% about two weeks ago. Studies suggest the variant, also known as B.1.617.2, is around 60% more transmissible than Alpha - the original strain that emerged from Wuhan, China. Delta also appears to be following the same pattern as Alpha, with infections doubling in the U.S. about every two weeks.

It's getting some companies worried. On Tuesday, Morgan Stanley (NYSE:MS) barred unvaccinated workers from heading back to its offices in New York City and Westchester County beginning July 12. It's also requiring all employees in the New York metropolitan area to attest to their coronavirus vaccination status by July 1. Staff who are not fully vaccinated will have to continue working remotely.

Go deeper: While some 16 states have vaccinated more than 70% of their populations, four have vaccination rates of less than 50%, with the rest falling somewhere in between. On Tuesday, the White House conceded it likely won't hit President Biden’s goal of getting 70% of American adults to receive one vaccine shot or more by the Fourth of July. Meanwhile, the Delta strain will probably make up 50% of all COVID-19 infections in the U.S. by early to mid-July, according to William Lee, vice president of science at population genomics company Helix.

Autonomous vehicles long way off

Autonomous vehicles were always going to be a longer-term project, but it's also understandable how the markets would discount the possibility they'd be on the roads in the first half of this decade, according to DataTrek Research. Now 2030-2040 looks more likely and that's good from a macroeconomic perspective given the number of people employed by the traditional auto and transportation industries.

Quote: "Frankly, even when AV technology was 'the next big thing' we wondered if its proponents really understood its economic ramifications," writes co-founder Nicholas Colas and Jessica Rabe. "This is not Amazon (AMZN), which crept its way into retail over a decade. That slow burn allowed the U.S. workforce to readjust; many workers who had been employed in physical retail stores moved into leisure and hospitality. Autonomous driving is more binary. When it comes, mass adoption will be fast because its benefits are obvious."

The two feel that AVs will make the iPhone look small by comparison and a "post-pandemic world would not be able to adapt quickly enough to their reshaping of global automotive and transportation industries." Another advantage to a longer lead time is more transition time for the traditional auto industry. It would give "marginal car companies the possibility of surviving through electrification, essentially removing an AV 'Amazon discount'."

DataTrek likes General Motors (GM) for its EV plans already in place and lack of European presence, where overcapacity is a problem. However, the ride-sharing sector - Uber (UBER), Lyft (LYFT) and Didi Chuxing (DIDI) - will see problems with valuations as they don't scale as tech companies without AV. "The tech business model is 1) build a platform and 2) drive incremental revenues through that platform at little or no marginal cost or effort," adds Colas and Rabe. "The original pitch for ride hailing companies was that autonomous driving would replace human drivers, so building a customer base in a 'driver-ed world' was OK because AV would eventually allow the business to scale."

Is Tesla overvalued without AV? "Elon Musk did something amazing by creating a line of highly desirable electric vehicle, but without truly autonomous driving TSLA is really just a great car company. Not, as its valuation still implies, a technology company." Colas and Rabe advise staying away from Tesla and ride-sharing stocks until AV adoption is truly underway. That's certainly not the view of one of Tesla's biggest proponents, ARK Invest's Cathie Wood, who has TSLA as the largest holding in her flagship ARK Innovation ETF (ARKK). (91 comments)

What else is happening...

Peloton (NASDAQ:PTON) touts growth prospects, teases treadmill announcement.

Amazon's (NASDAQ:AMZN) deal to buy MGM to be reviewed by FTC.

Sprinklr (NYSE:CXM) prices 16.6M-shares IPO below range at $16.

New restaurants... Shake Shack (NYSE:SHAK) is cooking up China expansion.

Krispy Kreme (DNUT) sets IPO terms in second run as a public company.

London hedge fund shuts after big losses on GameStop (NYSE:GME) - FT.

Eurozone business activity records fastest expansion in 15 years.

XPeng (NYSE:XPEV) gets green signal for up to $2B Hong Kong listing.

Facebook (NASDAQ:FB) expands Shops to WhatsApp, Marketplace.

Big oil CEOs see potential for $100 crude amid escalating volatility.

Today's Markets

In Asia, Japan flat. Hong Kong +2%. China +0.3%. India -0.5%.
In Europe, at midday, London +0.3. Paris -0.4%. Frankfurt -0.4%.
Futures at 6:20, Dow +0.2%. S&P +0.1%. Nasdaq +0.1%. Crude +0.8% at $73.40. Gold +0.3% at $1782.70. Bitcoin +8.3% at $33907.
Ten-year Treasury Yield unchanged at 1.47%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:30 Current Account
9:10 Fed's Bowman: "Policy Summit 2021: Pathways to Economic Resilience in Our Communities"
9:45 PMI Composite Flash
10:00 New Home Sales
10:30 EIA Petroleum Inventories
11:00 Fed's Bostic Speech
11:30 Results of $26B, 2-Year FRN Auction
1:00 PM Results of $61B, 5-Year Note Auction
4:30 PM Fed's Rosengren Speech