Stocks Rally on Optimism the Fed can Contain Inflation

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed up +1.53%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.19%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.19%.

Stocks on Friday settled moderately higher, with the S&P 500 and Nasdaq 100 posting 2-week highs and the Dow Jones Industrials posting a 1-1/2 week high.  Strength in technology stocks Friday lifted the overall market.  Stocks also rallied Friday as the recent spate of Fed comments shows the Fed is serious about lowering price pressures, which has bolstered confidence that the Fed can contain inflation.  Technical buying also helped lift stocks Friday after the S&P 500 crossed above its 100-day moving average.

U.S. stocks Friday had carry-over support from a +0.82% rally in China’s Shanghai Composite to a 2-week high.  Chinese stocks rallied Friday on signs of easing price pressures after economic reports showed China's August consumer and producer prices rose less than expected.   Also, Chinese stocks rose after Friday’s news showed China Aug aggregate financing, the broadest measure of credit growth, rose more than expected.

Stocks moved higher Friday despite hawkish comments from several Fed members.  St. Louis Fed President Bullard said he leans "more strongly" toward a 75 bp rate hike when the FOMC meets later this month.  He added, "Wall Street is underpricing the idea that inflation may just be relatively high, and it may take quite a while to bring it back to 2%. This would mean interest rates have to be higher for longer." 

Also, Fed Governor Waller said he favors "another significant" increase when the FOMC meets later this month as "inflation is far too high, and it is too soon to say whether inflation is moving meaningfully and persistently downward."  Meanwhile, Kansas City Fed President George said the U.S. inflation rate is "still far above" the FOMC's 2% target, and policymakers have a "clear-cut" case for continuing to remove monetary support.

Bank of America said data from EPFR Global shows U.S. stock funds had outflows of $10.9 billion in the week to September 7, the biggest exodus in 11 weeks.

Today’s stock movers…

Technology stocks rallied Friday and gave the overall market a boost.  Atlassian Corp Plc (TEAM) closed up more than +7%, and Crowdstrike Holdings (CRWD) closed up more than +6%.  Also, Meta Platforms (META) closed up more than +4%.  In addition,  Marvell Technology (MRVL), Micron Technology (MU), Advanced Micro Devices (AMD), and ASML Holding NV (ASML) closed up by more than +3%. Finally, Amazon.com (AMZN), Alphabet (GOOGL), Microsoft (MSFT), Nvidia (NVDA), Qualcomm (QCOM), Applied Materials (AMAT), and Broadcom (AVGO) closed up more than +2%. 

Dish Network (DISH) closed up more than +8% Friday to lead gainers in the S&P 500 on signs of insider buying after SEC filings show that board member James Defranco bought $1.84 million of the company’s stock. 

Zscaler (ZS) closed up more than +22% Friday to lead gainers in the Nasdaq 100 after reporting Q4 revenue of $318.1 million, above the consensus of $305.7 million, and forecast 2023 calculated billings of $1.92 billion-$1.94 billion, stronger than the consensus of $1.88 billion.

DocuSign (DOCU) closed up more than +10% Friday after reporting Q2 revenue of $622.2 million, higher than the consensus of $584.4 million, and raised its forecast for 2023 billings to $2.55 billion-$2.57 billion from $2.52 billion-$2.54 billion, stronger than the consensus of $2.53 billion. 

Kroger (KR) closed up more than +7% Friday after reporting Q2 adjusted EPS of 90 cents, stronger than the consensus of 82 cents, and raising its full-year adjusted earnings forecast to as high as $4.05 a share, up from a previous forecast of no more than $3.95. 

PVH Corp (PVH) closed up more than +4% Friday on signs of insider buying after SEC filings show that CEO Larsson and CFO Coughlin bought more than $1.2 million of the company’s stock.

Enphase Energy (ENPH) closed down more than -3% Friday to lead losers in the S&P 500 after Guggenheim Securities downgraded the stock to neutral from buy. 

Managed health care companies were under pressure Friday.  Humana (HUM), Molina Healthcare (MOH), and Cardinal Health (CAH) closed down more than -1%.  Also, UnitedHealth Group (UNH) closed down -0.6%.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Friday closed down -7.5 ticks, and the 10-year T-note yield rose +0.6 bp to 3.323%.  Dec T-notes Friday gave up morning gains and posted moderate losses.  Friday’s rally in the S&P 500 to a 2-week high curbed the safe-haven demand for T-notes.  Also, a jump in the 10-year German bund yield to a 2-3/4 month high to 1.796% weighed on T-note prices.  Finally, hawkish comments Friday from several Fed members were a bearish factor for T-note prices.  Dec T-notes Friday morning initially moved higher on a decline in inflation expectations after the 10-year breakeven inflation rate fell to a 6-week low or 2.401%. 

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