Stocks Close Higher on Expectations for a Friendly U.S. CPI Report

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday closed up +1.06%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.71%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.20%.

Stocks on Monday settled moderately higher for the fourth consecutive session, with the S&P 500, Dow Jones Industrials, and the Nasdaq 100 posting 2-week highs.  A rally of more than +3% in Apple Monday lifted technology stocks as pre-order data for the latest versions of its iPhone point to strong interest and demand. Also, a rally of more than +1% in crude oil prices Monday lifted energy stocks and boosted the overall market.  A negative factor for stocks was the jump in the 10-year T-note yield Monday to a 2-3/4 month high of 3.375%.

Hopes that inflation has peaked gave stocks a boost Monday. Expectations are for Tuesday’s U.S. August CPI report to slow to 8.1% y/y from July’s 8.5% and June’s 40-year peak of +9.1%.  Tuesday’s Aug core CPI is expected to edge a bit higher to +6.1% y/y from July’s +5.9%, but remain below March’s 40-year peak of +6.5% y/y.

In a note to clients Monday, Goldman Sachs said, "despite concerns that investors have about the U.S. equity market, we believe it offers greater absolute and risk-adjusted return potential than recession-plagued European markets."

Today’s stock movers…

Energy stocks and energy service providers moved higher Monday, as the price of WTI crude rose more than +1%.  Devon Energy (DVN), Marathon Oil (MRO), and Hess Corp (HES) closed up more than +3%.  Haliburton (HAL) and ConocoPhillips (COP) closed up more than +2%.  Phillips 66 (PSX), Diamondback Energy (FANG), Occidental Petroleum (OXY), Schlumberger (SLB), and Chevron (CVX) closed up more than +1%.

Apple (AAPL) closed up more than +3% Monday to lead gainers in the Dow Jones Industrials as pre-order data for the latest versions of its iPhone point to strong interest and demand.

Lucid Group (LCID) closed up more than +9% Monday to lead gainers in the Nasdaq 100 after R.F. Lafferty & Co initiated coverage of the stock with a buy rating.

APA Corp (APA) closed up more than +5% Monday after Citigroup upgraded the stock to buy from neutral.

Gilead Sciences (GILD) closed up more than +4% Monday after the company said it had entered into agreements with generic manufacturers Lupin Ltd, Apotex Inc, Macleods Pharma Ltd, Hetero Labs Ltd, and Cipla Ltd to resolve the litigation and patent challenges associated with the Descovy, Vemlidy, and Odefsey drugs. 

Bristol Myers Squibb (BMY) closed up more than +3% Monday after its drug “deucravatinib” received approval from the FDA for the treatment of moderate-to-severe psoriasis with no “black box” warnings.

Agricultural stocks retreated Monday as grain exports from Ukraine continue to ramp up, and additional ships have been authorized to depart in recent days.  As a result, Mosaic (MOS) closed down more than -6% to lead losers in the S&P 500.  Also, Intrepid Potash (IPI) closed down by more than -8%, and CF Industries (CF) closed down by more than -4%.  Archer-Daniels-Midland (ADM) closed down by more than -3%.

Amgen (AMGN) closed down more than -4% Monday to lead losers in the Dow Jones Industrials and Nasdaq 100 after Mizuho Securities said “lukewarm” data on Amgen’s drug and the approval of Bristol Meyers Squibb’s Sotyktu are “potential headwinds” for Amgen.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Monday closed down -4 ticks, and the 10-year T-note yield rose +5.4 bp to 3.364%.  Dec T-notes Monday gave up an early advance and closed moderately lower, and the 10-year T-note yield rose to a 2-3/4 month high of 3.375%.  A rally in the S&P 500 Monday to a 2-week high curbed safe-haven demand for T-notes.  Also, weak demand for the Treasury’s $32 billion auction of reopened 10-year T-notes undercut T-note prices as the auction had a bid-to-cover ratio of 2.37, below the 10-auction average of 2.46. 

T-note prices Monday initially moved higher on strength in European government bond markets and on expectations that Tuesday’s U.S. Aug CPI report will slow to 8.1% y/y from 8.5% y/y in July.

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