Stocks Stabilize After Tuesday’s Plunge

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +0.34%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.10%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.84%.

Stocks on Wednesday posted modest gains as they stabilized following Tuesday’s rout.  Wednesday’s mixed U.S. PPI report sparked some short covering in stock index futures.  Also, a rally of more than +1% in crude prices to a 1-week high Wednesday boosted energy stocks. 

However, stocks were undercut by Wednesday’s rise in the 10-year T-note yield to a 2-3/4 month high of 3.472% following the Aug PPI report.  Stocks plunged Tuesday after a stronger-than-expected U.S. Aug consumer price report bolstered expectations for the Fed to raise interest rates by 75 bp at next week’s FOMC meeting.

Wednesday’s U.S. producer price data was mixed.  On the positive side, the Aug final-demand PPI fell -0.1% m/m, matching estimates, and Aug PPI final demand rose +8.7% y/y, slightly weaker than expectations of +8.8% y/y.  However, Aug core PPI rose +0.4% m/m and +7.3% y/y, stronger than expectations of +0.3% m/m and +7.0% y/y.

Today’s stock movers…

Energy stocks and energy service providers rallied Wednesday, with the price of WTI crude up more than +1% at a 1-week high.  Coterra Energy (CTRA) closed up more than +7% to lead gainers in the S&P 500, and APA Corp (APA) closed up more than +6%.  Also, ConocoPhillips (COP), Schlumberger (SLB), Haliburton (HAL), Diamondback Energy (FANG), and Devon Energy (DVN) closed up more than +4%.  In addition, Baker Hughes (BKR), Marathon Oil (MRO), and Hess Corp (HES) closed up more than +3%.  Finally, Chevron (CVX) closed up more than +2% to lead gainers in the Dow Jones Industrials.

Cruise line operators moved higher Wednesday.  Royal Caribbean Cruises Ltd (RCL) closed up more than +5%.  Also, Norwegian Cruise Line Holdings (NCLH) closed up by more than +4%, and Carnival (CCL) closed up by more than +3%. 

Starbucks (SBUX) closed up more than +5% Wednesday after the company raised its three-year outlook for profit and sales at an annual presentation to investors.

Moderna (MRNA) closed up more than +6% Wednesday to lead gainers in the Nasdaq 100 after Reuters reported the company had held talks to supply China with Covid vaccines. 

Johnson & Johnson (JNJ) closed up more than +2% Wednesday after the company’s board authorized a $5 billion stock buyback plan, its first in almost four years.

Railroad stocks retreated Wednesday.  Union Pacific (UNP) closed down more than -3%, and CSX Corp (CSX) closed down more than -1% after Bernstein downgraded both stocks to market perform from outperform.  Also, Norfolk Southern (NSC) closed down more than -2% after it said it would halt train shipments of bulk commodities Thursday ahead of a potential U.S. rail worker strike on Friday. 

Nucor (NUE) closed down more than -11% Wednesday to lead losers in the S&P 500 after forecasting Q3 EPS of $6.30-$6.40, well below the consensus of $7.74. 

Mohawk Industries (MHK) closed down more than -4% Wednesday after RBC Capital Markets said that takeaways from a conference hosted by Mohawk’s management include the “demand environment is weakening across geographies, trade-down is occurring, and costs continue to move against the company at a time when pricing discussions are becoming more challenging.”

Oracle (ORCL) closed down -5% Wednesday after Berenberg initiated a hold recommendation for the stock, citing balanced opportunities and risks for the company.

Dow Inc (DOW) closed down more than -1% Wednesday after the company said it sees Q3 net sales and operating Ebitda -$600 million lower than consensus.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Tuesday closed up +0.5 tick, and the 10-year T-note yield rose +0.8 bp to 3.416%.  Dec T-notes Wednesday morning extended Tuesday’s losses to a new 2-3/4 month low, and the 10-year T-note yield rose to a 2-3/4 month high of 3.472%.

T-note prices Wednesday were still under pressure from negative carry-over from Tuesday when U.S August consumer prices rose more than expected, which virtually cemented the chances that the FOMC will raise the fed funds target range by 75 bp at next week’s meeting.  T-notes remained moderately lower after Wednesday’s mixed U.S. August producer price report. 

T-notes recovered their losses late Wednesday morning after comments from JPMorgan Chase sparked short covering in T-note futures.  JPMorgan said the Fed is unlikely to raise interest rates by more than 75 bp at next week’s FOMC meeting.  Speculation had risen that the Fed could hike rates by 100 bp at next week’s FOMC meeting after Tuesday's disappointing U.S. August CPI report.   

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