Tech Stock Weakness Weighs on the Overall Market

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -0.33%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.73%. 

Stocks this morning are mixed, with the Nasdaq 100 falling to a 1-week low.  Weakness in technology stocks is a drag on the overall market, with Adobe plunging -14% after forecasting weaker than expected Q4 revenue and agreeing to buy Figma for about $20 billion. 

Stronger-than-expected U.S economic news today was hawkish for Fed policy, pushed T-note yields higher, and weighed on stocks.  In addition, a fall of more than -3% in crude oil prices today is undercutting energy stocks.

Stocks today are seeing support after overnight news that railroad companies and unions representing more than 100,000 workers reached a tentative labor agreement.  That will avert a nationwide rail strike on Friday that could have been very damaging to the U.S. economy.

U.S. weekly initial unemployment claims unexpectedly fell -5,000 to a 3-1/2 month low of 213,000, showing a stronger labor market than expectations of an increase to 227,000.

U.S. Aug retail sales unexpectedly rose +0.3% m/m, stronger than expectations of a -0.1% m/m decline.  However, Aug retail sales ex-autos unexpectedly fell -0.3% m/m, weaker than expectations of unchanged.

The U.S. Sep Philadelphia Fed business outlook survey fell -16.1 to -9.9, weaker than expectations of 2.3.

The U.S. Sep Empire manufacturing survey general business conditions index rose +29.8 to -1.5, stronger than expectations of -12.9.

The U.S. Aug import price index ex-petroleum fell -0.2% m/m, a smaller decline than expectations of -0.6% m/m.

U.S Aug manufacturing production unexpectedly rose +0.1% m/m, stronger than expectations of a -0.1% m/m decline.

Today’s stock movers…

Managed health care stocks are climbing today after Humana raised its full-year EPS forecast and set a target of $37 for adjusted EPS in 2025, above the consensus of $35. Humana (HUM) is up more than +7% today after it raised its full-year adjusted EPS forecast to $25.00 from a previous forecast of $24.75.  Also, Molina Healthcare (MOH) and Centene (CNC) are up more than +2%, and UnitedHealth Group (UNH) is up more than +1% to lead gainers in the Dow Jones Industrials.

Railroad stocks are moving higher today after railroad companies, and unions representing more than 100,000 workers, reached a tentative labor agreement.  Union Pacific (UNP) and Norfolk Southern (NSC) are both up more than +1%.

Wynn Resorts (WYNN) is up more than +9% today to lead gainers in the S&P 500 after Credit Suisse reinstated coverage of the stock with an outperform rating.

Netflix (NFLX) is up more than +3% today to lead gainers in the Nasdaq 100 after Evercore ISI upgraded the stock to outperform from in-line.

Adobe (ADBE) is down more than -14% to lead losers in the S&P 500 and Nasdaq 100 after forecasting Q4 revenue of $4.52 billion, below the consensus of $4.59 billion, and after it purchased Figma for about $20 billion in a cash and stock deal.

Phillips 66 (PSX) is down more than -5% today after Wolfe Research downgraded the stock to peer-perform from outperform.

Energy stocks and energy service providers are under pressure today, with the price of WTI crude oil down more than -3%.  Valero Energy (VLO) is down more than -5%.  Also, Hess Corp (HES) is down more than -3%, and Schlumberger (SLB), Haliburton (HAL), Diamondback Energy (FANG), Devon Energy (DVN), Occidental Petroleum (OXY), Exxon Mobil (XOM), and Marathon Petroleum (MPC) are down more than -2%.  Finally, Chevron (CVX) is down more than -2% to lead losers in the Dow Jones Industrials.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are down -13 ticks, and the 10-year T-note yield is up +3.1 bp at 3.435%.  Dec T-notes this morning dropped to a 3-month low, and the 10-year T-note yield is holding just below Wednesday’s 2-3/4 month high of 3.472%.  Stronger-than-expected U.S. economic news today was hawkish for Fed policy and weighed on T-note prices.  The markets have fully priced a 75 bp rate hike at next week’s FOMC meeting.

The dollar index (DXY00) this morning is up +0.02%.  The dollar is seeing support from strength in U.S. economic reports and higher T-note yields.  Strength in the euro today is limiting the upside in the dollar.

EUR/USD (^EURUSD) today is up +0.20%.  The euro today garnered support from hawkish comments from ECB Vice President Guindos and ECB Governing Council member Makhlouf who both called for additional ECB rate hikes.  Economic concerns in the Eurozone are limiting the upside in the euro after ECB Vice President Guindos said today that "we expect output growth to slow down substantially" in the Eurozone. 

Eurozone Q2 labor costs eased to +4.0% y/y from +4.2% y/y in Q1.

The German Aug wholesale price index eased to 18.9% y/y from 19.5% y/y in July.

ECB Vice President Guindos said "the Eurozone is now facing a challenging outlook" and "we expect output growth to slow down substantially."  Also, " at the current low level of interest rates, monetary policy is still accommodative, thus supporting demand and ultimately contributing to price pressures." 

ECB Governing Council member Makhlouf said "raising interest rates is absolutely necessary as persistent inflation is damaging to macroeconomic stability."

USD/JPY (^USDJPY) today is up +0.12%.  The yen today is modestly lower as higher T-note yields weigh on the yen. However, losses in the yen appear limited in the near term on signs the BOJ may soon intervene in the currency market to support the yen.  The BOJ on Wednesday conducted a rate check in currency markets, a possible precursor for currency intervention. 

Today’s Japanese economic news was supportive for the yen after Japan Aug exports rose +22.1% y/y, the biggest increase in a year but weaker than expectations of +24.1% y/y. 

October gold (GCV2) is down -10.1 (-0.59%), and December silver (SIZ22) is down -0.004 (-0.02%).  Precious metals this morning are moderately lower, with gold falling to a 5-1/2 month low. Higher global government bond yields today are weighing on gold prices along with stronger-than-expected U.S. economic news that is hawkish for Fed policy.  Gold prices are still weighed down by long liquidation pressure after long gold positions in ETFs fell to a 7-1/2 month low Wednesday.  Metals recovered from their worst levels today after the dollar shed early gains and turned lower. 

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