Stocks Recover Early Losses With Help From Apple

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday closed up +0.72%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.45%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.55%.

Stocks on Monday recovered from early losses and posted moderate gains.  Apple closed up more than +2% Monday to boost technology stocks on signs of strong demand for its new iPhones.  Also, airline stocks rose Monday on signs of more robust travel demand.  In addition, homebuilding stocks moved higher after KeyBanc Capital Markets upgraded the sector to overweight from underweight. 

On the negative side for stocks was the rise in the 10-year T-note to an 11-year high of 3.516%.  Also, losses in drug makers and healthcare stocks weighed on the overall market.

Market expectations are for the FOMC on Wednesday to raise its federal funds target range by +75 bp for the third consecutive meeting. 

Monday’s U.S. economic news was bearish for stocks after the U.S. Sep NAHB housing market index fell -3 to a 2-1/4 year low of 46, weaker than expectations of 47.  The report illustrated reduced confidence among U.S. homebuilders.

Morgan Stanley said Monday that the headwinds for profitability are building, and revisions to U.S. corporate earnings "are often glacial" amid dependence on corporate guidance.  There is still a long way to go “before reality is priced in."

Today’s stock movers…

Apple (AAPL) closed up more than +2% Monday on signs of strong demand for its new iPhone 14 Pro and iPhone Pro Max, with reports that many Apple stores are already sold out of the new phones. Apple said on its website today that customers looking to buy the new models will currently have to wait until at least October to get them delivered.

Homebuilders rallied Monday after KeyBanc Capital Markets upgraded the sector to overweight from underweight.  Lennar (LEN) and PulteGroup (PHM) closed up more than +3%.  DR Horton (DHI) and Toll Brothers (TOL) closed up more than +2%.

Airline stocks moved higher Monday on signs of stronger travel demand.  Bloomberg NEF reported that global passenger jet fuel demand from September 8 to 14 increased by +0.1%w/w, the first increase in the last five weeks.  American Airlines Group (AAL), United Airlines Holdings (UAL), Southwest Airlines (LUV), and Alaska Air Group (ALK) all closed up more than +3%.

Packaging stocks rallied Monday after a report showed that domestic containerboard prices were unchanged in September.  That sparked a relief rally in packaging stocks which sold off last Friday after Jeffries last Friday downgraded the stocks to underperform from hold.  Westrock (WRK) closed up more than +5% to lead gainers in the S&P 500.  Also, Packaging Corp of America (PKG) closed up by more than +5%, and International Paper (IP) closed up by more than +3% 

Array Technologies (ARRY) closed up more than +3% Monday after Piper Sandler upgraded the stock to overweight from neutral. 

Drug makers and healthcare stocks were under pressure Monday after President Biden said the pandemic is over.  Moderna (MRNA) closed down more than -7% Monday to lead losers in the S&P 500 and Nasdaq 100.  Also, Edwards Lifesciences (EW) closed down more than -4%.  In addition,  Intuitive Surgical (ISRG), Vertex Pharmaceuticals (VRTX), Eli Lilly (LLY), Bristol-Meyers Squibb (BMY), and Pfizer (PFE), closed down more than -1%. Finally, Merck & Co (MRK) closed down more than -1% to lead losers in the Dow Jones Industrials. 

Autozone (AZO) closed down more than -2% after it said it expects LIFO charges, a method used to account for inventory that records the most recently produced items as sold first, through the first half of the fiscal year, driven largely by higher freight costs.

Domino’s Pizza (DPZ) closed down more than -2% Monday after a federal judge in Minnesota said a Domino’s Pizza delivery driver is contractually obligated to arbitrate his wage-and-hour allegations against a group of 180 franchises with stores in nine states.  A delivery driver for Domino’s filed a suit alleging Domino’s franchises failed to reimburse drivers for delivery-related expenses and thus failed to pay minimum wage. 

Across the markets…

Dec 10-year T-notes (ZNZ22) on Monday closed down -12.5 ticks, and the 10-year T-note yield rose +3.6 bp to 3.485%.  Dec T-notes Monday fell to a new 3-month low, and the 10-year T-note yield climbed to an 11-year high of 3.561%.  T-notes were under pressure Monday ahead of the 2-day FOMC meeting that begins on Tuesday. The markets have fully priced a +75 bp rate hike at the FOMC meeting.

Technical selling in T-notes accelerated today after the 10-year yield rose above 3.50%. 

T-notes recovered from their worst levels Monday on a decline in inflation expectations after the 10-year breakeven inflation rate dropped to an 8-week low of 2.327%.

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