Tech Stock Strength Leads the Overall Market Higher Ahead of U.S. CPI

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.93%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.56%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.76%.

Stock indexes on Monday moved moderately higher, with the S&P 500 posting a 13-1/2 month high, the Dow Jones Industrials posting a 6-week high, and the Nasdaq 100 posting a 14-month high.  Strength in chip stocks on Monday led technology stocks higher.  Also, M&A activity was supportive for stocks after Nasdaq Inc agreed to Adenza from buyout firm Thoma Bravo for $10.5 billion.  In addition, Novartis AG agreed to buy Chinook Therapeutics Inc for as much as $3.5 billion.

The outlook for U.S. inflation pressures to ease further may prompt the Fed to pause its rate hike campaign and is bullish for stocks.  The consensus is that Tuesday’s U.S. consumer price report will show May CPI eased to +4.1% y/y from +4.9% y/y in April.

The markets are looking ahead to interest rate decisions from the Fed, ECB, and BOJ this week.  Market odds for the Fed to raise the fed funds target range by +25 bp at Wednesday’s FOMC meeting stand at 25%. 

Global bond yields on Monday were mixed.  The 10-year T-note yield rose +1.0 bp to 3.749%.  The 10-year German bund yield rose +1.1 bp to 2.388%, and the UK 10-year gilt yield climbed to a 2-week high of 4.354% and finished up +9.9 bp at 4.338%.

On the bullish side of stocks, a rally in chip stocks led technology stocks higher.  Also, Chinook Therapeutics closed up more than +58% after Novartis AG agreed to buy the company for $40 a share in a deal valued at $3.5 billion.  In addition, Catalent closed up more than +10% after reporting Q3 net revenue above consensus.

On the bearish side, energy stocks and energy service providers retreated as the price of WTI crude dropped by more than -4% to a 6-week low.  Also, Nasdaq Inc closed down more than -10% after announcing it would acquire Adenza from buyout firm Thoma Bravo for $10.5 billion in cash and stock.  In addition, regional bank stocks fell after updates at a banking conference disappointed investors.

Overseas stock markets Monday settled mixed.  The Euro Stoxx 50 closed up +0.62%.  China’s Shanghai Composite closed down -0.08%, and Japan’s Nikkei Stock Index closed up +0.52%. 

Today’s stock movers…

Cruise line stocks rallied Monday, with Carnival (CCL) closing up more than +12% to lead gainers in the S&P 500 after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $16.  Also, Norwegian Cruise Line Holdings (NCLH) closed up more than +7%, and Royal Caribbean Cruises (RCL) closed up more than +2%.   

Catalent (CTLT) closed up more than +10% after reporting Q3 net revenue of $1.04 billion, stronger than the consensus of $956.3 million. 

Chip stocks rallied and led technology stocks higher.  Broadcom (AVGO) closed up more than +6% to lead gainers in the Nasdaq 100.  Also, Intel (INTC) closed up more than +5% to lead gainers in the Dow Jones Industrials.  In addition, Globalfoundries (GFS) closed up more than +4%, and Microchip Technology (MCHP), Lam Research (LRCX), and Marvell Technology (MRVL) closed up more than +3%.  Finally, Qualcomm (QCOM), Micron Technology (MU), NXP Semiconductor (NXPI), ON Semiconductor (ON), and Texas Instruments (TXN) closed up more than +2%.

Airline stocks rose after Bloomberg Intelligence said U.S. full-service airlines of United, American, and Delta are beating the S&P 500 Index primarily on robust summer demand, especially for higher-end leisure and overseas travelers.  American Airlines Group (AAL) and Delta Air Lines (DAL) closed up more than +2%.  Also, United Airlines Holdings (UAL) and Alaska Air Group (ALK) closed up more than +1%.  In addition, Southwest Airlines (LUV) closed up more than 2% after Raymond James added the stock to its Analyst Current Favorites List.

Oracle (ORCL) closed up more than +5% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $130.

Advanced Micro Devices (AMD) closed up more than +3% after KeyBanc Capital Markets raised its price target on the stock to $150 from $110.

Chinook Therapeutics (KDNY) closed up more than +58% after Novartis AG agreed to buy the company for $40 a share in a deal valued at $3.5 billion. 

Energy stocks and energy service providers moved lower after the price of WTI crude sank more than -4% to a 6-week low.  Phillips 66 (PSX) closed down more than -2%.  Also, Halliburton (HAL),  Marathon Oil (MRO), Hess Corp (HES), APA Corp (APA), ConocoPhillips (COP), and Schlumberger (SLB) closed down more than -1%.  In addition, Diamondback Energy (FANG) closed down more than -1% to lead losers in the Nasdaq 100.  Finally, Chevron (CVX) closed down nearly -1% to lead losers in the Dow Jones Industrials.

Nasdaq Inc (NDAQ) closed down more than -11% to lead losers in the S&P 500 after announcing it will acquire Adenza from buyout firm Thoma Bravo for $10.5 billion in cash and stock.

Regional bank stocks declined after the CEO of Citizens Financial Group said his bank is seeing an increase in charge-offs, and net interest income will be softer than expected this quarter.  Also, the CEO of KeyCorp said this quarter’s interest income would be worse than previous forecasts.  As a result, KeyCorp (KEY) closed down more than -4%, and Citizens Financial Group (CFG) closed down more than -3%.  Also, Comerica (CMA), Truist Financial Corp (TFC), and Zions Bancorp (ZION) closed down more than -2%.

T Rowe Price Group (TROW) closed down more than -3% after reporting assets under management of 1.35 trillion as of May 31, down -$9.6 billion for the month. 

U.S. Bancorp (USB) closed down more than -2% after Citigroup opened a 90-day negative catalyst watch on the stock and cut its price target to $33 from $39.

Across the markets…

September 10-year T-notes (ZNU23) on Monday closed down -1 tick, and the 10-year T-note yield rose by +1.0 bp to 3.749%.  Sep T-notes Monday gave up an early advance and posted modest losses.  A decline in 10-year UK gilts to a 2-week low Monday pressured T-notes prices.  Also, a rally in the S&P 500 to a 13-1/2 month high curbed the safe-haven demand for T-notes.  In addition, weak demand for the Treasury’s $32 billion auction of 10-year T-notes undercut prices as the auction had a bid-to-cover ratio of 2.36, below the 10-auction average of 2.41. 

T-notes Monday initially moved higher on a decline in inflation expectations as the 10-year inflation breakeven rate today fell to a 1-week low of 2.191%.  Also, expectations that the Fed will pause its rate hike campaign after the Tue/Wed FOMC meeting are supportive for T-notes.

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