Stock Rally Continues as Bond Yields Fall on Hopes Fed Rate Hikes Will End

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed up +1.22%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.26%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.20%.

Stock indexes on Thursday recovered from early losses and moved moderately higher, with the S&P 500 climbing to a 13-3/4 month high, the Dow Jones Industrials climbing to a 6-month high, and the Nasdaq 100 climbing to a 14-1/2 month high. Stocks rallied Thursday as signs of weakness in the U.S. labor market knocked bond yields lower and bolstered hopes the Fed may end its rate hike campaign sooner rather than later after weekly jobless claims remained at a 19-month high.

Stock indexes this morning initially opened lower on concern major central banks will keep interest rates higher for longer to contain inflation.  The Federal Reserve on Wednesday projected a peak in interest rates that was higher than expected, and the ECB Thursday raised interest rates and said its monetary tightening campaign isn’t over.

U.S. weekly initial unemployment claims were unchanged at a 19-month high of 262,000, showing a weaker labor market than expectations of a decline to 245,000.

U.S. May retail sales unexpectedly rose +0.3% m/m, stronger than expectations of a -0.2% m/m decline.

The U.S. May import price index ex-petroleum fell -0.2% m/m, report than expectations of -0.1% m/m.

The U.S. Jun Philadelphia Fed business outlook survey fell -3.3 to -13.7, slightly stronger than expectations of -14.0.

The U.S. Jun Empire manufacturing survey general business conditions index rose +38.4 to 6.6, stronger than expectations of -15.1.

Market odds for the Fed to raise the fed funds target range by +25 bp at the July 25-26 FOMC meeting stand at 64%. 

Global bond yields Thursday were mixed.  The 10-year T-note yield fell -6.4 bp to 3.722%.  The 10-year German bund yield rose to a 2-1/2 week high of 2.547% and finished up +5.2 bp at 2.504%, and the UK 10-year gilt yield rose to an 8-month high of 4.454% but fell back and finished down -0.8 bp at 4.384%.

On the bullish side for stocks, home builders moved higher after Lennar reported Q2 revenue above consensus.  Also, Domino’s Pizza closed up more than +6% after Stifel upgraded the stock to buy.   In addition, Autozone closed up more than +4% after its board authorized an additional $2.0 billion of stock repurchases.

On the bearish side, chip stocks fell as concerns about higher global interest rates sparked long liquidation in the sector.   Also, hotel stocks declined on concerns of slowing demand after Citigroup said its credit card data analysis revealed “spending trends have slowed” in travel and entertainment categories.  In addition, Kroger closed down more than -2% after reporting Q1 sales below consensus and saying it sees comparable sales at the low end of its outlook the rest of the year.

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 closed down -0.25%.  China’s Shanghai Composite closed up +0.74%, and Japan’s Nikkei Stock Index closed down -0.05%. 

Today’s stock movers…

Domino’s Pizza (DPZ) closed up more than +6% to lead gainers in the S&P 500 after Stifel upgraded the stock to buy from hold with a price target of $350. 

Microsoft (MSFT) closed up more than +3% to lead gainers in the Dow Jones Industrials on optimism future sales will expand after it unveiled several artificial intelligence-based products in recent months. 

Home builders moved higher Thursday after Lennar reported Q2 revenue of $8.0 billion, well above the consensus of $7.29 billion.  As a result, Lennar (LEN) closed up more than +4%.  Also, DR Horton (DHI), PulteGroup (PHM), and Toll Brothers (TOL) closed up more than +1%. 

Crowdstrike Holdings (CRWD) closed up more than +3% to lead gainers in the Nasdaq after the CEO of Ritholtz Wealth Management mentioned the stock positively on CNBC. 

Autozone (AZO) closed up more than +4% after its board authorized an additional $2.0 billion of stock repurchases. 

T-Mobile US (TMUS) closed up more than +3% after Morgan Stanley reinstated the stock as its top pick in telecom services.   

Coherent (COHR) closed up more than +4% to extend Wednesday’s +14% surge after it unveiled new laser processing heads aimed at electric vehicle manufacturing.

Chip stocks fell back Thursday as concerns about higher global interest rates sparked long liquidation in the sector.  Advanced Micro Devices (AMD) closed down more than 2%.  Also, Marvell Technology (MRVL), Lam Research (LRCX), KLA Corp (KLAC), Analog Devices (ADI), ON Semiconductor (ON), and Microchip Technology (MCHP) closed down -1% or more.  In addition, Nvidia (NVDA) and Applied Materials (AMAT) closed down more than -0.7%.

Hotel stocks were under pressure on concerns of slowing demand after Citigroup said its credit card data analysis revealed “spending trends have slowed” in travel and entertainment categories.  As a result, Marriott International (MAR), Hilton Worldwide Holdings (HLT), and Host Hotels & Resorts (HST) closed down more than -2%.  Also, Expedia Group (EXPE) and Las Vegas Sands (LVS) closed down more than -1%.

Arista Networks (ANET) closed down more than -3% on signs of inside selling after an SEC filing showed CTO Duda sold $6.58 million of shares on June 12. 

Kroger (KR) closed down more than -2% after reporting Q1 sales of $45.2 billion, below the consensus of $45.3 billion, and said it sees comparable sales at the low end of its outlook for the rest of the year.

Nike (NKE) closed down -0.4% to lead losers in the Dow Jones Industrials after RBC Capital Markets lowered its price target on the stock to $138 from $145.

Editas Medicine (EDIT) closed down more than -16% after announcing a $125 million public stock offering via JP Morgan Securities, Cowen, and Evercore Group.   

Across the markets…

September 10-year T-notes (ZNU23) on Thursday closed up +18.5 ticks, and the 10-year T-note yield fell by -6.4 bp to 3.722%.  Sep T-notes Thursday moved higher on U.S. economic news that showed weekly jobless claims were higher than expected, and price pressures eased after the May import price index ex-petroleum fell more than expected.  T-notes maintained their gains despite a jump in the 10-year German bund yield to a 2-1/2 week high and a rally in the S&P 500 to a 13-3/4 month high.

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