Stocks Higher on Resilient U.S. Economy

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.35%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.19%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.75%.

Stocks are higher on tech stock leadership, with the Nasdaq 100 index up +0.75%.  Also, stock investors were impressed by today’s strong U.S. economic reports, which underlined the resiliency of the U.S. economy and boosted the chances for a soft landing even though today’s reports were hawkish for Fed policy.

The markets are discounting the odds at 74% for a +25 bp rate hike at the next FOMC meeting on July 25-26 and are fully anticipating that +25 bp rate hike by November, with those expectations unchanged from Monday.

Today’s May U.S. durable goods orders report of +1.7% m/m was stronger than expectations of -0.9%.  Also, capital goods orders ex-defense and ex-aircraft, a proxy for corporate capital investment, rose +0.7% m/m, stronger than expectations of +0.1% m/m.

The Conference Board’s June U.S. consumer confidence index rose by +5.7 points to a 1-1/2 year high of 109.7, much stronger than expectations for an increase to 104.0. 

The May U.S. new home sales report of +12.2% to a 1-1/4 year high of 763,000 was much stronger than market expectations for a small decline to 675,000.

The Richmond Fed manufacturing index rose by 8 points to -7 from May’s -15, which was stronger than expectations for an increase to -12.

The April S&P CoreLogic home price report of +0.9% m/m and -1.7% y/y was stronger than market expectations of +0.4% m/m and -2.4% y/y. The report highlighted that strong demand for tight home supply continues to put upward pressure on home prices.

At the ECB’s retreat in Portugal, ECB President Lagarde today said, “It is unlikely that in the near future the central bank will be able to state with full confidence that peak rates have been reached.  Barring a material change to the outlook, we will continue to increase rates in July.”  The consensus is that the ECB will raise its deposit rate by +25 bp to 3.75% at its next meeting on July 27 and that one final +25 bp rate hike to a terminal rate of 4.0% is likely by late this year.

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.18%.  China’s Shanghai Composite index today closed +1.23% on some cheerleading by government-linked outlets.  Japan’s Nikkei Stock Index today closed down -0.49% for the fourth consecutive session of losses.

Today’s stock movers…

Meta Platforms (META) is up +2.1% after Citibank raised its price target on Meta to the highest level among Wall Street analysts.   Citibank also raised its 2024 advertising revenue projections for Meta.

Tesla (TSLA) is up +1.7% on a rebound after Monday’s -6.1% loss on a Goldman Sachs downgrade to neutral from buy.  Tesla saw downgrades last week from Morgan Stanley, Barclays, and DZ Bank.

American Equity Investment Life (AEL) is up +17% after Brookfield announced a $55/share acquisition offer for the insurer.

Walgreens Boots (WBA) is down -9.5% after management reduced its full-year earnings guidance.

Eli Lilly (LLY) is little changed after a +1.8% rally in pre-opening trade on positive trial results from its weight-loss drug retatrutide.

Kellogg (K) is up +2.1% on an upgrade by Goldman Sachs to buy from neutral due to the company’s position as one of the few growth stories in the food sector.

Snowflake (SNOW) is up +2.3% after announcing an AI-related partnership with Nvidia.

Bitcoin (^BTCUSD) is up +1.9% today, reversing most of the losses seen since last Friday and consolidating below the 1-year high posted during last week’s +17% rally.  Marathon Digital (MARA) is up +9.9%, Coinbase (COIN) is up 6.1%, Riot Platforms (RIOT) is up +5.1%, and Bit Digital (BTBT) is up +4.5%.

Across the markets…

September 10-year T-notes (ZNU23) today are down -8 ticks, and the 10-year T-note yield is up +2.5 bp at 3.747%.  T-note prices were undercut by today’s strong U.S. economic reports.  T-note prices are also being undercut by supply pressures ahead of the Treasury’s sale later today of $43 billion of 5-year T-notes.  The Treasury will wrap up this week’s note package by selling $35 billion of 7-year T-notes and $22 billion of 2-year floating rate notes on Wednesday.

The dollar index (DXY00) today is down -0.09%, while EUR/USD (^EURUSD) is up +0.28% on hawkish comments by ECB President Lagarde.  USD/JPY (^USDJPY) is down -0.32%.

August gold (GCQ3) today is down -9.7 (-0.50%), and July silver (SIN23) is up +0.009 (+0.04%).  Gold is being undercut by today’s hawkish U.S. economic reports and a mildly higher T-note yield.  Gold prices are seeing some underlying support from today’s mild decline in the dollar index.  Silver is gaining support from today’s strong U.S. economic reports, which were positive for industrial metal demand.

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