Stocks Rally on Resilient U.S. Economy

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday closed up +1.15%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.63%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.75%.

Stocks rose on tech-stock leadership, with the Nasdaq 100 index rallying +1.75% on the day.  Stock investors were impressed by Tuesday’s strong U.S. economic reports, which highlighted the resiliency of the U.S. economy and boosted the chances for a soft landing even though the reports were hawkish for Fed policy.  The 10-year T-note yield rose +4 bp.

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.

Tuesday’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 Tuesday 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 closed mixed on Tuesday.  The Euro Stoxx 50 closed up +0.58%.  China’s Shanghai Composite index closed +1.23% on some cheerleading by government-linked outlets.  Japan’s Nikkei Stock Index closed down -0.49% for the fourth consecutive session of losses.

Today’s stock movers…

Semiconductor-related stocks were at the head of the leaderboard again Tuesday, with Globalfoundaries (GFS) Marvell Technologies (MRVL), Applied Materials (AMAT), Microchip Technology (MCHP), Lam Research (LRCX), Texas Instruments (TXN), and NXP Semiconductors (NXPI)S all showing gains of more than +4%.

Breadth in the Nasdaq 100 was strong, with 84 of the stocks showing gains.

Tesla (TSLA) rallied +3.87% after news that Volvo signed an agreement for access to Tesla’s charging stations, joining other major automakers in making the Tesla charging network more valuable.

Meta Platforms (META) rose +3.1% 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.

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

Walgreens Boots (WBA) fell -9.34% and was the largest loser in the Nasdaq 100 after management reduced its full-year earnings guidance.

Eli Lilly (LLY) rallied +2.59% on positive trial results from its weight-loss drug retatrutide.

Kellogg (K) rallied +1.68% 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) rallied +4.23% after announcing an AI-related partnership with Nvidia.

Bitcoin (^BTCUSD) rallied +1.47% Tuesday, 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) rallied +13.49%, Coinbase (COIN) rallied +12.38%, Bit Digital (BTBT) rallied +11.72%, and Riot Platforms (RIOT) rallied +8.17%.

Across the markets…

September 10-year T-notes (ZNU23) on Tuesday closed down -13 ticks, and the 10-year T-note yield rose +4.7 bp to 3.768%.  T-note prices were undercut by Tuesday’s strong U.S. economic reports.  T-note prices were also undercut by supply pressures as the Treasury on Tuesday sold $43 billion of 5-year T-notes.  The Treasury will wrap up this week’s note package on Wednesday by selling $35 billion of 7-year T-notes and $22 billion of 2-year floating rate notes.

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