Stocks End Holiday-Shortened Session Slightly Higher

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.12%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.03%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.19%.

Stock indexes Monday posted modest gains in a holiday-shortened trading session.  U.S. markets will be closed Tuesday for the July 4 Independence Day holiday.  The Nasdaq 100 posted a 2-week high Monday on strength in technology stocks after Tesla rallied more than +6% after the company reported record quarterly sales.  Strength in regional bank stocks Monday was also supportive for the broader market.  In addition, U.S. stocks had carry-over support from a rally in Chinese stocks Monday on better-than-expected Chinese manufacturing news and an early rally in the Euro Stoxx 50 to a 15-year high.

Stock indexes Monday fell back from their best levels on economic concerns after the Jun ISM manufacturing index unexpectedly contracted by the most in three years.  Also, an increase in inflation expectations was negative for stocks after the 10-year breakeven inflation rate rose to a 5-week high.

The U.S. Jun ISM manufacturing index unexpectedly fell -0.9 to 46.0, weaker than expectations of an increase to 47.1 and the steepest pace of contraction in more than three years.  The Jun ISM prices paid sub-index fell to -2.4 to a 6-month low of 41.8, a bigger decline than expectations of 44.0.

U.S. May construction spending rose +0.9% m/m, stronger than expectations of +0.6% m/m.

The markets are discounting the odds at 86% for a +25 bp rate hike at the next FOMC meeting on July 25-26.  The markets are anticipating a peak funds rate of 5.42% by November, which is +35 bp higher than the current effective federal funds rate of 5.07%.

Global bond yields Monday moved higher.  The 10-year T-note yield rose +2.6 bp to 3.862%.  The 10-year German bund yield rose +4.5 bp to 2.437%, and the 10-year UK Gilt yield rose +5.2 bp to 4.440%. 

Overseas stock markets Monday settled mixed.  The Euro Stoxx 50 closed down -0.02%.  China’s Shanghai Composite Index closed up +1.31%.  Japan’s Nikkei Stock Index closed up +1.70%.

Today’s stock movers…

Tesla (TSLA) closed up more than +6% after reporting it delivered a record 466,140 cars worldwide in Q2, better than the consensus of 448,350.  Other electric vehicle makers also rallied on the news.  Rivian Automotive (RIVN) closed up more than +17%, and Lucid Group (LCID) closed up more than +7% to lead gainers in the Nasdaq 100. 

Fidelity National Information Services (FIS) closed up more than +6% after the Financial Times reports that private equity firms are considering buying a majority stake in Wordpay at a valuation exceeding $15 billion, a move analysts said is positive for the share price of FIS. 

Regional bank stocks rallied on Monday.  Zions Bancorp (ZION) closed up more than +4%.  Also, KeyCorp (KEY), Comerica (CMA), and Truist Financial (TFC) closed up more than +3%.  In addition, M&T Bank (MTB), Fifth Third Bancorp (FITB), and Regions Financial (RF) closed up more than +2%.

United Parcel Service (UPS) closed up more than +2% after it agreed to end a dual wage system for delivery drivers in its next contract with the International Brotherhood of Teamsters, reducing the chances of a nationwide strike when the current labor agreement expires at the end of July. 

Medical device companies sold off Monday.  Edwards Lifesciences (EW) closed down more than -3% to lead losers in the S&P 500.  Also, Align Technology (ALGN), Baxter International (BAX), Steris Plc (STE), Idexx Laboratories (IDXX), Insulet Corp (PODD), and Stryker (SYK) closed down more than -2%. 

AstraZeneca (AZN) closed down more than -8% to lead losers in the Nasdaq 100 after Barclays said the lack of the phrase “clinically meaningful” and the presence of deaths related to the trial of its lung cancer drug candidate datapotamab are key concerns for the drug. 

CarMax (KMX) closed down more than -1% on signs of insider selling after SEC filings showed several board members sold a total of $5.8 million of stock last Wednesday.

Across the markets…

September 10-year T-notes (ZNU23) Monday closed down -10.5 ticks, and the 10-year T-note yield rose +2.6 bp to 3.862%.  Sep T-notes Monday gave up an early rally and posted moderate losses after inflation expectations increased as the 10-year breakeven inflation rate climbed to a 5-week high of 2.268%.  T-notes also fell back as strength in stocks curbed the safe-haven demand for government debt.  T-notes Monday morning initially moved higher after the Jun ISM manufacturing index unexpectedly contracted by the most in 3 years.  Also, a decline in the Jun ISM prices paid sub-index to a 6-month low supported T-notes. 

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