Stocks Climb on Hopes for Favorable CPI Report on Wednesday

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.67%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.93%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.49%.

Stock indexes Tuesday closed moderately higher. Stocks pushed higher Tuesday on hopes that U.S. inflation news this week will show a continued easing of price pressures.  Also, U.S. stocks have carryover support from a rally in Chinese stocks after authorities in China stepped up relief measures for property developers.  In addition, positive comments from New York Fed President Williams lifted stocks when he said he "doesn't have a recession in his forecast." 

Hopes for an easing of price pressures are supportive for stocks and bonds.  Wednesday’s U.S. Jun CPI report is expected to show prices eased to +3.1% y/y from +4.0 y/y in May, the slowest pace in 2-1/4 years.  Also, Jun CPI ex-food and energy is expected to ease to +5.0% y/y from +5.3% y/y in May.

New York Fed President Williams said Tuesday that he "doesn't have a recession in his forecast" but has lowered his growth forecasts "a little bit" for next year as some of the tightening of monetary policy and some effects of credit tightening will weigh on demand in 2024. 

The markets are discounting the odds at 89% 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 are mixed.  The 10-year T-note yield fell -0.8 bp to 3.986%.  The 10-year German bund yield rose +0.9 bp to 2.649%.  The 10-year UK Gilt yield rose +2.3 bp to 4.663%. 

Overseas stock markets Tuesday settled higher. The Euro Stoxx 50 closed up +0.71%. China’s Shanghai Composite Index closed up +0.55%.  Japan’s Nikkei Stock Index closed up +0.04%.

Today’s stock movers…

Newell Brands (NWL) closed up more than +11% to lead gainers in the S&P 500 after Canaccord Genuity initiated coverage of the stock with a buy recommendation and a price target of $13. 

Activision Blizzard (ATVI) closed up more than +10% to lead gainers in the Nasdaq 100 after the UK Competition and Markets Authority, which had vetoed Microsoft’s acquisition of Activision Blizzard in May, said it’s prepared to evaluate proposals from Microsoft “to restructure the transaction in a way that would address our concerns.” 

3M (MMM) closed up more than +4% to lead gainers in the Dow Jones Industrials after Bank of America upgraded the stock to neutral from underperform.

Energy stocks and energy service providers rallied Tuesday after crude prices rose more than +2% to a 5-week high.  As a result, APA Corp (APA) closed up more than +6%, and Schlumberger (SLB) and Haliburton (HAL) closed up more than +4%.  Also, ConocoPhillips (COP), Devon Energy (DVN), Occidental Petroleum (OXY), Diamondback Energy (FANG), Marathon Oil (MRO), and Valero Energy (VLO) closed up more than +2%.   

HP Inc (HPQ) closed up more than +6% after it announced it would increase its previously announced cash tender offer to purchase more than $1 billion of its outstanding debt.

Generac Holdings (GNRC) closed up more than +4% after Argus upgraded the stock to buy from hold, saying the shares are currently undervalued. 

Salesforce Inc (CRM) closed up more than +3% after announcing it will increase its list prices by an average of 9% across its Sales Cloud, Marketing Cloud, and Tableau services effective next month. 

VeriSign (VRSN) closed down more than -5% to lead losers in the S&P 500 after Baird downgraded the stock to neutral from outperform.

Eli Lilly (LLY) closed down more than -3% after the European Medicines Agency said it was probing a possible risk of suicidal thoughts associated with anti-obesity drugs after receiving 150 reports.

Zscaler (ZS) closed down more than -4% to lead losers in the Nasdaq 100 on signs of insider selling after an SEC filing showed CFO Canessa sold $1.82 million of shares on Monday.

Microchip stocks retreated Tuesday and undercut technology stocks.  Applied Materials (AMAT) closed down more than -2%.  Also, Advanced Micro Devices (AMD), Lam Research (LRCX), and KLA Corp (KLAC) closed down more than -1%.

Iqvia Holdings (IQV) closed down more than -1% after Nephron Research downgraded the stock to hold from buy.

Across the markets…

September 10-year T-notes (ZNU23) Tuesday closed up +4 ticks, and the 10-year T-note yield fell -0.8 bp to 3.986%.  T-note prices Tuesday moved higher on the outlook for a friendly U.S. Jun CPI report on Wednesday.  The consensus is for consumer prices in June to ease to +3.1% y/y from +4.0% y/y in May.  T-notes also garnered support Tuesday on comments from New York Fed President Williams, who said he lowered his growth forecasts "a little bit" for next year as some of the tightening of monetary policy and some effects of credit tightening will weigh on demand in 2024. 

A decline in inflation expectations was supportive for T-notes after the 10-year breakeven rate Tuesday fell to a 1-week low of 2.228%.  T-notes maintained moderate gains Tuesday afternoon on strong demand for the Treasury’s $40 billion auction of 3-year T-notes, which had a bid-to-cover ratio of 2.88 that was better than the 10-auction average of 2.63.

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