Stocks Mixed After Positive Q2 Bank Earnings

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.02%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.42%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.11%.

Stocks today are mixed this afternoon. Earlier this morning the S&P 500 at a 15-month high, the Dow Jones Industrials at a 7-month high, and the Nasdaq 100 at a 1-1/2 year high.  

Earnings season is upon us. This morning JPMorgan Chase, Wells Fargo, and Citigroup reported better-than-expected Q2 earnings.  

On the negative side was a hawkish comment Thursday night from Fed Governor Waller, who said he sees two more +25 bp rate hikes this year. Also, an increase in inflation expectations pushed bond yields higher and is negative for stocks after the University of Michigan U.S. July inflation expectations indicator unexpectedly rose.

Late Thursday, Fed Governor Waller said, "I see two more 25 bp interest rate hikes in the target range over the four remaining FOMC meetings this year as necessary to keep inflation moving toward our target."

The University of Michigan’s U.S. July consumer sentiment index rose +8.2 to a 1-3/4 year high of 72.6, stronger than expectations of 65.5.

The University of Michigan U.S. July 1-year inflation expectations indicator unexpectedly rose to 3.4% from 3.3% in June, worse than expectations of a decline to 3.1%.  Also, the 5-10 year inflation expectations rose to 3.1%, above expectations of no change at 3.0%.

Positive inflation news is bullish for stocks after the U.S. Jun import price index ex-petroleum fell -0.3% m/m, a slightly larger decline than expectations of -0.2% m/m.

The markets are discounting the odds at 92% 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 +34 bp higher than the current effective federal funds rate of 5.08%.

Global bond yields are mixed.  The 10-year T-note yield is up +1.4 bp at 3.777%.  The 10-year German bund yield is up +1.4 bp at 2.499%.  The 10-year UK Gilt yield fell to a 1-1/2 week low of 4.371% and is down -1.5 bp at 4.407%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.33%.  China’s Shanghai Composite Index today closed up +0.04%.  Japan’s Nikkei Stock Index today closed down -0.09%.

Today’s stock movers…

Healthcare stocks are rallying today after bellwether UnitedHealth Group reported Q2 revenue of $92.90 billion, above the consensus of $90.93 billion.  As a result, UnitedHealth Group (UNH) is up more than +7% to lead gainers in the in the S&P 500 and Dow Jones Industrials. Also, Elevance Health (ELV) is up more than +5%.  In addition, Centene (CNC), Molina Healthcare (MOH), Humana (HUM), and Cigna Group (CI) are up more than +3%.

Nvidia (NVDA) is up more than +3% at a record high on speculation the AI craze will boost demand for its chips that are used in AI applications.

JPMorgan Chase (JPM) is up more than +1% after reporting Q2 adjusted revenue of $42.40 billion, well above the consensus of $39.34 billion, and raised its full-year net interest income excluding CIB markets estimate to $87 billion from a prior estimate of $84 billion. 

Wells Fargo (WFC) is up more than +2% after reporting Q2 net interest income of $13.16 billion, better than the consensus of $12.89 billion, and raised its 2023 net interest income estimate to up +14% from a previous estimate of +10%. 

Microsoft (MSFT) is up more than +1% after UBS upgraded the stock to buy from neutral, saying cloud infrastructure spending is starting to stabilize after significant deceleration over the past year.

Las Vegas Sands (LVS) is up more than +1% after Morgan Stanley designated the stock as a Top Pick in their gaming coverage.

State Street (STT) is down more than -8% to lead losers in the S&P 500 after reporting Q2 revenue of $3.11 billion, weaker than the consensus of $3.13 billion.

Moderna (MRNA) is down more than -4% to lead losers in the Nasdaq 100 after HSBC initiated coverage of the stock with a recommendation of reduce and a price target of $97. 

Corning (GLW) is down more than -6% after UBS downgraded the stock to neutral from buy. 

AT&T (T) is down more than -4% after JPMorgan Chase downgraded the stock to neutral from overweight. 

Alcoa (AA) is down more than -5% after JPMorgan Chase downgraded the stock to neutral from overweight.

BlackRock (BLK) is down more than -1% after reporting Q2 net inflows of $80.16 billion, below the consensus of $86.85 billion.

Across the markets…

September 10-year T-notes (ZNU23) today are down -8 ticks, and the 10-year T-note yield is up +1.4 bp at 3.777%.  Sep T-notes today are under pressure from hawkish comments Thursday evening from Fed Governor Waller, who said he sees two more 25 bp rate hikes this year.  T-note losses accelerated after the University of Michigan U.S. July consumer sentiment index rose to a 1-3/4 year high, and the University of Michigan U.S. July inflation expectations indicator unexpectedly rose. 

The dollar index (DXY00) today recovered from a 15-month low and is up by +0.21%. Hawkish comments from Fed Governor Waller Thursday night pushed bond yields higher and sparked short covering in the dollar.  Gains in the dollar accelerated after the University of Michigan’s U.S. July consumer sentiment index rose more than expected to a 1-3/4 year high.

EUR/USD (^EURUSD) today fell back from a 16-1/2 month high and is down by -0.02%.  The euro gave up overnight gains and is slightly lower as a recovery in the dollar sparked long liquidation in the euro.  Also, EUR/USD was under pressure after the German Jun wholesale price index fell by the most in 3 years, which is dovish for ECB policy.

The German Jun wholesale price index fell -2.9% y/y, the largest decline in 3 years.

USD/JPY (^USDJPY) is up +0.67%.  The yen today retreated from a 1-3/4 month high against the dollar as T-note yields rose.  Also, signs of economic weakness in Japan weighed on the yen after Japan May industrial production was revised lower.  The yen initially rallied to a 1-3/4 month high in overnight trade on strength in Japanese government bond yields after the 10-year JGB bond yield climbed to a 2-1/2 month high of 0.485%.

Japan May industrial production was revised lower to -2.2% m/m from the initially reported -1.6% m/m, the largest decline in 4 months.

August gold (GCQ3) today is down -8.5 (-0.43%), and Sep silver (SIU23) is up +0.036 (+0.14%). Precious metals prices this morning are mixed, with silver climbing to a 5-week high.  A recovery in the dollar index today from a 15-month low is undercutting metals prices.  Also, higher T-note yields are bearish for metals after Fed Governor Waller said he sees two more 25 bp rate hikes this year.  In addition, the ongoing fund liquidation of gold is weighing on prices as holdings in gold ETFs fell to a 4-month low on Thursday.  Precious metals have support from increased demand as an inflation hedge after the University of Michigan U.S. July inflation expectations indicator unexpectedly increased. 

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