Stocks Close Higher on Lower Bond Yields and Positive Comments from Yellen

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.39%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.22%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.95%.

Stocks Monday recovered from early losses and posted moderate gains, with the S&P 500 climbing to a 15-month high, the Dow Jones Industrials climbing to a 7-month high, and the Nasdaq 100 climbing to a 1-1/2 year high.  Lower bond yields Monday supported gains in stocks.  Also, positive comments from U.S. Treasury Secretary Yellen eased recession concerns and boosted equities when she said she sees the U.S. on a “good path” to bringing down inflation without a major weakening in the labor market.

Stocks on Monday were under early pressure from following losses in European and Chinese stocks on global economic concerns after China’s Q2 GDP grew less than expected.  China's Q2 GDP rose +6.3% y/y, weaker than expectations of +7.1% y/y.

Several investment banks lowered their forecasts for Chinese growth this year after China’s Q2 GDP disappointed.  Citigroup lowered its China 2023 GDP forecast to 5.0% from 5.5%, Morgan Stanley cut its China 2023 GDP forecast to 5.0% from 5.7%, and JPMorgan Chase lowered its China 2023 GDP estimate to 5.0% from 5.5%.

Monday’s economic news showed the U.S. Jul Empire manufacturing survey of general business conditions index fell -5.5 to 1.1, stronger than expectations of -3.5.

The markets are discounting the odds at 94% 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 on Monday moved lower.  The 10-year T-note yield fell -3.3 bp to 3.799%.  The 10-year German bund yield fell to a 1-1/2 week low of 2.444% and finished down -3.2 bp at 2.480%.  The 10-year UK Gilt yield fell -1.2 bp to 4.431%. 

Overseas stock markets Monday settled lower.  The Euro Stoxx 50 closed down -0.98%.  China’s Shanghai Composite Index closed down -0.87%. Japan’s Nikkei Stock Index was closed for the Marine Day holiday.

Today’s stock movers…

Lower T-note yields Monday gave semiconductor stocks a boost.  ON Semiconductor (ON) closed up more than +4%.  Also, Intel (INTC) closed up more than +3% to lead gainers in the Dow Jones Industrials after Melius Research LLC initiated coverage on the stock with a buy rating.  In addition, NXP Semiconductors NV (NXPI), Lam Research (LRCX), and KLA Corp (KLAC) closed up more than +3%.  Finally, Microchip Technology (MCHP), Globalfoundries (GFS), and Analog Devices (ADI) closed up more than +2%.

Arch Capital Group Ltd (ACGL)closed up more than +4% after Wells Fargo raised its price target on the stock to $90 from $83.

Progressive Corp (PGR) closed up more than +4% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $146.

Tesla (TSLA) closed up more than +3% after it built its first electric truck and after China’s BYD Co reported a three-fold increase in first-half net profit, a positive development for electric vehicle sales. 

Activision Blizzard (ATVI) closed up more than +3% after a U.S. appeals court denied the FTC’s bid to pause Microsoft’s $69 billion takeover of the company.

Datadog (DDOG) closed up more than +3% after Oppenheimer raised its price target on the stock to $120 from $85. 

Chipotle Mexican Grill (CMG) closed up more than +3% after Oppenheimer raised its price target on the stock to $2,350 from $2,050.

Verizon Communications (VZ) closed down -7% to lead losers in the S&P 500 and Dow Jones Industrials on growing concerns of the potentially high costs it faces if it must clean up contamination due to lead-clad wiring of early landline networks built by phone companies in the first half of the 20th century that they now own.  Also, AT&T (T) closed down more than -6% at a 29-year low after Citigroup downgraded the stock to neutral from buy on concerns about its liability from the lead wiring contamination.  

Telecom companies retreated after Jeffries put the owners of cell phone towers on its list of “stock pans” ahead of earnings season. As a result, SBA Communications (SBAC) closed down by more than -7%, Crown Castle (CCI) closed down by more than -4%, and American Tower (AMT) closed down by more than -3%.

Ford Motor (F) closed down more than -5% after it slashed prices on its F-150 electric truck by as much as 17% to fend off competition from Tesla and General Motors.

Paramount Global (PARA) closed down more than -3% after the Mission Impossible Movie-Dead Reckoning Part One earned only $56.2 million in theaters this past weekend, well below projections of $68 million. 

State Street (STT) closed down more than -2% after JPMorgan Chase downgraded the stock to underweight from neutral.

PepsiCo (PEP) and Conagra (CAG) closed down more than -1% after Morgan Stanley downgraded the stocks to equal weight from overweight.

Across the markets…

September 10-year T-notes (ZNU23) Monday closed up +5 ticks, and the 10-year T-note yield fell -3.3 bp to 3.799%.  Sep T-notes Monday moved higher on carryover support from a rally in 10-year German bunds to a 1-1/2 week high.  Also, comments from U.S. Treasury Secretary Yellen were supportive for T-note prices when she said she sees the U.S. on a “good path” to bringing down inflation.  T-notes fell back from their best levels on Monday’s stronger-than-expected July Empire manufacturing report. 

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