Markets Today: Stocks Mixed After Weaker Than Expected Retail Sales

Morning Markets

The S&P 500 Index ($SPX) (SPY) is up +0.26%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.83%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.15%.

Mixed Q2 corporate earnings results are prompting sideways trading in U.S. stock index futures this morning.  However, a decline in global bond yields today is a supportive factor for equities, with the 10-year T-note yield falling to a 2-1/2 week low and the 10-year German bund yield falling to a 2-week low.  Stock indexes maintained modest losses, and T-note yields fell even further, on the heels of this morning’s weaker-than-expected U.S. Jun retail sales report.

U.S. June retail sales rose +0.2% m/m, weaker than expectations of +0.5% m/m, and June retail sales ex-autos rose +0.2% m/m, weaker than expectations of +0.3% m/m.

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 are lower.  The 10-year T-note yield dropped to a 2-1/2 week low of 3.729% and is down -3.1 bp at 3.776%.  The 10-year German bund yield fell to a 2-week low of 2.385% and is down -6.6 bp at 2.414%. The 10-year UK Gilt yield fell to a 2-1/2 week low of 4.336% and is down -6.8 bp at 4.363%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.11%.  China’s Shanghai Composite Index today closed down -0.37%.  Japan’s Nikkei Stock Index closed up +0.32%.

The Euro Stoxx 50 today is moderately lower.  Weakness in telecom stocks is weighing on the overall market as Tele2 tumbled more than -10% after announcing a significant increase in capital expenditure.  Corporate earnings results are in focus, with Novartis AG up more than +4% after raising its profit outlook and announcing plans for a share buyback of up to $15 billion.  Also, bank stocks are moving higher, led by a +2% gain in Swedbank AB after it reported better-than-expected Q2 earnings.  In addition, a decline in government bond yields is supportive for stocks after dovish comments today from known-hawk Klaas Knot knocked the 10-year German bund yield down to a 2-week low of 2.385% after he pushed back on expectations for ECB rate hikes past this month.   

ECB Governing Council member Knot pushed back on bets for a September ECB rate hike, saying that a rate hike by the ECB at its July meeting "is a necessity but for anything beyond July it would at most be a possibility but by no means a certainty."

China’s Shanghai Composite today fell to a 1-week low and closed moderately lower.  Concerns about China’s property market weighed on real estate and property developer stocks after Evergrande Group reported combined losses of more than $81 billion over two years.  Also, Sino-Ocean Holding suspended the trading of its 4%-yuan bonds today, citing “significant uncertainty” in repayment.  Property stocks were already under pressure from Monday when a unit of Dalian Wanda Group warned of a funding shortfall for a $400 million note that matures July 23.  On the positive side, BYD Electronic jumped more than +6%, and stocks that supply the company rallied when it forecasted first-half net income would climb +115%-146%. 

Japan’s Nikkei Stock Index today posted moderate gains. Receding recession worries in the U.S. boosted Japanese stocks today after U.S. Treasury Secretary Yellen on Monday said that recession risks are limited.  Japanese firms in the supply chain for electric vehicles rallied today after Tesla climbed to a 9-1/2 month high on Monday and after BYD reported a three-fold increase in first-half net profits.  Japanese stocks also garnered support after Nomura Holdings raised its price projection for the Nikkei Stock Index today.  Limiting the upside in the overall market was weakness in exporter stocks after a decline in T-note yields boosted the yen against the dollar. 

Today’s economic news was supportive for Japanese stocks after the May tertiary industry index rose +1.2% m/m, stronger than expectations of +0.4% m/m.

Nomura Holdings today raised its price projection for the Nikkei Stock Index to 34,500 by the end of next March, up from a May forecast of 33,000, saying, “The yen has weakened, and corporate profit margins have increased more than we had assumed.”

Pre-Market U.S. Stock Movers

PNC Financial Services Group (PNC) dropped more than -2% in pre-market trading after reporting Q2 revenue of $5.30 billion, below the consensus of $5.46 billion, and lowering its full-year revenue forecast to up +2% to 2.5% from a prior view of up +4% to +5%. 

Masimo Corp (MASI) sank more than -25% in pre-market trading after reporting Q1 preliminary revenue of $453 million-$457 million, well below the consensus of $553 million. 

Trade Desk (TTD) fell more than -1% in pre-market trading after New Street Research downgraded the stock to sell from neutral.

Activision Blizzard (ATVI) is down nearly -1% in pre-market trading after Bloomberg reported that the company’s $69 billion deal to be acquired by Microsoft isn’t likely to close by a Tuesday deadline.

Norwegian Cruise Line Holdings (NCLH) fell more than -2% in pre-market trading after Truist Securities downgraded the stock to hold from buy.

Morgan Stanley (MS) rose more than +1% in pre-market trading after announcing it will integrate some operations with Mitsubishi UFJ Financial Group, including equity research and institutional sales at their joint venture in Japan.  Also, Morgan Stanley reported Q2 net revenue of $13.46 billion, above the consensus of $13.11 billion.

Pinterest (PINS) climbed more than +3% in pre-market trading after Evercore ISI upgraded the stock to outperform from in line with a price target of $41.

Lockheed Martin (LMT) rose more than +1% in pre-market trading after reporting Q2 operating profit of $2.14 billion, above the consensus of $2.03 billion.

Charles Schwab (SCHW) rose nearly +1% in pre-market trading after reporting Q2 bank deposits of $304.40 billion, above the consensus of $298.37 billion. 

Today’s U.S. Earnings Reports (7/18/2023)

Bank of America Corp (BAC), Bank of New York Mellon Corp/T (BK), Charles Schwab Corp/The (SCHW), JB Hunt Transport Services Inc (JBHT), Lockheed Martin Corp (LMT), Morgan Stanley (MS), Omnicom Group Inc (OMC), PNC Financial Services Group Inc (PNC), Prologis Inc (PLD), Synchrony Financial (SYF).

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