Stocks Finish Higher on Strength in Bank Stocks and Lower Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.71%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.82%.

Stocks Tuesday posted moderate gains, with the S&P 500 and the Dow Jones Industrials climbing to 15-month highs and the Nasdaq 100 climbing to a 1-1/2 year high.  Strong Q2 earnings results from Morgan Stanley and Bank of America sparked a rally in bank stocks that lifted the overall market.  Also, weaker-than-expected U.S. economic news Tuesday knocked T-note yields lower and gave the broader stock market a boost on speculation the Fed may be close to ending its rate-hike regime.

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.

U.S. June manufacturing production unexpectedly fell -0.3% m/m, weaker than expectations of no change.

The U.S. July NAHB housing market index rose +1 to a 13-month high of 56, right on expectations.

The markets are discounting the odds at 96% 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 Tuesday moved lower.  The 10-year T-note yield dropped to a 2-1/2 week low of 3.729% and finished down -1.2 bp at 3.795%.  The 10-year German bund yield fell to a 2-week low of 2.367% and finished down -9.1 bp at 2.389%.  The 10-year UK Gilt yield fell to a 2-1/2 week low of 4.327% and finished down -10.0 bp at 4.331%. 

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 closed up +0.30%.  China’s Shanghai Composite Index today closed down -0.37%.  Japan’s Nikkei Stock Index closed up +0.32%.

Today’s stock movers…

Charles Schwab (SCHW) closed up more than +12% to lead gainers in the S&P 500 after reporting Q2 bank deposits of $304.40 billion, above the consensus of $298.37 billion. 

Morgan Stanley (MS) closed up more than +6% after reporting Q2 net revenue of $13.46 billion, above the consensus of $13.11 billion.  It also announced that it would integrate some operations with Mitsubishi UFJ Financial Group, including equity research and institutional sales at their joint venture in Japan.

Bank of America (BAC) closed up more than +4% after reporting Q2 trading revenue ex-dva of $4.39 billion, stronger than the consensus of $3.98 billion. 

Bank of New York Mellon (BK) closed up more than +3% after reporting Q2 total deposits of $292.05 billion, higher than expectations of $278.77 billion.  Other regional bank stocks also rallied on the news, with Zions Bancorp (ZION), KeyCorp (KEY), Comerica (CMA), US Bancorp (USB), Citizens Financial Group (CFG), and Truist Financial (TFC) closing up more than +3%.

Netflix (NFLX) closed up more than +5% after MoffetNathanson raised its price target on the stock to $380 from $250.

Microsoft (MSFT) closed up more than +3% to lead gainers in the Dow Jones Industrials after giving pricing details for its corporate artificial intelligence products. Wedbush said the pricing details are “very bullish for the total addressable cloud AI market opportunity for Microsoft that could increase cloud revenue annually by 20%.”

Prologis (PLD) closed down more than -3% on industrial real estate concerns after forecasting a full-year occupancy rate of 97% to 97.5%, below the midpoint below the consensus of 97.5%. 

Lockheed Martin (LMT) closed down more than -3% after Bloomberg reported the Pentagon would withhold about 10% of the price for new F-35 jets from the company until it shows that new software works properly, potentially delaying more than $400 million in payments by December on 52 of the fighter jets.

U.S.-listed Chinese stocks retreated Tuesday on Chinese property market concerns after Evergrande Group reported combined losses of more than $81 billion over two years.  As a result, JC.com (JD) closed down more than -4% to lead losers in the Nasdaq 100.  Also, PDD Holdings (PDD) closed down more than -4%, and Baidu (BIDU) closed down more than -3%.  In addition, NetEase (NTES) and Alibaba Group Holding (BABA) closed down more than -2%.   

Masimo Corp (MASI) closed down -20% after reporting Q1 preliminary revenue of $453 million-$457 million, well below the consensus of $553 million. 

Trade Desk (TTD) closed down more than -2% after New Street Research downgraded the stock to sell from neutral.

Visa (V) closed down more than -1% after Block Inc sued the company on claims that Visa and Mastercard conspired to fix inflated “interchange” fees and maintain market power against Block’s Square payment platform.  Mastercard (MA) also closed down more than -1% on the news.

Across the markets…

September 10-year T-notes (ZNU23) Tuesday closed up +1 tick, and the 10-year T-note yield fell -1.2 bp to 3.795%.  Sep T-notes Tuesday rallied to a 2-1/2 week high, and the 10-year T-note yield fell to a 2-1/2 week low of 3.729%.  T-notes rose on carryover support from a rally in 10-year German bunds to a 2-week high. T-notes also saw support from weaker-than-expected U.S. retail sales and manufacturing production reports.  T-notes gave up most of their gains after the S&P 500 rallied to a 15-month high, curbing the safe-haven demand for government debt.

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