Stocks Close Little Changed Ahead of Mega-Cap Tech Earnings

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.24%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.31%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.09%.

Stocks Wednesday settled mixed, with the S&P 500 and the Dow Jones Industrials posting 15-month highs.  The Nasdaq 100 fell from an early 1-1/2 year high on long liquidation and position squaring ahead of some Q2 mega-cap technology earnings results, including IBM, Netflix, and Tesla.  

Positive Q2 corporate earnings results were supportive for stocks on Wednesday.  Also, easing inflation pressures in the UK sparked a rally in European government bonds, as the 10-year UK gilt yield fell to a 6-week low, which fueled rallies in U.S. bonds and stocks.  The UK June CPI eased to +7.9% y/y from +8.7% y/y in May, better than expectations of +8.2% y/y.  Stock indexes kept their gains, and bond yields remained lower, on Wednesday’s weaker-than-expected U.S. June housing starts report.

U.S. June housing starts fell -8.0% m/m to 1.434 million, weaker than expectations of 1.480 million.  June building permits, a proxy for future construction, unexpectedly fell -3.7% m/m to 1.440 million, weaker than expectations of an increase to 1.500 million.

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 are mixed.  The 10-year T-note yield dropped to a 2-1/2 week low of 3.725% and finished down -4.6 bp at 3.739%.  The 10-year German bund yield fell to a 3-week low of 2.317% but rebounded and finished up +4.9 bp at 2.438%.  The 10-year UK gilt yield fell to a 6-week low of 4.145% and finished down -11.6 bp at 4.215%. 

Overseas stock markets Wednesday settled mixed.  The Euro Stoxx 50 closed down -0.17%. China’s Shanghai Composite Index today closed up +0.03%.  Japan’s Nikkei Stock Index closed up +1.24%.

Today’s stock movers…

Northern Trust (NTRS) closed up more than +13% to lead gainers in the S&P 500 after reporting a Q2 recovery of credit losses of $15.5 million, beating the estimated provision of $6.32 million. 

AT&T (T) closed up more than +8% after it said less than 10% of its nationwide copper-wire telecom network had lead-clad cables. 

U.S. Bancorp (USB) closed up more than +6% after reporting its Q2 Basel II CET 1 ratio grew 9.1% from the prior quarter’s 8.5%, better than the consensus of +8.75%.

Citizens Financial Group (CFG) closed up more than +6% after reporting Q2 provision for credit losses of $176 million, below the consensus of $187.5 million.

Constellation Brands (STZ) closed up more than +5% after appointing two new independent directors as it reached a cooperation agreement with activist investor Elliot Investment Management.

Elevance Health (ELV) closed up more than +4% after reporting Q2 adjusted EPS of $9.04, better than the consensus of $8.78.  Other health insurers rallied on the news, with Centene (CNC) and Molina Healthcare (MOH) closing up more than +3%, Cigna Group (CI) closing up more than +2%, and Humana (HUM) closing up more than +1%. 

Carvana (CVNA) closed up more than +40% after reporting Q2 revenue of $2.97 billion, stronger than the consensus of $2.56 billion, and said it reached a deal with bondholders to reduce debt and announced plans to sell 35 million Class A shares.

Cisco Systems (CSCO) closed up more than +2% after JPMorgan Chase upgraded the stock to overweight from neutral.

Omnicom Group (OMC) closed down more than -10% to lead losers in the S&P 500 after reporting Q1 revenue of $3.61 billion, weaker than the consensus of $3.66 billion.

Align Technology (ALGN) closed down more than -5% after Stifel said they are “cautious” about the dental service company in the near term.

Interactive Brokers (IBKR) closed down more than -4% after reporting Q2 adjusted EPS of $1.32, weaker than the consensus of $1.40. 

Halliburton (HAL) closed down more than -2% after reporting Q2 revenue of $5.80 billion, weaker than the consensus of $5.85 billion.

Across the markets…

September 10-year T-notes (ZNU23) Wednesday closed up +8 ticks, and the 10-year T-note yield fell -4.6 bp to 3.739%.  Sep T-notes Wednesday rose moderately, holding below Tuesday’s 2-1/2 week high, and the 10-year T-note yield fell to a 2-1/2 week low of 3.725%.  T-notes moved higher Wednesday on carryover support from a rally in 10-year UK gilts to a 6-week high after UK June CPI rose less than expected.  Also, Wednesday’s weaker-than-expected U.S. housing starts report was supportive for T-notes.

T-notes maintained moderate gains Wednesday on decent demand for the Treasury’s $12 billion 20-year T-bond auction, which had a bid-to-cover ratio of 2.68, above the 10-auction average of 2.65.  Also, a decline in inflation expectations was bullish for T-notes after the 10-year breakeven inflation rate dropped to a 2-1/2 week low Wednesday of 2.186%.

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