Markets Today: Stocks Climb Before Nasdaq 100 Rebalance

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are up +0.37%, and Sep Nasdaq 100 E-Mini futures (NQU23) are up +0.62%.

Stock indexes this morning are moderately higher.  Tesla and Netflix are both moving higher in pre-market trading, recovering some of their sharp losses from Thursday due to disappointing earnings results.  A decline in bond yields today is also supporting stock gains.

Trading activity today may be affected by the expiration of July stock options and an out-of-cycle rebalancing of the Nasdaq 100 Stock Index.  The realignment of the Nasdaq index, which takes effect on Monday, is designed to reduce the dominance of mega-cap technology stocks in the index and boost the presence of smaller companies. 

Bank of America said EPFR Global data showed stock funds had -$2.1 billion of outflows in the week ended July 19, while $7.5 billion went to cash and $1.4 billion went to bond funds.

The markets are discounting the odds at 96% for a +25 bp rate hike at next week’s FOMC meeting.  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 down -2.7 bp at 3.823%.  The 10-year German bund yield is down -2.6 bp at 2.464%.  The 10-year UK Gilt yield is up +0.3 at 4.280%.  

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.12%.  China’s Shanghai Composite Index today closed down -0.06%.  Japan’s Nikkei Stock Index closed down -0.57%.

The Euro Stoxx 50 today is slightly lower.  European stocks are weighed down today by a report from Morgan Stanley that said, “Earnings revisions have now turned negative, and we also note a more cautious tone around forward guidance with mentions of ‘weaker demand’ surging in recent days.” 

Technology stocks recovered from early losses and are slightly higher after SAP SE, Europe’s biggest software company, slightly raised its operating profit outlook for 2023 and met overall sales forecasts for Q2.  Also, today’s economic news showed UK June retail sales were stronger than expected, easing recession concerns. 

Bank of America said EPFR Global data showed European equity funds had outflows of $1.6 billion in the week through Wednesday, the 19th straight week of redemptions.

UK June retail sales excluding auto fuel rose +0.8% m/m, stronger than expectations of +0.2% m/m.

China’s Shanghai Composite today fell to a 3-week low and closed slightly lower.  Weakness in Chinese automakers weighed on the overall market after JPMorgan Chase downgraded Xpeng to underweight from neutral.  China’s top automakers are falling behind their sales targets as the price wars among automakers are prompting consumers to hold back on their purchases due to expectations for better bargains.  According to Bloomberg, none of the 10 top Chinese automakers had reached 50% of their annual sales goals at the mid-point of the year.  A rebound in property stocks in late trading today helped the overall market recover most of its losses after state radio reported that China will push forward projects renovating villages in big cities in an effort to expand domestic demand and push forward urban development, citing a State Council meeting today chaired by Premier Li Qiang. 

Japan’s Nikkei Stock Index today fell to a 1-week low and closed moderately lower.  Japanese technology stocks retreated and led the overall market lower on negative carryover from Thursday’s slide in the Nasdaq 100 Stock Index after quarterly earnings results from Netflix and Tesla disappointed.  Losses in the overall market were contained after Japanese government bond yields whipsawed lower after a report said the BOJ sees little need to act on its yield curve control program for now.  The 10-year JGB bond yield fell from a 2-1/2 month high of 0.486% down to a 2-week low of 0.435% on the news.  Japanese inflation news today was mixed after the pace of Jun consumer prices rose, but core prices eased.

BOJ officials reportedly say their overall assessment of financial markets remains unchanged and that they see little urgent need to change its yield curve control program at this point.

Japan’s June national CPI unexpectedly increased to 3.3% y/y from +3.2% y/y in May, stronger than expectations of +3.2% y/y.  However, June national CPI ex-fresh food and energy eased to +4.2% y/y from +4.3% y/y in May, right on expectations. 

Pre-Market U.S. Stock Movers

Tesla (TSLA) is up more than +1% in pre-market trading, recovering some of Thursday’s -9% plunge when it warned of more headwinds to its profitability. 

Autoliv (ALV) jumped more than +5% in pre-market trading after reporting Q2 sales of $2.64 billion, better than the consensus of $2.54 billion. 

Comerica (CMA) climbed more than +2% in pre-market trading after reporting Q2 average deposits of $64.33 billion, above the consensus of $64.05 billion. 

Harley-Davidson (HOG) rose more than +3% in pre-market trading after D.A. Davidson upgraded the stock to buy from neutral with a price target of $47.

Huntington Bancshares (HBAN) gained more than +1% in pre-market trading after reporting Q2 total deposits of $148.03 billion, above the consensus of $146.48 billion.

Scholastic (SCHL) rallied more than +7% in pre-market trading after reporting Q4 adjusted EPS of $2.26, well above the consensus of $1.72. 

Intuitive Surgical (ISRG) dropped more than -5% in pre-market trading after saying it saw a slower U.S. growth rate in bariatric surgery last quarter amid patient interest in a new class of weight-loss drugs as an alternative.

Knight-Swift Transportation Holdings (KNX) tumbled more than -5% in pre-market trading after reporting Q2 EPS of 49 cents, below the consensus of 54 cents, and lowered guidance on its full-year adjusted EPS estimate to $2.10-$2.30 from a prior view of $3.35-$3.55.  Weaker than the consensus of $2.68.

CSX Corp (CSX) fell more than -4% in pre-market trading after reporting Q2 revenue of $3.60 billion, weaker than the consensus of $3.73 billion. 

American Express (AXP) fell more than -2% in pre-market trading after reporting Q2 revenue of $15.05 billion, weaker than the consensus of $15.36 billion. 

Interpublic Group (IPG) sank more than -9% in pre-market trading after reporting Q2 revenue before billable expenses of $2.33 billion, below the consensus of $2.39 billion, and cut its full-year organic growth forecast to 1%-2% from a prior view of 2%-4%.

Schlumberger (SLB) dropped more than -2% in pre-market trading after reporting Q2 revenue of $8.10 billion, weaker than the consensus of $8.23 billion. 

Today’s U.S. Earnings Reports (7/21/2023)

American Express Co (AXP), Comerica Inc (CMA), Huntington Bancshares Inc/OH (HBAN), Interpublic Group of Cos Inc/T (IPG), Regions Financial Corp (RF), Roper Technologies Inc (ROP), Schlumberger NV (SLB).

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