Stocks Mixed on Tech Weakness

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.18%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.22%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.06%.

Stocks this morning are mixed with support from a decline in bond yields.  However, the Nasdaq is slightly lower as Netflix and Tesla are down more than -1%, adding to Thursday’s sharp losses when they reported disappointing quarterly earnings results.

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 that stock funds had -$2.1 billion of outflows in the week of 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 lower.  The 10-year T-note yield is down -2.7 bp at 3.823%.  The 10-year German bund yield is down -3.0 bp at 2.460%. The 10-year UK Gilt yield is down -0.2 at 4.275%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.22%.  China’s Shanghai Composite Index today closed down -0.06%.  Japan’s Nikkei Stock Index closed down -0.57%.

Today’s stock movers…

Zoetis (ZTS) is up more than +5% to lead gainers in the S&P 500 after receiving FDA approval for its NextGard Plus, a beef-flavored chew that protects dogs from internal and external parasites, which William Blair said “bodes well for future growth.” 

Roper Technologies (ROP) is up more than +3% after reporting Q2 adjusted EPS continuing operations of $4.12, above the consensus of $3.99, and forecast full-year adjusted EPS continuing operations of $16.36-$16.50, stronger than the consensus of $16.31. 

Marsh & McLennan (MMC) rose more than +2% after reporting Q2 revenue of $5.90 billion, better than the consensus of $5.78 billion.

Texas Instruments (TXN) is up more than +2% after Mizuho Securities raised its price target on the stock to $185 from $165. 

Merck & Co (MRK) is up more than +1% to lead gainers in the Dow Jones Industrials after the European Medicines Agency’s Committee for Medicinal Products for Human Use adopted a positive opinion for the company’s keytruda plus trastuzumab and chemotherapy for treatment of advanced gastric or Gastroesophageal Junction cancer. 

DR Horton (DHI) is up more than +2% after UBS raised its price target on the stock to $160 from $134.

Autoliv (ALV) is up more than +8% after reporting Q2 sales of $2.64 billion, better than the consensus of $2.54 billion. 

Harley-Davidson (HOG) is up more than +1% after D.A. Davidson upgraded the stock to buy from neutral with a price target of $47.

Interpublic Group (IPG) is down more than -12% to lead losers in the S&P 500 after reporting Q2 revenue before billable expenses of $2.33 billion, below the consensus of $2.39 billion, and cutting its full-year organic growth forecast to 1%-2% from a prior view of 2%-4%.

CSX Corp (CSX) is down more than -4% after reporting Q2 revenue of $3.60 billion, weaker than the consensus of $3.73 billion.  Other railroad stocks dropped on the news, with Norfolk Southern (NSC) down more than -2% and Union Pacific (UNP) down more than -1%. 

American Express (AXP) is down more than -4% to lead losers in the Dow Jones Industrials after reporting Q2 revenue of $15.05 billion, weaker than the consensus of $15.36 billion. 

Schlumberger (SLB) is down more than -2% after reporting Q2 revenue of $8.10 billion, weaker than the consensus of $8.23 billion.

Intuitive Surgical (ISRG) is down more than -2% 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.

Regions Financial (RF) is down more than -2% after reporting Q2 total deposits fell -2.7% q/q to $125.54 billion.

Across the markets…

September 10-year T-notes (ZNU23) today are up +7 ticks, and the 10-year T-note yield is down -3.7 bp at 3.813%.  Sep T-notes today are moderately higher and recovered some of Thursday’s sell-off.  Short covering emerged in T-notes after Japanese government bond yields fell on a report that BOJ officials see little need to adjust their yield curve control at this point, signaling the BOJ will maintain its highly stimulative policies at next week’s policy meeting.  Gains in T-notes are limited by a jump in inflation expectations after the 10-year breakeven inflation rate rose today to a 4-1/2 month high of 2.479%.

The dollar index (DXY00) today is up by +0.10% and climbed to a 1-week high.  Weakness in the yen is supporting gains in the dollar as the yen today dropped to a 1-1/2 week low against the dollar.  The dollar is also supported by expectations for the Fed to raise the fed funds rate by +25 bp at next week’s FOMC meeting.

EUR/USD (^EURUSD) today is up by +0.02% after recovering from a 1-week low.  Expectations for the ECB to raise interest rates by 25 bp at next week’s meeting is supporting the euro.  A stronger dollar today is limiting the upside for EUR/USD.

USD/JPY (^USDJPY) is up by +1.07%.  The yen today fell sharply to a 1-1/2 week low against the dollar after a report that said BOJ officials see little urgent need to change its yields curve control program at this point, signaling it will keep its extremely easy monetary policy in place at next week’s BOJ meeting.   Today’s Japan June consumer price report was mixed for the yen after the pace of June consumer prices rose, but core prices eased.

BOJ officials reportedly said 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. 

August gold (GCQ3) today is down -6.4 (-0.32%), and Sep silver (SIU23) is down -0.057 (-0.23%).  Precious metals prices this morning are moderately lower.  A rally in the dollar index today to a 1-week high is weighing on metals prices. Also, strength in stocks today has curbed the safe-haven demand for precious metals.  In addition, expectations for the Fed and ECB to raise interest rates next week are undercutting metals prices.  A decline in T-note yields today is a supportive factor for precious metals.  Also, the jump in the 10-year breakeven inflation rate today to a 4-1/2 month high has boosted some demand for gold as an inflation hedge. 

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