Stocks Settle Mixed on Weakness in Tech

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.03%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.01%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.26%.

Stocks on Friday settled mixed, with the Nasdaq 100 falling to a 1-week low.  A decline in bond yields Friday lent support to the broader market.  However, the Nasdaq was under pressure as Netflix and Tesla moved lower and added to Thursday’s sharp losses when they reported disappointing quarterly earnings results.

Trading activity Friday was 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 on Friday were mixed.  The 10-year T-note yield fell -1.3 bp to 3.837%.  The 10-year German bund yield fell -2.1 bp to 2.469%.  The 10-year UK Gilt yield rose +0.3 to 4.280%. 

Overseas stock markets Friday settled mixed.  The Euro Stoxx 50 closed up +0.40%.  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) closed up more than +6% 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.” 

Lab-tool makers rose Friday after Sartorius AG, a major German life sciences company in bioprocessing, said it expects orders to pick up “after the summer period.” As a result, Danaher (DHR), Thermo Fisher Scientific (TMO), and Bio-Rad Laboratories (BIO) closed up more than +4%, and Waters (WAT) closed up more than +3%.

Roper Technologies (ROP) closed 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. 

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

Autoliv (ALV) closed up more than +10% after reporting Q2 sales of $2.64 billion, better than the consensus of $2.54 billion. 

Harley-Davidson (HOG) closed up more than +2% after D.A. Davidson upgraded the stock to buy from neutral with a price target of $47.

Merck & Co (MRK) closed up more than +1% 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. 

Marsh & McLennan (MMC) closed up more than +1% after reporting Q2 revenue of $5.90 billion, better than the consensus of $5.78 billion.

DR Horton (DHI) closed up more than +1% after UBS raised its price target on the stock to $160 from $134.

Interpublic Group (IPG) closed down more than -13% 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%.

American Express (AXP) closed down more than -3% to lead losers in the Dow Jones Industrials after reporting Q2 revenue of $15.05 billion, weaker than the consensus of $15.36 billion. 

Comerica (CMA) closed down more than -4% after it said it expects Q3 net interest income to be down -4% from Q2. 

CSX Corp (CSX) closed down more than -3% after reporting Q2 revenue of $3.60 billion, weaker than the consensus of $3.73 billion.

Intuitive Surgical (ISRG) closed down more than -3% 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) closed down more than -3% after reporting Q2 total deposits fell -2.7% q/q to $125.54 billion.

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

Across the markets…

September 10-year T-notes (ZNU23) Friday closed up +3 ticks, and the 10-year T-note yield fell -1.3 bp to 3.837%.  Sep T-notes Friday posted modest gains 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 were limited by a jump in inflation expectations after the 10-year breakeven inflation rate on Friday rose to a 4-1/2 month high of 2.479%.

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