Stocks End Moderately Higher as Earnings Season Heats Up

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.40%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.52%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.14%.

Stocks on Monday posted moderate gains, with the Dow Jones Industrials climbing to a 1-1/4 year high.   Monday’s rally in crude oil prices to a 3-month high lifted energy stocks and boosted the overall market.  Also, gains in regional bank stocks were supportive of the overall market.

Monday’s U.S. economic news was mixed for equities.  The Jun Chicago Fed activity index unexpectedly fell -0.4 to -0.32, weaker than expectations of an increase to -0.13. However, the Jul S&P manufacturing PMI unexpectedly rose +2.7 to 49.0, stronger than expectations of a decline to 46.2.

Quarterly corporate earnings results will be critical to the stock market’s direction this week, with more than 500 major companies, including Alphabet and Meta Platforms, due to report earnings results.  The results will be scoured to see if slowing economic momentum shows up on company profit margins.

The markets expect the Fed and the ECB this week to raise their respective interest rates by 25 bp and will look for guidance from the central banks to see if more rate hikes are likely.

The markets are discounting the odds at 96% for a +25 bp rate hike at the Tue/Wed 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 Monday were mixed.  The 10-year T-note yield rose 1.8 bp to 3.853%.  The 10-year German bund yield fell -4.4 bp to 2.425%. The 10-year UK Gilt yield fell -2.3 bp to 4.256%. 

Overseas stock markets Monday settled mixed.  The Euro Stoxx 50 closed down -0.19%.  China’s Shanghai Composite Index closed down -0.11%. Japan’s Nikkei Stock Index closed up +1.23%.

Today’s stock movers…

Becton Dickson (BDX) closed up more than +5% to lead gainers in the S&P 500 after receiving FDA approval for its updated Alaris Infusion System. 

Energy stocks and energy service providers rallied Monday, with the price of WTI crude up more than +2% at a 3-month high.  As a result, Haliburton (HAL) closed up more than +2%.  Also, Occidental Petroleum (OXY), Hess Corp (HES), Diamondback Energy (FANG), Valero Energy (VLO), and Marathon Petroleum (MPC) closed up more than +2%.  In addition, Schlumberger (SLB), Exxon Mobil (XOM), ConocoPhillips (COP), Marathon Oil (MRO), and Phillips 66 (PSX) closed up more than +1%. 

Regional bank stocks on Monday moved higher and lifted the overall market.  KeyCorp (KEY), Citizens Financial Group (CFG), and Synchrony Financial (SYF) closed up more than +3%.  Also, Huntington Bancshares (HBAN), Lincoln National (LNC), Comerica (CMA), US Bancorp (USB), and Zions Bancorp (ZION) closed up more than +2%. 

Lam Research (LRCX) closed up more than +2% after Stifel upgraded the stock to buy from hold with a price target of $725.

D.R. Horton (DHI) closed up more than +1% after Raymond James upgraded the stock to outperform from market perform with a price target of $160.

Kinder Morgan (KMI) closed up more than +1% after reaffirming full-year adjusted Ebitda of $7.70 billion, above the consensus of $7.68 billion.

Gilead Sciences (GILD) closed down more than -3% after a Phase 3 Enhance Study evaluating the company’s magolimab in combination with azacytidine in higher-risk myelodysplastic syndromes was halted. 

Juniper Networks (JNPR) closed down more than -2% after Raymond James downgraded the stock to outperform from a strong buy.

Equifax (EFX) closed down more than -2% after Bank of America downgraded the stock to underperform from neutral.

American Express (AXP) closed down more than -1% after Piper Sandler downgraded the stock to underweight from neutral.

Salesforce (CRM) closed down more than -1% on signs of insider selling after an SEC filing showed CEO Benioff sold $3.45 million of shares last Thursday. 

Estee Lauder (EL) closed down more than -1% after Piper Sandler downgraded the stock to neutral from overweight. 

Across the markets…

September 10-year T-notes (ZNU23) Monday closed down-5.5 ticks, and the 10-year T-note yield rose +1.8 bp to 3.853%.  Sep T-notes Monday erased an early advance and posted moderate losses.  The unexpected increase in Monday’s U.S. Jul S&P manufacturing PMI weighed on T-note prices. Also, Monday’s rally in crude prices by more than +2% to a 3-month high boosted inflation expectations and undercut T-note prices.  In addition, strength in stocks on Monday curbed the safe-haven demand for T-notes. 

T-note prices Monday morning initially moved higher on carryover support from a rally in 10-year German bunds.  Strong demand for the Treasury’s $42 billion auction of 2-year T-notes Monday also supported T-notes, as the auction had a bid-to-cover ratio of 2.78, above the 10-auction average of 2.69.

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