Stock Gains Muted Ahead of Mega-Cap Tech Earnings and FOMC Results

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.14%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.40%.

Stocks this morning are moderately higher.  Trading activity is muted today, ahead of a raft of mega-cap stock earnings results, with Microsoft and Alphabet due to report after today’s close.  Also, uncertainty over what the Fed might say regarding interest rates and the economy following the Tue/Wed FOMC meeting is keeping traders sidelined. 

Stocks found support after today’s news showed the Conference Board U.S. July consumer confidence index rose more than expected to a 2-week high. Also, today’s action by the IMF to boost its global growth outlook for this year supported equity markets.  However, stock gains were tempered after the 10-year T-note yield rose to a 1-1/2 week high.

Global stock bourses have carryover support from today’s rally in China’s Shanghai Composite Stock Index by more than +2% as market sentiment improved after Chinese leaders at this week’s Politburo meeting laid out a pre-growth tone that was more dovish than markets expected. 

The U.S. May S&P CoreLogic composite-20 home price index fell -1.70% y/y, a smaller decline than expectations of -2.35% y/y.

The Conference Board U.S. Jul consumer confidence index rose +6.9 to a 2-year high of 117.0, stronger than expectations of 112.0.

The U.S. Jul Richmond Fed manufacturing survey fell -1 to -9, a smaller decline than expectations of -10.

In its World Economic Outlook released today, the International Monetary Fund (IMF) raised its global 2023 GDP forecast to 3.0% from an April estimate of 2.8%.

The markets are expecting the Fed and the ECB this week to both 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 97% 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 are higher.  The 10-year T-note yield climbed to a 1-1/2 week high of 3.920% and is up +3.2 bp to 3.904%.  The 10-year German bund yield is up +2.4 bp at 2.449%.  The 10-year UK Gilt yield is up +3.0 at 4.286%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.22%.  China’s Shanghai Composite Index today closed up +2.13%.  Japan’s Nikkei Stock Index closed down -0.06%.

Today’s stock movers…

Packaging Corp (PKG) is up more than +10% to lead gainers in the S&P 500 after reporting Q2 adjusted EPS of $2.31, above the consensus of $1.95. 

F5 Inc (FFIV) is up more than +5% after reporting Q3 net revenue of $702.6 million, above the consensus of $699.3 million, and said it was “confident in our ability to achieve our target of double-digit non-GAAP earnings growth for fiscal year 2023.” 

General Electric (GE) is up more than +6% after reporting Q2 adjusted revenue of $15.90 billion, better than the consensus of $14.73 billion, and raised its full-year adjusted free cash flow to $4.1 billion-$4.6 billion from a previous forecast of $3.6 billion-$4.2 billion. 

Sherwin-Williams (SHW) is up more than +4% after reporting Q2 net sales of $6.24 billion, stronger than the consensus of $6.01 billion.

MSCI Inc (MSCI) is up more than +6% after reporting Q2 adjusted EPS of $3.26, better than the consensus of $3.12.

3M Co (MMM) is up more than +5% to lead gainers in the Dow Jones Industrials after reporting Q2 net sales of $8.33 billion, well above the consensus of $7.86 billion.

Datadog (DDOG) is up more than +3% to lead gainers in the Nasdaq 100 after Wolfe Research upgraded the stock to outperform from peer perform.

U.S.-listed Chinese stocks rallied in pre-market trading after China’s pledge to support the economy bolstered speculation that fresh stimulus measures were on the way.  As a result, PDD Holdings (PDD) is up more than +3%.  Also,  Alibaba Group Holding (BABA), Baidu (BIDU), NetEase (NTES), and JD.com (JD) are all up more than +1%. 

NXP Semiconductors (NXPI) is up more than +3% after reporting Q2 revenue of $3.30 billion, above the consensus of $3.21 billion, and forecast Q3 revenue of $3.30 billion-$3.50 billion, the midpoint well above the consensus of $3.31 billion.

Raytheon Technologies (RTX) is down more than -13% to lead losers in the S&P 500 after cutting its full-year free cash flow estimate to $4.3 billion from a previous estimate of $4.8 billion, below the consensus of $4.82 billion.

Airline stocks are on the defensive today after Alaska Air Group warned that declining airfares could hurt Q3 results and that demand for domestic travel has softened.  As a result, Alaska Air Group (ALK) is down more than -10%.  Also, Southwest Airlines (LUV) is down more than -5%, and United Airlines Holdings (UAL) is down more than -4%.  In addition, American Airlines Group (AAL) and Delta Air Lines (DAL) are down more than -3%.

Invesco Ltd (IVZ) is down more than -5% after reporting Q2 adjusted EPS of 31 cents, weaker than the consensus of 39 cents.

Dover Corp (DOV) is down more than -4% after reporting Q2 adjusted EPS of $2.05, below the consensus of $2.20, and lowered eh upper end of its full-year adjusted EPS forecast to $8.85-$9.00 from a prior view of $8.85-$9.05.

Avery Denison (AVY) is down more than -3% after reporting Q2 net sales of $2.09 billion, below the consensus of $2.18 billion.

Whirlpool (WHR) is down more than -3% after reporting Q2 net sales of $4.79 billion, weaker than the consensus of $4.81 billion.

Tractor Supply Co (TSCO) is down more than -2% after Bank of America Global Research downgraded the stock to neutral from buy.

Across the markets…

September 10-year T-notes (ZNU23) today are down -13 ticks, and the 10-year T-note yield is up +3.2 bp at 3.904%.  Sep T-notes today fell to a 1-1/2 week low, and the 10-year T-note yield rose to a 1-1/2 week high of 3.920%.  Stronger than expected U.S. economic news today on May S&P CoreLogic composite-20 home prices and the Conference Board U.S. Jul consumer confidence index is weighing on T-note prices.  Supply pressures are also undercutting T-note prices as the Treasury will auction $43 billion of 5-year T-notes later today as part of this week’s $144 billion auction package of T-notes and floating-rate T-notes. 

The dollar index (DXY00) today is up by +0.17% and climbed to a 2-week high. Higher T-note yields today are supporting moderate gains in the dollar.  Also, expectations for the Fed to raise the fed funds target range by 25 bp following the conclusion of the Tue/Wed FOMC meeting is bullish for the dollar.  The dollar raced to its high today after the Conference Board U.S. Jul consumer confidence index rose more than expected to a 2-year high. 

EUR/USD (^EURUSD) today is down by -0.29% and posted a 1-1/2 week low. A stronger dollar today is weighing on the euro.  Also, a slump in German business confidence undercut EUR/USD after the German Jul IFO business climate fell more than expected to an 8-month low.  In addition, the euro weakened after the ECB’s Quarterly Bank Lending Survey indicated slack demand for corporate loans. 

The German Jul IFO business climate fell -1.3 to an 8-month low of 87.3, weaker than expectations of 88.0.

USD/JPY (^USDJPY) is down by -0.11%.  The yen today is slightly higher on the prospects for additional stimulus measures in China after China’s Politburo signaled more support for the economy.  An increase in China’s economic growth would benefit Japan, China’s third-largest trading partner.  Gains in the yen were limited due to higher T-note yields. 

August gold (GCQ3) today is down -3.1 (-0.16%), and Sep silver (SIU23) is up +0.199 (+0.81%). Precious metals prices this morning are mixed, with gold falling to a 1-week low.  Today’s rally in the dollar index to a 2-week high is bearish for metals prices.  Also, higher global bond yields today are negative for precious metals prices.  In addition, expectations for the Fed and ECB to raise interest rates this week are undercutting metals.  Silver prices found support today after China’s Politburo signaled more support for China’s economy, which should boost China’s demand for industrial metals. 

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