Stocks Settle Mixed as Powell Signals a Skip in Rate Hikes is on the Table

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.02%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.40%.

Stocks on Wednesday settled mixed, with the Dow Jones Industrials posting a 17-1/2 month high.  Weakness in technology stocks weighed on the overall market on disappointing earnings results from Microsoft and Texas Instruments.  Losses in technology stocks were limited after Alphabet climbed more than +5% after reporting better-than-expected Q2 revenue.  Also, an +8% jump in Boeing pushed the Dow Jones Industrials to a 17-1/2 month high.

Q2 corporate earnings season is off to a strong start, as nearly 80% of U.S. companies that have reported results have beaten profit estimates.

U.S. Jun new home sales fell -2.5% m/m to 697,000, weaker than expectations of 725,000.

The FOMC, as expected, voted unanimously to raise the fed funds target range by 25 bp to a 22-year high of 5.25%-5.50%.  The FOMC said it "will continue to assess additional information and its implications for monetary policy and consider the extent of additional policy firming that may be appropriate to return inflation to 2% over time."

Stock indexes raced to their highs Wednesday afternoon when Fed Chair Powell suggested the Fed could pause on interest rates hikes at the September FOMC meeting.  Fed Chair Powell said the FOMC will take a data-dependent approach to future interest rate hikes, and it's possible the FOMC will raise or hold rates at its September meeting, depending on the data.

The markets are discounting the odds at 19% for a +25 bp rate hike at the September 20 FOMC meeting. 

Global bond yields on Wednesday were mixed.  The 10-year T-note yield fell -2.8 bp to 3.857%.  The 10-year German bund yield rose +5.9 bp to 2.485%.  The 10-year UK Gilt yield rose +1.3 at 4.281%. 

Overseas stock markets Wednesday settled lower.  The Euro Stoxx 50 closed down -1.03%. China’s Shanghai Composite Index today closed down -0.26%.  Japan’s Nikkei Stock Index closed down -0.04%.

Today’s stock movers…

CoStar Group (CSGP) closed down more than -8% to lead lowers in the S&P 500 and Nasdaq 100 after reporting Q2 revenue of $605.9 million, weaker than the consensus of $607.4 million, and cut its full-year revenue forecast to $2.45 billion-$2.46 billion from a prior view of $2.47 billion-$2.48 billion, weaker than the consensus of $2.48 billion. 

Allegion Plc (ALLE) closed down more than -7% after reporting Q2 net revenue of $912.5 million, below the consensus of $932.6 million. 

Teledyne Technologies (TDY) closed down more than -6% after forecasting Q3 adjusted EPS of $4.70 to $4.80, the midpoint below the consensus of $4.76.

Robert Half (RHI) closed down more than -5% after reporting Q2 EPS of $1.00, weaker than the consensus of $1.12, and forecast Q3 revenue of $1.48 billion to $1.58 billion, below the consensus of $1.59 billion. 

Microsoft (MSFT) closed down more than -3% to lead losers in the Dow Jones Industrials after reporting Q3 cloud revenue of $30.3 billion, below the consensus of $30.5 billion.

Chip stocks were under pressure Wednesday after Texas Instruments forecasted Q3 revenue of $4.36 billion to $4.74 billion, the midpoint below the consensus of $4.59 billion.  As a result, Texas Instruments (TXN) closed down more than -5%.  Also, Advanced Micro Devices (AMD), Analog Devices (ADI), Broadcom (AVGO), Microchip Technology (MCHP), and Globalfoundries (GFS) closed down more than -2%.  In addition, KLA Corp (KLAC) and Lam Research (LRCX) closed down more than -1%.

Waste Management (WM) closed down more than -3% after reporting Q2 adjusted operating Ebitda of $1.47 billion, weaker than the consensus of $1.50 billion, and cutting its full-year adjusted operating Ebitda estimate to $5.78 billion-$5.88 billion from a previous estimate of $5.83 billion-$5.98 billion, below the consensus of $5.90 billion. 

Union Pacific (UNP) closed up more than +10% to lead gainers in the S&P 500 after announcing former executive Vena will replace CEO Fritz, who is stepping down.

Boeing (BA) closed up more than +8% to lead gainers in the Dow Jones Industrials after reporting Q2 adjusted free cash flow of $2.58 billion, well above the consensus of -$73.6 million.

Old Dominion Freight Line (ODFL) closed up more than +6% to lead gainers in the Nasdaq 100 after reporting Q2 operating income of $391.6 million, above the consensus of $388.5 million.

Alphabet (GOOGL) closed up more than +5% after reporting Q2 revenue ex-TAC of $62.07 billion, better than the consensus of $60.27 billion.   

Chubb Ltd (CB) closed up more than +5% after reporting Q2 core operating EPS of $4.92, well above the consensus of $4.41. 

Advanced Data Processing (ADP) closed up more than +5% after reporting Q4 adjusted EPS of $1.89, better than the consensus of $1.83.

Regional bank stocks rose Wednesday after Bank of California agreed to buy PacWest Bancorp.  As a result, PacWest Bancorp (PACW) closed up more than +26%.  Also, and Zions Bancorp (ZION) closed up more than +7%, and KeyCorp (KEY) and Comerica (CMA) closed up more than +6%.  In addition, Citizens Financial Group (CFG) closed up by more than +4%.  Finally, Truist Financial (TFC), US Bancorp (USB), and Lincoln National (LNC) closed up more than +2%.

Across the markets…

September 10-year T-notes (ZNU23) Wednesday closed up +17 ticks, and the 10-year T-note yield fell -2.8 bp to 3.857%.  T-notes posted moderate gains on Wednesday’s weaker-than-expected U.S. Jun new home sales report.  T-notes raced to their highs Wednesday afternoon on post-FOMC meeting comments from Fed Chair Powell, who said the Fed would remain data-dependent on future rate moves, leaving open the possibility of a pause at the September FOMC meeting.   

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