Stocks Finish Higher as Easing Inflation Bolsters Optimism for a Soft Landing

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.99%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.50%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.85%.

Stocks on Friday closed moderately higher.  Stocks rallied Friday after key measures of U.S. inflation cooled, bolstering optimism the economy can avoid a recession and that the Federal Reserve can achieve a soft landing.  The U.S. Q2 employment cost index rose at the slowest pace in 2 years, and the U.S. Jun PCE core deflator, the Fed's preferred inflation gauge, rose less than expected.  Also, strength in technology stocks boosted the overall market, as Intel jumped more than +6% after reporting better-than-expected Q2 revenue.

U.S. Jun personal spending rose +0.5% m/m, stronger than expectations of +0.4% m/m.  Jun personal income rose +0.3% m/m, weaker than expectations of +0.5% m/m.

The U.S. Jun PCE core deflator, the Fed's preferred gauge of inflation, eased to +4.1% y/y from +4.6% y/y in May, better than expectations of +4.2% y/y and the slowest pace of increase in 1-3/4 years.

The U.S. Q2 employment cost index rose +1.0% (q/q annualized), slower than expectations of +1.1% and the smallest pace of increase in 2 years.

The University of Michigan U.S. Jul consumer sentiment was revised lower to 71.6 from the initially reported 72.6.

The markets are discounting the odds at 22% for a +25 bp rate hike at the September 20 FOMC meeting. 

Global bond yields Friday were mixed.  The 10-year T-note yield fell from a 2-1/2 week high of 4.038% and finished down -3.3 bp at 3.965%.  The 10-year German bund yield rose to a 2-week high of 2.585% and finished up +1.8 bp at 2.492%.  The 10-year UK Gilt yield rose to a 1-1/2 week high of 4.389% and finished up +1.6 bp at 4.326%. 

Overseas stock markets Friday settled mixed.  The Euro Stoxx 50 closed up +0.43%.  China’s Shanghai Composite Index today closed up +1.84%.  Japan’s Nikkei Stock Index closed down -0.40%.

Today’s stock movers…

T Rowe Price Group (TROW) closed up more than +8% to lead gainers in the S&P 500 after reporting Q2 adjusted EPS of $2.02, well above the consensus of $1.73. 

Newell Brands (NWL) closed up more than +7% after reporting Q2 net sales of $2.20 billion, stronger than the consensus of $2.16 billion.

Cincinnati Financial (CINF) closed up more than +6% after reporting Q2 adjusted operating EPS of $1.21, stronger than the consensus of 70 cents. 

Digital Realty Trust (DLR) closed up more than +6% after reporting Q2 adjusted Ebitda of $697 million, above the consensus of $665.8 million. 

Intel (INTC) closed up more than +6% to lead gainers in the Dow Jones Industrials after reporting Q2 revenue of $12.90 billion, well above the consensus of $12.02 billion and forecast Q3 revenue of $12.9 billion-$13.9 billion, the midpoint above the consensus of $13.28 billion.

KLA Corp (KLAC) closed up more than 5% after reporting Q4 adjusted EPS of $5.40, stronger than the consensus of $4.85.

Reata Pharmaceuticals (RETA) closed up more than +53% after Biogen agreed to buy the company for about $7.3 billion. 

Franklin Resources (BEN) closed up more than +3% after reporting Q3 net outflows of $7.1 billion, less than the consensus of $8.67 billion.

Mondelez International (MDLZ) closed up more than +3% after reporting Q2 net revenue of $8.51 billion, above the consensus of $8.21 billion.

Live Nation Entertainment (LYV) closed down more than -7% to lead losers in the S&P 500 after Politico reported that the U.S. Justice Department could file an antitrust lawsuit against the company by the end of the year.

Juniper Networks (JNPR) closed down more than -6% after it said it is “currently facing some near-term order weakness from its Cloud and to a lesser degree its Service Provider customers.”

Mohawk Industries (MHK) closed down more than -6% after reporting Q2 free cash flow of $146.9 million, well below the consensus of $245.7 million. 

AON Plc (AON) closed down more than -5% after reporting Q2 adjusted EPS of $2.76, below the consensus of $2.82.

Centene (CNC) is down more than -5% after company executives said only 2.7% of its members are in its four-star Medicare plans and warned that number might drop to zero this year, which could eventually mean a drop in revenue from those plans.

Principal Financial Group (PFG) closed down more than -4% after reporting Q2 adjusted operating EPS of $1.53, weaker than the consensus of $1.65.

Ford Motor (F) closed down more than -3% after it said it now expects to see losses from electric vehicles hit $4.50 billion this year, above the consensus of a -$3.25 billion loss.

Colgate-Palmolive (CL) closed down more than -2% after forecasting full-year organic sales to climb +5% to +7%, the midpoint below the consensus of +6.38%. 

Across the markets…

September 10-year T-notes (ZNU23) Friday closed up +10.5 ticks, and the 10-year T-note yield fell -3.3 bp to 3.965%.  Sep T-notes Friday recovered from a 2-1/2 week low, and the 10-year T-note yield fell back from a 2-1/2 week high of 4.038% on signs of easing U.S. price pressures.  T-notes recovered and moved higher after Friday’s news showed the Q2 employment cost index and the Jun core PCE deflator rose less than expected.  T-notes early Friday initially dropped to a 2-1/2 week low on negative carryover from a jump in 10-year Japan JGB bond yields to a 9-year high after the BOJ adjusted its yield curve control program. 

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