Markets Today: Stocks Fall as Fitch Cuts its U.S. Debt Rating

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are down -0.61%, and Sep Nasdaq 100 E-Mini futures (NQU23) are down -0.88%.

Stock indexes this morning are lower after Fitch Ratings’ downgrade of U.S. government debt spurred a risk-off sentiment in stocks.  Stocks are also under pressure as T-note yields rose after this morning’s July ADP employment change rose more than expected, a hawkish factor for Fed policy. 

Fitch Ratings cut the sovereign credit rating of the U.S. by one level to AA+ from AAA, saying, "The rating downgrade of the U.S. reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to AA and AAA rated peers over the last two decades.”

The U.S. Jul ADP employment change rose +324,000, showing a stronger labor market than expectations of +190,000.

The U.S. Treasury boosted the size of its quarterly sale of longer-term debt for the first time in 2-1/2 years, saying it will sell $103 billion of T-notes and T-bonds in its quarterly refunding auctions next week, up from last quarter’s $96 billion and slightly above estimates of $102 billion.  The Treasury also said, “While these changes will make substantial progress towards aligning auction sizes with intermediate to long-term borrowing needs, further gradual increases will likely be necessary in future quarters.”

The markets are discounting the odds at 17% for a +25 bp rate hike at the September 20 FOMC meeting. 

Global bond yields are mixed.  The 10-year T-note yield climbed to a 3-week high of 4.063% and is up +3.4 bp at 4.057%. The 10-year German bund yield is down -4.2 bp at 2.514%.  The 10-year UK Gilt yield is down -0.1 bp at 4.398%.  

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.89%.  China’s Shanghai Composite Index today closed down -0.89%.  Japan’s Nikkei Stock Index closed down -2.30%.

The Euro Stoxx 50 today is moderately lower.  European stocks are falling today as Fitch Ratings’ downgrade of the U.S. sovereign credit rating sparked a risk-off sentiment in global equity markets. Also, some negative corporate earnings results are weighing on European stocks today.  Siemens Healthineers AG tumbled more than -6% after reporting disappointing Q3 revenue.  Also, Hugo Boss AG fell more than -2%, despite raising its full-year sales and profit guidance. 

China’s Shanghai Composite today closed moderately lower.  Chinese internet stocks and telecom companies sold off today after the Cyberspace Administration of China issued regulations to prevent minors from spending too much time on their smartphones.  The regulations said “non-adult” children won’t be allowed to access the internet from media devices from 10 pm to 6 am, and children between 16 and 18 will only have a maximum of two hours mobile usage.  Also, online gaming for kids will be limited, and for-profit after-school tutoring is illegal.  Chinese banks retreated today after Citigroup said a potential cut to existing mortgage rates might negatively impact large banks’ net interest margins, given their exposure to mortgages.

On the positive side, Chinese construction and mining equipment stocks rose after Caterpillar climbed to a record high Tuesday on strong earnings results and a bullish outlook.  Also, Chinese chipmaking suppliers rallied today following a media report that a state-backed firm made a significant technological breakthrough, spurring hopes that China can lessen its dependence on U.S. semiconductor techniques. 

Japan’s Nikkei Stock Index today sold off sharply. Market sentiment deteriorated today after Fitch Ratings downgraded the U.S. sovereign credit rating.  Meanwhile, Japanese insurance stocks plunged today after the Nikkei reported that a price-fixing scandal at Japan’s biggest casualty insurers is escalating and that the suspected collusion is likely to be wider than initially believed.  Also, Japanese brokerage stocks fell today, led by a -2% fall in Nomura Holdings, after it reported weaker-than-expected quarterly income.  In addition, a rally in the yen today sparked the selling of Japanese exporter stocks.  Finally, a jump in bond yields today spurred liquidation in equities after the 10-year Japan JGB bond yield climbed to a 9-year high of 0.632%. 

Pre-Market U.S. Stock Movers

Generac Holdings (GNRC) tumbled more than -10% in pre-market trading after reporting Q2 adjusted EOS of $1.08, weaker than the consensus of $1.17, and cut its full-year net sales forecast to a decline of -10% to -12% from a prior view of -6%  to -10%.   

Pinterest (PINS) tumbled more than -3% in pre-market trading after reporting Q2 average revenue per user of $1.53, below the consensus of $1.54. 

Starbucks (SBUX) slid more than -1% in pre-market trading after reporting Q3 comparable sales rose +10%, weaker than the consensus of +11.1%.

Carnival (CCL) dropped more than -3% in pre-market trading after it said it would issue conditional notices of redemption for $1.2 billion of debt.

Electronic Arts (EA) dropped more than -5% in pre-market trading after reporting Q1 net bookings of $1.58 billion, below the consensus of $1.59 billion, and forecasts 2024 net bookings of $7.3 billion-$7.7 billion, the midpoint below the consensus of $7.6 billion. 

Camping World Holdings (CWH) sank more than -7% in pre-market trading after reporting Q2 revenue of $1.90 billion, weaker than the consensus of $1.97 billion. Keefe, Bruyette & Woods downgraded the stock to underperform from market perform. 

Norwegian Cruise Line Holdings (NCLH) tumbled more than -3% in pre-market trading after Susquehanna Financial downgraded the stock to neutral from positive.  

VF Corp (VFC) fell more than -3% in pre-market trading after reporting a Q1 adjusted loss per share from continuing operations of -15 cents, wider than the consensus of -12 cents. 

CVS Health Corp (CVS) climbed more than +2% in pre-market trading after reporting Q2 net revenue of $88.92 billion, above the consensus of $86.49 billion.

Elf Beauty (ELF) surged more than +16% in pre-market trading after reporting Q1 net sales of $216.3 million, well above the consensus of $184.6 million, and raised its 2024 net sales forecast to $792 million-$802 million from a previous forecast of $705 million-$720 million, stronger than the consensus of $730.6 million.

Freshworks Inc (FRSH) rallied more than +19% in pre-market trading after reporting Q2 adjusted EPS of 7 cents, better than the consensus of 1.5 cents, and raised its full-year adjusted EPS forecast to 18 cents-22 cents from a prior view of 8 cents-12 cents, well above the consensus of 10 cents.

Humana (HUM) rose more than +2% in pre-market trading after reporting Q2 revenue of $26.75 billion, above the consensus of $26.25 billion.

United Therapeutics (UTHR) climbed more than +3% in pre-market trading after reporting Q2 revenue of $596.5 million, well above the consensus of $523.3 million.

Emerson Electric (EMR) rose more than +3% in pre-market trading after reporting Q3 adjusted EPS of $1.29, better than the consensus of $1.07, and raised its full-year adjusted EPS forecast to $4.40-$4.45 from a previous estimate of $4.15-$4.25, stronger than the consensus of $4.10.

Advanced Micro Devices (AMD) gained more than +2% in pre-market trading after reporting Q2 revenue of $5.36 billion, better than the consensus of $5.32 billion.

Today’s U.S. Earnings Reports (8/2/2023)

Albemarle Corp (ALB), Ameren Corp (AEE), AmerisourceBergen Corp (ABC), ANSYS Inc (ANSS), APA Corp (APA), Atmos Energy Corp (ATO), BorgWarner Inc (BWA), Bunge Ltd (BG), CDW Corp/DE (CDW), Ceridian HCM Holding Inc (CDAY), CF Industries Holdings Inc (CF), CH Robinson Worldwide Inc (CHRW), Clorox Co/The (CLX), Cognizant Technology Solutions (CTSH), CVS Health Corp (CVS), DuPont de Nemours Inc (DD), DXC Technology Co (DXC), Emerson Electric Co (EMR), Entergy Corp (ETR), Equinix Inc (EQIX), Etsy Inc (ETSY), Exelon Corp (EXC), Fair Isaac Corp (FICO), Federal Realty Investment Trus (FRT), Fidelity National Information (FIS), FMC Corp (FMC), Garmin Ltd (GRMN), Generac Holdings Inc (GNRC), Host Hotels & Resorts Inc (HST), Humana Inc (HUM), Ingersoll Rand Inc (IR), Johnson Controls International (JCI), Kraft Heinz Co/The (KHC), Lincoln National Corp (LNC), Marathon Oil Corp (MRO), McKesson Corp (MCK), MetLife Inc (MET), MGM Resorts International (MGM), NiSource Inc (NI), Occidental Petroleum Corp (OXY), PayPal Holdings Inc (PYPL), Phillips 66 (PSX), Public Storage (PSA), Qorvo Inc (QRVO), QUALCOMM Inc (QCOM), Realty Income Corp (O), Simon Property Group Inc (SPG), Trane Technologies PLC (TT), Verisk Analytics Inc (VRSK), Waters Corp (WAT), Williams Cos Inc/The (WMB), Xylem Inc/NY (XYL), Yum!  Brands Inc (YUM).

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