Stocks Gain on Positive Q2 Earnings Results

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.67%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.94%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.49%.

Stocks this morning are moderately higher on optimism that Q2 corporate earnings results will continue to outperform.  M&A activity also boosted stocks after Campbell Soup agreed to acquire Sovos Brands in a deal valued at $2.7 billion.  Hawkish Fed comments from Fed Governor Bowman and NY Fed President Williams pushed bond yields higher and limited gains in stock index futures.

Q2 earnings season is a supportive factor for stocks.  Of the 393 companies in the S&P 500 that have announced Q2 earnings results, 80% beat their EPS consensus, compared with 76% for the whole season a year ago.  Also, a smaller 15% reported worse-than-expected earnings compared to 19% a year ago.

NY Fed President Williams said, "I expect that Fed policy will need to be kept restrictive for some time" and that the need for more rate hikes is "an open question." 

Fed Governor Bowman said that "additional rate increases will likely be needed to get inflation on a path down to the FOMC's 2% target" to fully restore price stability.

The markets are discounting the odds at 14% for a +25 bp rate hike at the September 20 FOMC meeting and 37% for a +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are higher.  The 10-year T-note yield is up +3.7 bp at 4.070%.  The 10-year German bund yield is up +3.2 bp at 2.594%.  The 10-year UK gilt yield is up +6.6 bp at 4.446%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.03%.  China’s Shanghai Composite Index today closed down -0.59%.  Japan’s Nikkei Stock Index closed up +0.19%.

Today’s stock movers…

Viatris (VTRS) is up more than +6% to lead gainers in the S&P 500 after reporting Q2 adjusted Ebitda of $1.31 billion, better than the consensus of $1.26 billion.

Davita (DVA) is up more than +6% after UBS upgraded the stock to buy from neutral with a price target of $142. 

Expedia Group (EXPE) is up more than +3% after Citigroup raised its price target on the stock to $115 from $105. 

Boeing (BA) is up more than +2% to lead gainers in the Dow Jones Industrials after Wells Fargo Securities raised its price target on the stock to $270 from $250. 

Booking Holdings (BKNG) is up more than +2% to lead gainers in the Nasdaq 100 after Argus Research raised its price target on the stock to $3,677 from $3,080. 

Berkshire Hathaway (BRK/A) is up more than +2% after reporting Q2 operating income of $10.04 billion, well above the consensus of $9.28 billion. 

Sovos Brands (SOVO) is up more than +25% after Campbell Soup agreed to acquire the company for about $2.7 billion.

PG&E (PCG) is up more than +2% after UBS upgraded the stock to buy from neutral with a price target of $21.

Fortinet (FTNT) is up more than +1% after Guggenheim Securities upgraded the stock to buy from neutral with a price target of $70.

Tyson Foods (TSN) is down more than -7% to lead losers in the S&P 500 after reporting Q3 sales of $13.14 billion, weaker than the consensus of $13.59 billion. 

Moderna (MRNA) is down more than -6% to lead losers in the Nasdaq 100 after SVB Financial cut its price target on the stock to $68 from $82 and maintained its underperform rating.

Henry Schein (HSIC) is down more than -2% after reporting Q2 net sales of $3.10 billion, weaker than the consensus of $3.12 billion. 

Apple (AAPL) is down more than -1% to lead losers in the Dow Jones Industrials, extending its losing streak to four consecutive sessions after giving a disappointing outlook last Thursday. 

Tesla (TSLA) is down more than -2% after CFO Kirkhorn stepped down after 13 years at the company. 

Cloudflare (NET) is down more than -4% after Guggenheim Securities downgraded the stock to sell from neutral with a price target of $50.

Campbell Soup (CPB) is down more than -1% after it agreed to acquire Sonos Foods for $2.7 billion. 

Across the markets…

September 10-year T-notes (ZNU23) today are down -2 ticks, and the 10-year T-note yield is up +3.7 bp at 4.070%.  Sep T-notes today are under pressure from hawkish Fed comments and supply pressures.  NY Fed President Williams said, "I expect that Fed policy will need to be kept restrictive for some time," and Fed Governor Bowman said that "additional rate increases will likely be needed” to fully restore price stability.  The Treasury will auction $103 billion of T-note and T-bonds this week as part of the August quarterly refunding, beginning with Tuesday’s $42 billion auction of 3-year T-notes.

The dollar index (DXY00) today is up by +0.03%.  The dollar today is posting modest gains after hawkish Fed comments pushed T-note yields higher.   The dollar gave up most of its gains as strength in stocks reduced the liquidity demand for the dollar.  Also, negative carryover from last Friday is weighing on the dollar when U.S. July payrolls rose less than expected, bolstering expectations for the Fed to pause its interest rate hike campaign.

EUR/USD (^EURUSD) today is down by -0.06%.  The euro today is posting modest losses on the heels of today’s weaker-than-expected German Jun industrial production report.  However, losses in EUR/USD are limited after the Eurozone Aug Sentix investor confidence index unexpectedly rose, a sign of confidence in the Eurozone economy. 

German Jun industrial production fell -1.5% m/m, weaker than expectations of -0.5% m/m.

The Eurozone Aug Sentix investor confidence index unexpectedly rose +3.6 to -18.9, stronger than expectations of a decline to -24.5.

USD/JPY (^USDJPY) is up by +0.18%.  The yen today is under pressure after hawkish Fed comments pushed T-note yields higher.  Also, a recovery in the Nikkei Stock Index from a 3-1/2 week low to higher on the day curbed safe-haven demand for the yen. 

October gold (GCV3) today is down -6.8 (-0.35%), and Sep silver (SIU23) is down -0.446 (-1.88%).  Precious metals prices this morning are moderately lower.  A stronger dollar today is bearish for metals prices.  Also, higher global bond yields are negative for precious metals.  Today’s weaker-than-expected German Jun industrial production signals weak demand for industrials metals and is bearish for silver prices.  In addition, fund liquidation in gold continues after long gold holdings in ETFs fell to a new 3-year low last Friday.  Finally, a rally in stocks today has curbed the safe-haven demand for precious metals.

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