Stocks Close Higher on Impressive Earnings Results

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.90%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.16%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.87%.

Stocks on Monday posted moderate gains 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 were a negative factor for stocks.

Monday’s U.S. economic news was bullish for stocks after Jun consumer credit rose +$17.847 billion, stronger than expectations of +$13.0 billion.

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 12% for a +25 bp rate hike at the September 20 FOMC meeting and 36% for a +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields Monday moved higher.  The 10-year T-note yield rose +4.4 bp to 4.078%.  The 10-year German bund yield rose +3.9 bp to 2.601%.  The 10-year UK gilt yield rose +8.1 bp to 4.461%.  

Overseas stock markets Monday settled mixed.  The Euro Stoxx 50 closed up +0.11%.  China’s Shanghai Composite Index closed down -0.59%. Japan’s Nikkei Stock Index closed up +0.19%.

Today’s stock movers…

Monster Beverage (MNST) closed up more than +6% to lead gainers in the S&P 500 and Nasdaq 100 after RBC Capital Markets said its channel checks confirmed that Red Bull would raise prices in November, prompting other energy drink makers to follow suit.

Booking Holdings (BKNG) closed up more than +5% after Argus Research raised its price target on the stock to $3,677 from $3,080.

Expedia Group (EXPE) closed up more than +4% after Citigroup raised its price target on the stock to $115 from $105. 

Berkshire Hathaway (BRK/A) closed up more than +3% after reporting Q2 operating income of $10.04 billion, well above the consensus of $9.28 billion. 

Viatris (VTRS) closed up more than +3% after reporting Q2 adjusted Ebitda of $1.31 billion, better than the consensus of $1.26 billion.

Davita (DVA) closed up more than +3% after UBS upgraded the stock to buy from neutral with a price target of $142.

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

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

Moderna (MRNA) closed down more than -6% to lead losers in the S&P 500 and Nasdaq 100 after SVB Financial cut its price target on the stock to $68 from $82 and maintained its underperform rating.

Tyson Foods (TSN) closed down more than -3% after reporting Q3 sales of $13.14 billion, weaker than the consensus of $13.59 billion. 

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

Apple (AAPL) closed 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. 

Cloudflare (NET) closed down more than -2% after Guggenheim Securities downgraded the stock to sell from neutral with a price target of $50.

Palo Alto Networks (PANW) closed down more than -1% after Wedbush removed the stock from its Best Ideas List, citing valuation concerns.

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

Across the markets…

September 10-year T-notes (ZNU23) Monday closed down -0.5 of a tick, and the 10-year T-note yield rose +4.4 bp to 4.078%.  Sep T-notes Monday were 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.

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