Stocks Slip on Weakness in Chip Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.11%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.52%.

Stocks this morning are mildly lower.  Weakness in chip stocks is weighing on the technology sector and the overall market.  However, losses are limited by strength in energy stocks, with the price of WTI crude up more than +1% at an 8-3/4 month high. 

U.S. stock indexes have carryover support from a rally in European stocks today.  The Euro Stoxx 50 is up more than +1% on a rally in Italian bank stocks on assurances from the Italian government that a new tax on banks would be capped at 0.1% of a bank’s assets.

The markets are awaiting Thursday’s U.S. consumer price report for market direction.  The Jul CPI is expected to increase to +3.3% y/y from +3.0% y/y in June, although July CPI ex-food and energy is expected to ease to +4.7% y/y from +4.8% y/y in June. 

The markets are discounting the odds at 12% for a +25 bp rate hike at the September 20 FOMC meeting and 34% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are mixed.  The 10-year T-note yield is down -1.0 bp at 4.012%.  The 10-year German bund yield is up +3.7 bp at 2.506%. The 10-year UK gilt yield is up +0.2 bp at 4.387%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +1.03%.  China’s Shanghai Composite Index today closed down -0.49%.  Japan’s Nikkei Stock Index closed down -0.53%.

Today’s stock movers…

Weakness in chip stocks is weighing on the technology sector and the broader market.  Nvidia (NVDA) is down more than -4% to lead losers in the S&P 500 and Nasdaq 100.  Also, Broadcom (AVGO) and Advanced Micro Devices (AMD) are down more than -2%.  In addition, Globalfoundries (GFS), ON Semiconductor (ON), and Marvell Technology (MRVL) are down more than -1%. 

Xylem (XYL) is down more than -2% after Spruce Point Capital Management said it is short-selling the stock and sees a 30% to 45% downside risk for the stock price. 

ZipRecruiter (ZIP) is down more than -13% after forecasting Q3 revenue of $147 million-$153 million, weaker than the consensus of $170.7 million, and withdrawing its full-year Ebitda guidance due to the “rapidity and inconsistency of the cooling hiring environment.” 

IAC Inc (IAC) is down more than -10% after reporting Q2 revenue of $1.11 billion, weaker than the consensus of $1.12 billion.

Lyft (LYFT) is down more than -4% after reporting Q2 revenue per active rider of $47.51, below the consensus of $48.52. 

Super Micro Computer (SMCI) is down more than -2% after forecasting Q1 adjusted EPS of net revenue of $2.75-$3.50, the midpoint below the consensus of $3.14. 

Datadog (DDOG) is down more than -2% after Stifel downgraded the stock to hold from buy.

Axon Enterprise (AXON) is up more than +18% to lead gainers in the S&P 500 after reporting Q2 net sales of $374.6 million, stronger than the consensus of $350.7 million.

Akamai Technologies (AKAM) is up more than +9% after reporting Q2 adjusted EPS of $1.49, better than the consensus of $1.41, and raising its full-year adjusted EPS estimate to $5.87-$5.95 from a previous estimate of $5.69-$5.84.

FleetCor Technologies (FLT) is up more than +4% after reporting Q2 revenue of $948.2 million, above the consensus of $945.8 million, and raising the lower limit of its full-year revenue forecast to $3.84 billion-$3.86 billion from a prior forecast of$3.82 billion-$3.86 billion.

Charles River Laboratories International (CRL) is up more than +3% after reporting Q2 adjusted EPS of $2.60, stronger than the consensus of $2.63.

Energy stocks and energy service providers are stronger today, with the price of WTI crude up more than +1% at an 8-3/4 month high. As a result, APA Corp (APA) and Marathon Oil (MRO) are up more than +3%.  Also, Haliburton (HAL), ConocoPhillips (COP), Hess Corp (HES), Marathon Petroleum (MPC), Schlumberger (SLB), and Valero Energy (VLO) are up more than +2%.  In addition, Baker Hughes (BKR) is up more than +2% to lead gainers in the Nasdaq 100.

Penn Entertainment (PENN) is up more than +14% after announcing a long-term exclusive partnership with Disney’s ESPN.

CF Industries (CF) is up more than +4% after Stifel raised its price target on the stock to $88 from $74. 

Across the markets…

September 10-year T-notes (ZNU23) today are up +3 ticks, and the 10-year T-note yield is down -1.0 bp at 4.012%.  Sep T-notes today have support from a decline in U.S. inflation expectations.  The 10-year breakeven inflation rate fell to a 2-week low today at 2.338%.  Gains in T-notes are limited by supply pressures as the Treasury later today will auction $38 billion of 10-year T-notes as part of this week’s $103 billion quarterly refunding operation.

The dollar index (DXY00) today is down by -0.13%.  A decline in T-note yields today is weighing on the dollar. Also, today’s decline in the 10-year breakeven inflation rate to a 2-week low is dovish for Fed policy and negative for the dollar.

EUR/USD (^EURUSD) today is up by +0.21%.  The euro is finding support today from a weaker dollar. Also, higher European government bond yields today strengthen the euro’s interest rate differentials and support EUR/USD.

USD/JPY (^USDJPY) is down by -0.11%.  The yen is slightly higher today on a decline in T-note yields. Also, the -0.53% drop in the Nikkei Stock Index today boosted some safe-haven demand for the yen.  A fall in the 10-year Japan JGB bond yield today to a 1-1/2 week low is limiting gains in the yen.   

Today’s Japanese economic news was bearish for the yen after Jul machine tool orders fell -19.8% y/y, the seventh consecutive monthly decline.

October gold (GCV3) today is down -1.4 (-0.076%), and Sep silver (SIU23) is down -0.027 (-0.12%).  Precious metals prices this morning are slightly lower, with silver sliding to a 5-week low. Gold prices are under pressure after U.S. inflation expectations declined as the 10-year breakeven inflation rate fell to a 2-week low, curing demand for gold as an inflation hedge. Also, fund liquidation in gold continues after long gold holdings in ETFs fell to a 3-1/3 year low Tuesday. Silver prices are under pressure on concerns that weakness in China’s economy will curb industrial metals demand after China Jul CPI fell -0.3% y/y, the biggest decline in 2-1/2 years.  A weaker dollar today and lower T-note yields are limiting losses in precious metals. 

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