Stocks Close Slightly Higher as Bond Yields Jump

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.03%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.18%.

Stocks on Thursday closed slightly higher, with the Dow Jones Industrials posting a 1-week high.  Thursday’s benign U.S. July CPI report bolstered the outlook for the Fed to pause its interest rate hike campaign and was bullish for stocks.  However, stocks gave up most of their advance after T-note yields erased an early decline and moved higher on hawkish comments from San Francisco Fed President Daly and supply pressures from this week’s quarterly refunding auctions.

U.S July CPI rose +3.2% y/y, weaker than expectations of +3.3% y/y.  Jul CPI ex-food and energy eased to +4.7% y/y from +4.8% y/y in Jun, right on expectations.

U.S. weekly initial unemployment claims rose +21,000 to a 5-week high of 248,000, showing a weaker labor market than expectations of 230,000.

Thursday’s comments from San Francisco Fed President Daly were hawkish for Fed policy and bearish for stocks when she said the Fed has more work to do to control inflation even after today's July CPI report "came in largely as expected."  She added that the Fed is "a long way" from talking about too-restrictive interest rates.

The markets are discounting the odds at 11% for a +25 bp rate hike at the September 20 FOMC meeting and 32% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields Thursday were mixed.  The 10-year T-note yield rebounded from a 1-week low of 3.942% and finished up +7.2 bp at 4.080%.  The 10-year German bund yield rose +3.1 bp at 2.528%.  The 10-year UK gilt yield fell to a 1-week low of 4.325% and finished down -0.1 bp at 4.364%. 

Overseas stock markets Thursday settled higher.  The Euro Stoxx 50 closed up +1.55%.  China’s Shanghai Composite Index today closed up +0.31%.  Japan’s Nikkei Stock Index closed up +0.84%.

Today’s stock movers…

Walt Disney (DIS) closed up more than +4% to lead gainers in the S&P 500 and Dow Jones Industrials after it said it expects a better improvement in its direct-to-consumer losses in mid-fiscal 2024 and lowered its 2023 capital expenditures estimate from a prior forecast. 

FleetCor Technologies (FLT) closed up more than +3%, adding to Wednesday’s +6% gain after 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.

Global Payments (GPN) closed up more than +2% after Jeffries upgraded the stock to buy from hold with a price target of $145. 

Wynn Resorts Ltd (WYNN) closed up more than +2% after reporting Q2 operating revenue of $1.60 billion, stronger than the consensus of $1.53 billion. 

U.S.-listed Chinese technology companies moved higher Thursday after Alibaba Group Holding Ltd reported Q1 revenue of 234.16 billion yuan, stronger than expectations of 223.75 billion yuan.  As a result, Alibaba Group Holding Ltd (BABA) closed up more than +4%.  Also, JD.com (JD) closed up more than +2%, and PDD Holdings (PDD) closed up more than +1%. 

Cybersecurity stocks rallied Thursday after CyberArk Software reported an unexpected Q3 EPS profit of +3 cents, stronger than the consensus of a -13 cents EPS loss.  As a result, CyberArk Software Ltd (CYBR) closed up more than +12%.  Also, Zscaler (ZS) closed up more than +2%, and Crowdstrike Holdings (CRWD) and Fortinet (FTNT) closed up more than +1%.

Capri Holdings Ltd (CPRI) closed up more than +55% after Tapestry agreed to acquire the company for $8.5 billion. 

AppLovin (APP) closed up more than +26% after reporting Q2 EPS of 22 cents, well above the consensus of 8.4 cents.

Estee Lauder (EL) closed up more than +2% on improved earnings prospects after China lifted a ban on group travel to several countries, including the U.S., Australia, the UK, South Korea, and Japan.

Tapestry (TPR) closed down more than -15% to lead losers in the S&P 500 after acquiring Capri Holdings Ltd for $8.5 billion. 

Trade Desk (TTD) closed down more than -4% to lead losers in the Nasdaq 100 even after reporting better-than-expected Q2 earnings as analysts said the earnings did not live up to lofty expectations, with the stock up more than 80% this year.

U.S. automakers were on the defensive Thursday on growing concern that demand from union leaders could send automakers’ labor costs soaring.  Bloomberg reported that the United Auto Workers Union is calling for wage increases and other benefits that could add more than $80 billion in expenses for Ford and General Motors.  As a result, General Motors (GM) closed down more than -5%, and Ford Motor (F) closed down more than -4%. 

Ralph Lauren (RL) closed down more than -4% after reporting Q1 total comparable sales ex-forex rose +2%, weaker than the consensus of +6.02%.

NVR Inc (NVR) closed down more than -2% on signs of insider selling after an SEC filing showed Executive Chairman Saville sold more than $12 million of stock on Tuesday and Wednesday after CFO Malzahn sold more than $12 million of shares on Monday and Tuesday. 

Wolverine World Wide (WWW) closed down more than -25% after reporting Q2 adjusted EPS of 19 cents, weaker than the consensus of 20 cents, and cut its full-year adjusted EPS forecast to 45 cents-55 cents from a prior view of $1.40-$1.60, well below the consensus of $1.43.

Plug Power (PLUG) closed down more than -15% after reporting Q2 gross margin of -30%, much weaker than the consensus of -9.2%.

Penn Entertainment (PENN) closed down more than -7% after Truist Securities downgraded the stock to hold from buy. 

Across the markets…

September 10-year T-notes (ZNU23) Thursday closed down -17 ticks, and the 10-year T-note yield rose +7.2 bp to 4.080%.  Sep T-notes Thursday fell back from a 2-week high, and the 10-year T-note yield rose back above 4.00% from a 1-1/2 week low of 3.942%.  T-notes gave up early gains Thursday and moved moderately lower on supply pressures from the Treasury’s $23 billion 30-year T-bond auction, where bond dealers were stuck with more bonds than anticipated.  Bond dealers took 12.5% of the 30-year bonds for sale, the highest amount since February and a sign of weak investor demand for the securities.

T-notes Thursday initially moved higher on a benign U.S. Jul CPI report and signs of a weaker labor market after weekly initial unemployment claims rose to a 5-week high.  Also, a fall in U.S. inflation expectations was bullish for T-notes after the 10-year breakeven inflation rate fell to a 3-week low Thursday at 2.319%. 

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