Strength in Chip Stocks Lifts the Overall Market

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.58%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.07%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.18%.

Stocks on Monday settled mixed.  The strength in chip stocks Monday supported the technology sector and the overall market.  However, higher T-note yields Monday limited stock gains along with concerns about China’s debt crisis.

Weakness in regional bank stocks was a bearish factor for the overall market after FDIC Chair Gruenberg said the FDIC, the Federal Reserve, and the Office of the Comptroller were working on plans to require banks with as little as $100 billion in assets to issue enough long-term debt to cover capital losses if they ever failed.

U.S. stock indexes have negative carryover from the slide in the Shanghai Stock Index to a 7-1/4 month low Monday on concern that the property debt crisis in China was worsening.   One of China’s biggest property developers, Country Garden Holdings, seeks to extend a maturing bond for the first time and halted trading in local yuan notes.  Also, heightened liquidity concerns in China are weighing on Chinese stocks after a unit of Zhongzhi Enterprise Group, one of China’s top private wealth managers, missed payments on multiple high-yield investment products. 

Monday’s monthly survey from the New York Fed on consumer inflation expectations supported stocks.  The New York Fed's monthly survey of consumer inflation expectations showed inflation expectations for one-year fell to 3.55% in July from 3.83% in June, the lowest in two years.  Also, three-year inflation expectations fell to 2.9% in July from 3.0% in June. 

The markets are discounting the odds at 11% for a +25 bp rate hike at the September 20 FOMC meeting and 41% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields Monday moved higher.  The 10-year T-note yield rose to a 9-month high of 4.213% and finished up +3.4 bp at 4.186%.  The 10-year German bund yield climbed to a 1-week high of 2.651% and finished up +1.4 bp at 2.637%.  The 10-year UK gilt yield climbed to a 1-month high of 4.583% and finished up +3.9 bp at 4.566%. 

Overseas stock markets Monday settled mixed.  The Euro Stoxx 50 closed up +0.21%.  China’s Shanghai Composite Index today closed down -0.34%.  Japan’s Nikkei Stock Index closed down -1.27%.

Today’s stock movers…

Nvidia (NVDA) closed up more than +7% to lead gainers in the S&P 500 and Nasdaq 100 after Morgan Stanley said the recent selloff in the stock is at a good entry point before its earnings update next week.

Chip stocks rose Monday and lent support to the overall market.  Micron Technology (MU) closed up more than 6%.  Also, Marvell Technology (MRVL) and Advanced Micro Devices (AMD) closed up more than +4%.  In addition, Globalfoundries (GFS), Analog Devices (ADI), Broadcom (AVGO), Texas Instruments (TXN), KLA Corp (KLAC), Applied Materials (AMAT), ON Semiconductor (ON), and Lam Research (LRCX) closed up more than +2%.  Finally, Intel (INTC) closed up more than +2% to lead gainers in the Dow Jones Industrials.

Teledyne Technologies (TDY) is up more than +4% after Goldman Sachs said the recent pullback in the stock presents a buying opportunity. 

U.S. Steel (X) closed up more than +36% after it said it rejected a takeover offer from Cleveland-Cliffs and said it would instead start a review of its strategic options. 

Monday.com (MNDY) closed up more than +8% after reporting Q2 revenue of $175.7 million, better than the consensus of $169.3 million, and forecasting Q3 revenue of $181 million-$183 million, stronger than the consensus of $178.8 million. 

PayPal Holdings (PYPL) closed up more than +2% after it named Alex Chriss, who led Intuit’s QuickBooks business, as CEO and President.

Okta (OKTA) closed up more than +1% after Goldman Sachs raised its recommendation on the stock to buy from sell, saying subscription revenue is likely to bottom.

Regional bank stocks slumped Monday on signs that regulators will soon impose long-term debt requirements on banks to cover capital losses.  As a result, KeyCorp (KEY) closed down more than -4% to lead losers in the S&P 500.  Also, Comerica (CMA), Citizens Financial Group (CFG), Truist Financial (TFC), and Fifth Third Bancorp (FITB) closed down more than -3%.  In addition, Zions Bancorp (ZION), Huntington Bancshares (HBAN), M&T Bank (MTB), and US Bancorp (USB) closed down more than -2%.   

Real estate investment trust and property stocks retreated Monday after the 10-year T-note yield rose to a 9-month high.  As a result, AvalonBay Communities (AVB), Equity Residential (EQR), Essex Property Trust (ESS), and Boston Properties (BXP) closed down more than -2%.  Also, Alexandria Real Estate Equities (ARE), Camden Property Trust (CPT), and Federal Realty Investment Trust (FRT) closed down more than -1%.

Charles Schwab (SCHW) closed down more than -3% after saying it’s experiencing temporarily lower net flows of client money as it sees attrition of some retail and advisory clients’ assets while integrating TD Ameritrade into its business.

Fertilizer stocks were under pressure on downgrades from Barclays.  Mosaic (MOS) closed down more than -2% after Barclays downgraded it to underweight from equal weight, and CF Industries (CF) closed down more than -2% after Barclays downgraded it to equal weight from overweight.

Tesla (TSLA) closed down more than -1% after it rolled out a new round of price cuts in China, fueling concern the move could restart a price war among electric vehicle makers.

Across the markets…

September 10-year T-notes (ZNU23) Monday closed down -6 ticks, and the 10-year T-note yield rose +3.4 bp to 4.186%.  Sep T-notes Monday fell to a 1-week low, and the 10-year T-note yield climbed to a 9-month high of 4.213%.  Negative carryover from last Friday’s stronger-than-expected U.S. Jul PPI report weighs on T-note prices Monday.  Also, higher European government bond yields pressured T-note prices after the 10-year UK gilt yield rose to a 1-month high of 4.583%, and the 10-year German bund yield rose to a 1-week high of 2.651%. 

T-notes recovered from their worst levels Monday after the New York Fed's monthly survey of consumer inflation expectations showed inflation expectations for one-year fell to 3.55% in July from 3.83% in June, the lowest in two years.

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