Strength in Technology Stocks Leads the Overall Market Higher

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.69%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.65%.

Stocks on Monday settled mostly higher on a rally led by chip stocks and the technology sector.  Also, cybersecurity stocks rose after Palo Alto Networks forecast stronger-than-expected full-year billings.  In addition, an increase in M&A activity was bullish for stocks after Permian Resources acquired Earthstone Energy in a deal valued at $4.5 billion.

Johnson & Johnson fell more than -2% Monday to hold the Dow Jones Industrials in negative territory.  Also, stocks were under pressure from higher bond yields after the 10-year T-note yield rose to a 16-year high.

Global equity markets had some negative carryover from a fall in China’s Shanghai Composite Stock Index to a 7-1/2 month low Monday on economic concerns after Chinese banks cut their prime loan rates less than expected.

In consultation with state-owned commercial banks, the People's Bank of China (PBOC) cut the 1-year loan prime rate by -10 bp to 3.45%, a smaller cut than expectations of -15 bp to 3.40%.  Also, the 5-year loan prime rate was left unchanged at 4.20% versus expectations for a -15 bp cut to 4.05%.

The markets are discounting the odds at 12% for a +25 bp rate hike at the September 20 FOMC meeting and at 45% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields Monday moved higher.  The 10-year T-note yield jumped to a 16-year high of 4.352% and finished up +8.1 bp at 4.336%.  The 10-year German bund yield rose +8.1 bp to 2.703%.  The 10-year UK gilt yield rose +5.4 bp to 4.729%. 

Overseas stock markets on Monday settled mixed.  The Euro Stoxx 50 closed up +0.28%.  China’s Shanghai Composite Index closed down -1.24%. Japan’s Nikkei Stock Index closed up +0.37%.

Today’s stock movers…

Cybersecurity stocks moved higher Monday after Palo Alto Networks forecast 2024 billing of $10.9 billion-$11.0 billion, stronger than the consensus of $10.77 billion.  As a result, Palo Alto Networks (PANW) closed up more than +14% to lead gainers in the S&P 500 and Nasdaq 100.  Also, CrowdStrike Holdings (CRWD) and Zscaler (ZS) closed up more than +4%, and Fortinet (FTNT) closed up more than +1%.

Moderna (MRNA) closed up more than +9% after a weekend article in Barron’s said the company’s big cash position and recent decline make it an appealing buy. 

Nvidia (NVDA) closed up more than +8% to lead chip stocks higher after KeyBanc Capital Markets raised its price target on the stock to $620 from $550.  Also, Applied Materials (AMAT), Broadcom (AVGO), and Marvell Technology (MRVL) closed up more than +4%.  In addition, Advanced Micro Devices (AMD), NXP Semiconductors NV (NXPI), KLA Corp (KLAC), Lam Research (LRCX), and ON Semiconductor (ON) closed up more than +2%. 

SentinelOne (S) closed up more than +16% on a report from Reuters that said the company has been exploring strategic options that could include a sale.

Earthstone Energy (ESTE) closed up more than +16% after Permian Resources acquired the company in a deal valued at $4.5 billion. 

Sculptor Capital Management (SCU) closed up more than +5% after it said 70 potential buyers had contacted its advisers after it disclosed that it was pursuing strategic options.

VMware (VMW) closed up more than +4% after Broadcom said it expects its acquisition of the company will close Oct 30 after the UK CMA gave its final transaction approval.

Insulet (PODD) closed down more than -4% to lead losers in the S&P 500 after Baird downgraded the stock to neutral from outperform and cut its price target on the stock to $219 from $320.

Estee Lauder (EL) closed down more than -3% after Evercore ISI cut its price target on the stock to $200 from $250. 

Johnson & Johnson (JNJ) closed down more than -2% to lead losers in the Dow Jones Industrials after it said it plans to accept only 23.8% of its shares swapped for Kenvue stock, below consensus for 25% to 30% of stock exchanged.  J&J split its consumer healthcare business named Kenvue into a new publicly traded company.

Newell Brands (NWL) closed down more than -2% after Moody’s downgraded the company’s long-term corporate debt rating to Ba2 from Ba1.

Napco Security Technologies (NSSC) closed down more than -45% after it said it would have to restate three quarters of financial statements. 

Deere & Co (DE) closed down more than -1% after Stifel cut its price target on the stock to $460 from $493. 

Across the markets…

September 10-year T-notes (ZNU23) Monday closed down -18 ticks, and the 10-year T-note yield rose +8.1 bp to 4.336%.  Sep T-notes Monday sold off to a 10-month nearest-futures low, and the 10-year T-note yield rose to a 16-year high of 4.352%. Higher European government bond yields Monday pressured T-note prices.  Also, Monday’s strength in stocks curbed the safe-haven demand for T-notes.  In addition, speculation that Fed Chair Powell will remain hawkish when he speaks Friday at the Fed’s annual symposium in Jackson Hole, Wyoming, weighed on T-note prices.

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