Stocks End Higher on a Neutral Speech from Fed Chair Powell

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.67%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.73%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.85%.

Stocks on Friday recovered from early losses and settled moderately higher.  Stocks found support Friday on neutral comments from Fed Chair Powell, who said the Fed is prepared to raise interest rates further if needed, but "will proceed carefully" on whether to hike again, opening the door to a potential Fed pause.

Friday’s U.S. economic news was bearish for stocks.  The University of Michigan U.S. Aug consumer sentiment index was revised down by -1.7 to 69.5, weaker than expectations of no change at 71.2.  Also, inflation expectations rose after the Aug 1-year inflation expectations rose to 3.5%, stronger than expectations of no change at 3.3%, and the 5-10-year inflation expectations rose to +3.0%, stronger than expectations of no change at 2.9%.

Fed Chair Powell said, "Although inflation has moved down from its peak, it remains too high, and we are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our 2% objective."  He added that the Fed "will proceed carefully" on whether to hike again as there may still be significant further drag from past rate hikes.

Cleveland Fed President Mester said, "We probably have some more work to do" as core inflation is still running too high, and policymakers have to be "diligent" as they work to bring inflation on a steady path down to 2%.

ECB President Lagarde said the ECB will "set interest rates at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to our 2% medium-term target."

The markets are discounting the odds at 21% for a +25 bp rate hike at the September 20 FOMC meeting and 635% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields Friday moved higher.  The 10-year T-note yield rose +0.6 bp to 4.243%.  The 10-year German bund yield rose +4.8 bp to 2.561%.  The 10-year UK gilt yield rose +1.6 bp to 4.441%. 

Overseas stock markets Friday settled mixed.  The Euro Stoxx 50 closed up +0.10%.  China’s Shanghai Composite Index closed down -0.59%. Japan’s Nikkei Stock Index closed down -2.05%.

Today’s stock movers…

Hasbro (HAS) closed up more than +5% to lead gainers in the S&P 500 after Stifel raised its price target on the stock to $94 from $79. 

Intuitive Surgical (ISRG) closed up more than +4% after William Blair said the recent selloff in the stock was overdone. 

Intuit (INTU) closed up more than +4% after forecasting 2023 revenue of $15.89 billion-$16.11 billion, the midpoint above the consensus of $15.96 billion.

Tesla (TSLA) closed up more than +3% after Phillip Securities initiated coverage of the stock with a recommendation of accumulate and a price target of $265.

Boeing (BA) closed up more than +2% to lead gainers in the Dow Jones Industrials after Bloomberg reported that the company is preparing to restart deliveries of 727 Max jets to China for the first time in four years. 

Workday (WDAY) closed up more than +5% to lead gainers in the Nasdaq 100 after reporting Q2 adjusted EPS of $1.43, better than the consensus of $1.26. 

Netflix (NFLX) closed up more than +2% after Loop Capital Markets upgraded the stock to buy from hold with a price target of $500.

Affirm Holdings (AFRM) closed up more than +28% after reporting Q4 revenue of $445.8 million, well above the consensus of $406.5 million. 

Walt Disney (DIS) closed up more than +1% after the Information reported that Amzon.com is talking with Disney about working on a streaming version of ESPN. 

Ulta Beauty (ULTA) closed down more than -3% to lead losers in the S&P 500 after reporting Q2 net sales of $2.50 billion, below the consensus of $2.51 billion.

Homebuilders moved lower as T-note yields rose, pushing mortgage rates higher and undercut housing affordability.  As a result, DR Horton (DHI), PulteGroup (PHM), Toll Brothers (TOL), and Lennar (LEN) closed down more than -1%. 

Marvell Technology (MRVL) closed down more than -6% to lead losers in the Nasdaq 100 after forecasting Q3 adjusted gross margin of 60.3% to 61.3%, below the consensus of 61.7%. 

Domo Inc (DOMO) closed down more than -35% after cutting its 2024 EPS forecast to a loss of -39 cents to -47 cents from a prior forecast of -27 cents to -29 cents, weaker than the consensus of -36 cents.

Hawaiian Electric (HE) closed down more than -18% after it said it drew down $370 million on revolving credit lines and suspended its dividend, and S&P Global Ratings cut its rating to B- from BB-.

Nordstrom (JWN) closed down more than -7% after the company said in a conference call that credit card delinquencies in the first half of the year were “gradually” rising and were now above pre-pandemic levels, which could result in higher credit losses in the second half of the year and into 2024.

FactSet Research Systems (FDS) closed down more than -2% after RBC Capital Markets downgraded the stock to sector perform from outperform.

Across the markets…

September 10-year T-notes (ZNU23) Friday closed down -5 ticks, and the 10-year T-note yield rose +0.6 bp to 4.243%.  Sep T-notes Friday whipsawed lower on comments from Fed Chair Powell and U.S. economic news.  T-notes initially moved higher after Fed Chair Powell said the Fed "will proceed carefully" on whether to raise interest rates again, signaling the Fed may pause its rate hike cycle.  Also, the downward revision in the University of Michigan U.S. Aug consumer sentiment index supported T-notes. 

However, T-notes gave up their advance and turned lower after the University of Michigan U.S. Aug inflation expectations unexpectedly rose.  T-notes were also pressured Friday after Cleveland Fed President Mester said, "We probably have some more work to do," as core inflation is still running too high.  In addition, negative carryover from weakness in 10-year German bunds weighed on T-notes after ECB President Lagarde said the ECB will "set interest rates at sufficiently restrictive levels for as long as necessary.”

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