Stocks Settle Mixed as Higher Bond Yields Undercut Tech Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.18%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.33%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.07%.

Stocks on Friday settled mixed, with the S&P 500 climbing to a 4-week high.  The broader market posted modest gains after Friday’s monthly U.S. payrolls report, which fueled speculation that the Fed will pause its rate hike campaign.  Although monthly nonfarm payrolls rose slightly more than forecast, the August unemployment rate unexpectedly jumped to a 1-1/2 year high, and hourly earnings eased.  However, stock indexes fell back from their best levels, and the Nasdaq 100 turned negative as tech stocks retreated after bond yields rose when the Aug ISM manufacturing index rose more than expected to a 6-month high.

Friday’s Fed comments were negative for stocks. Atlanta Fed President Bostic said that the U.S. economy faces a period of some disruption as debts are refinanced at significantly higher interest rates, putting some pressure on both financial institutions and the government.  Also, Cleveland Fed President Mester said U.S. inflation remains "too high" despite recent improvements, and the labor market is still strong.

U.S. Aug nonfarm payrolls rose +187,000, stronger than expectations of +170,000.  However, the August unemployment rate unexpectedly rose +0.3 to a 1-1/2 year high of 3.8%, showing a weaker labor market than expectations of no change at 3.5%.

U.S. Aug average hourly earnings eased to +4.3% y/y from +4.4% y/y in July, right on expectations.

The U.S. Aug ISM manufacturing index rose +1.2 to a 6-month high of 47.6, stronger than expectations of 47.0. 

U.S. July construction spending rose +0.7% m/m, stronger than expectations of +0.5% m/m.

The markets are discounting the odds at only 7% for a +25 bp rate hike at the September 20 FOMC meeting and 38% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields Friday moved higher.  The 10-year T-note yield recovered from a 3-week low of 4.054% and finished up +5.9 bp at 4.167%.  The 10-year German bund yield rose +8.3 bp to 2.549%.  The 10-year UK gilt yield recovered from a 3-week low of 4.334% and finished up +6.9 bp at 4.428%. 

The China Aug Caixin manufacturing PMI unexpectedly rose +1.8 to 51.0, stronger than expectations of a decline to 49.0 and the fastest pace of expansion in 6 months.

Today’s stock movers…

HP Enterprise (HPE) closed up more than +5% to lead gainers in the S&P 500 index after analysts raised their price targets on the stock by an average of +3.5% since it reported better-than-expected earnings Tuesday. 

Freeport-McMoRan (FCX) closed up more than +4% after the price of Comex copper Friday rallied to a 4-week high. 

Intel (INTC) closed up more than +3%, adding to Thursday’s +1% gain to lead gainers in the Dow Jones Industrials after CEO Gelsinger said the company is on course to hit its Q3 forecasts, helped by an improving personal computer market. 

Lululemon Athletica (LULU) closed up more than +5% to lead gainers in the Nasdaq 100 after reporting Q2 net revenue of $2.21 billion, better than the consensus of $2.17 billion, and raising its 2024 net revenue forecast to $9.51 billion-$9.57 billion from a prior forecast of $9.44 billion-$9.51 billion, stronger than the consensus of $9.50 billion.

Energy stocks and energy service providers rallied Friday after the price of WTI crude rose more than +2% to a 9-1/2 month high. As a result, Devon Energy (DVN) closed up more than +3%.  Also, Exxon Mobil (XOM), Haliburton (HAL), ConocoPhillips (COP), APA Corp (APA), Phillips 66 (PSX), Marathon Oil (MRO), and Occidental Petroleum (OXY) closed up more than +2%.  In addition, Baker Hughes (BKR),  Chevron (CVX), Valero Energy (VLO), Marathon Petroleum (MPC), and Schlumberger (SLB) closed up more than +1%.

Dell Technologies (DELL) closed up more than +20% after reporting Q2 total net revenue of $22.93 billion, well above the consensus of $20.84 billion. 

Nutanix (NTNX) closed up more than +11% after reporting Q4 subscription revenue of $459.5 million, stronger than the consensus of $426.5 million, and forecasting 2024 annual contract billings of $1.08 billion-$1.10 billion, better than the consensus of $1.07 billion.

MongoDB (MDB) closed up more than +3% after reporting Q2 adjusted EPS of 93 cents, more than double the consensus of 46 cents, and raising its 2024 adjusted EPS forecast to $2.27-$2.35 from a previous estimate of $1.42-$1.56, well above the consensus of $1.53.

Illumina (ILMN) closed up more than +2% after Evercore ISI added the stock to its tactical outperform list. 

Media stocks tumbled Friday due to Disney’s dispute with Charter Communications.   Walt Disney pulled its video channels off Charter’s video networks because of a contract dispute.  Charter is the second-largest cable provider in the U.S.  As a result, Warner Bros Discovery (WBD) closed down more than -12% to lead losers in the S&P 500 and Nasdaq 100.  Also, Paramount Global (PARA) closed down more than -9%, and Fox Corp (FOXA) closed down more than -5%.  In addition, Charter Communications (CHTR) closed down more than -3%, and Walt Disney (DIS) closed down more than -2%.

Walgreens Boots Alliance (WBA) closed down more than -7% to lead losers in the Dow Jones Industrials after CEO Brewer stepped down effective immediately.

Dollar General (DG) closed down more than -5% after Evercore ISI downgraded the stock to inline from outperform.

Broadcom (AVGO) closed down more than -5% after forecasting Q4 revenue of $9.27 billion, below the consensus of $9.28 billion.

Tesla (TSLA) closed down more than -5% after cutting prices on several of its vehicle models in China.

VMware (VMW) closed down more than -2% after reporting Q2 revenue of $3.41 billion, below the consensus of $3.46 billion.

Across the markets…

December 10-year T-notes (ZNZ23) on Friday closed down -14.5 ticks, and the 10-year T-note yield rose +5.9 bp to 4.167%.  T-note prices Friday retreated from a 3-week high and posted moderate losses after economic news showed an improvement in U.S. manufacturing activity when the Aug ISM manufacturing index rose to a 6-month high. Also, a rally in crude price Friday to a 9-1/2 month high lifted inflation expectations and weighed on T-notes. Early Friday, T-note prices initially saw support after the monthly U.S. payroll report showed the Aug unemployment rate unexpectedly rose to a 1-1/2 year high, a sign of a weaker labor market that is dovish for Fed policy. 

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