Weakness in Apple Weighs on Tech Stocks and Drags Broader Marker Lower

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.32%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.73%.

Stocks on Thursday settled mixed, with the S&P 500 falling to a 1-1/2 week low and the Nasdaq 100 index falling to a one-week low.  The broader market was under pressure Thursday due to weakness in technology stocks.  Apple closed down more than -2% to add to Wednesday’s -3% loss and lead technology stocks lower on a report from the Wall Street Journal that said China plans to expand a ban on the use of iPhones to government-backed agencies and state companies.  Thursday's strength in defensive pharmaceutical and healthcare stocks supported the Dow Jones Industrials index.

Stocks were also under pressure from Thursday’s news that U.S. weekly initial unemployment claims unexpectedly fell to a 7-month low, a sign of strength in the labor market that may prompt the Fed to keep interest rates higher for longer.

Thursday's Fed comments were mostly dovish and helped lift stocks from their worst levels.  New York Fed President Williams said U.S. monetary policy is "in a good place," but policymakers will need to parse through data to decide on how to proceed on interest rates.  Also, Chicago Fed President Goolsbee said the debate within the Fed is "very rapidly approaching the time when our argument is not going to be about how high should rates go but to how long we need to keep rates at this position before we're sure that we're on the path back to the inflation target."

On the negative side, Atlanta Fed President Bostic said the U.S. economy is still working through pandemic dynamics, and the Fed "still has work to do" to bring inflation to its 2% target.

U.S. weekly initial unemployment claims unexpectedly fell -13,000 to a 7-month low of 216,000, showing a stronger labor market than expectations of an increase to 233,000.  Weekly continuing claims fell -40,000 to 1.679 million, showing a stronger labor market than expectations of 1.719 million.

U.S. Q2 nonfarm productivity was revised lower to +3.5% from the initially reported +3.7%, stronger than expectations of +3.4%. Also, Q2 unit labor costs were revised higher to +2.2% from the initially reported +1.6%, stronger than expectations of +1.9%.

The markets are discounting the odds at 7% for a +25 bp rate hike at the September 20 FOMC meeting and 48% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields on Thursday moved lower.  The 10-year T-note yield fell from a 2-week high of 4.304% and finished down -2.2 bp at 4.258%.  The 10-year German bund yield fell -4.0 bp to 2.614%.  The 10-year UK gilt yield fell -8.0 bp to 4.454%. 

Overseas stock markets Thursday settled lower.  The Euro Stoxx 50 closed down -0.41%.  China’s Shanghai Composite Index closed down -1.13%. Japan’s Nikkei Stock Index closed down -0.75%.

Eurozone Q2 GDP was revised lower to +0.1% q/q and +0.5% y/y from the previously reported +0.3% q/q and +0.6% y/y.

German July industrial production fell -0.8% m/m, weaker than expectations of -0.4% y/y.

Chinese trade data was slightly better than expected.  China Aug exports fell -8.8% y/y, a smaller decline than expectations of -9.0% y/y.  Also, Aug imports fell -7.3% y/y, a smaller decline than expectations of -9.0% y/y.

Today’s stock movers…

Apple (AAPL) closed down more than -2% to lead losers in the Dow Jones Industrials, adding to Wednesday’s -3% drop, as China plans to expand a ban on the use of iPhones to government-backed agencies and state companies.  Apple suppliers are also falling on the news, with Qualcomm (QCOM), Skyworks Solutions (SWKS), and Qorvo (QRVO) closing down more than -7%.

Seagate Technology Holdings Plc (STX) closed down more than -10% to lead losers in the SP 500 after Barclays downgraded the stock to equal weight from overweight.

Align Technology (ALGN) closed down more than -7% to lead losers in the Nasdaq 100 on weakness in healthcare suppliers after Neogen, a maker of food safety tests, forecast “modestly negative” core growth in its Q1 preliminary view.

Insulet (PODD) closed down more than -7% after a New England Journal of Medicine article said the use of semaglutides shots like Ozempic and Wegovy in patients with type 1 diabetes reduces the need for insulin injections.

FMC Corp (FMC) closed down more than -7% after Blue Orca Capital said FMC’s patents aren’t enough to protect it from competition from rival generic products. 

Rollins (ROL) closed down more than -6 % after holder LOR Inc. announced a sale of 38.7 million shares of the stock via Goldman Sachs and Morgan Stanley.   

Verint Systems (VRNT) closed down more than -19% after reporting Q2 adjusted revenue of $210.4 million, weaker than the consensus of $226.6 million, and cut its full-year adjusted revenue forecast to $910 million from a previous estimate of $935 million, below the consensus of $933.6 million.

C3.ai (AI) closed down more than -12% after saying it expects its fiscal-year adjusted loss will be as much as -$100 million, wider than a previous estimate of -$75 million, and that profitability would take longer than expected. 

Dell Technologies (DELL) closed down more than -2% after Barclays downgraded the stock to underweight from equal weight. 

Nvidia (NVDA) closed down more than -1%, adding to Wednesday’s -2% fall after Research Affiliates said the stock is “a textbook story of a Big Market Delusion,” and with shares trading around 110 times earnings, the stock is priced beyond perfection.

Defensive health insurance and dividend paying pharmaceutical stocks rose Thursday.  Centene (CNC) closed up more than +4% to lead gainers in the S&P 500.  Also, Church & Dwight (CHD), Eli Lilly (LLY), Amgen (AMGN), AbbVie (ABBV), and Cigna Group (CI) closed up more than +2%.

Westrock (WRK) closed up more than +4% after the Wall Street Journal reported the company is nearing a deal to merge with Smurfit Kappa.

G-III Apparel Group Ltd (GIII) closed up more than +24% after reporting Q2 net sales of $659.8 million, well above the consensus of $592.2 million.

UiPath (PATH) closed up more than +11% after reporting Q2 total revenue of $287.3 million, better than the consensus of $282.3 million, and sees 2024 revenue of $1.27 billion-$1.28 billion, stronger than the consensus of $1.27 billion. 

Cboe Global Markets (CBOE) closed up more than +2% after reporting the average daily volume for August was up +25.4%

T-Mobile US (TMUS) closed up more than +2% to lead gainers in the Nasdaq 100 after Bloomberg Intelligence said the launch of the iPhone 15 could provide a boost to T-Mobile’s premium service plans. 

McDonald’s (MCD) closed up more than +1% after Wells Fargo Securities upgraded the stock to overweight from equal weight. 

Across the markets…

December 10-year T-notes (ZNZ23) on Thursday closed up +9.5 ticks, and the 10-year T-note yield fell -2.2 bp to 4.258%.  Dec T-notes Thursday today recovered from a 1-1/2 week low, and the 10-year T-note yield fell back from a 2-week high of 4.304% as a slump in stocks sparked safe-haven demand for government debt. T-notes this Thursday morning initially moved lower on news that weekly jobless claims unexpectedly fell to a 7-month low and that Q2 unit labor costs were revised higher.

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