Stocks Push Higher on Strength in Energy Stocks and Lower Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.40%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.29%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.49%.

Stock indexes this morning are moderately higher.  Today's strength in crude oil prices is lifting energy stocks and the broader market.  Also, lower T-note yields today support stocks as expectations improved for a pause in Fed rate hikes on comments late Thursday night from Dallas Fed President Logan, who said, "Another skip in raising interest rates could be appropriate when the FOMC meets later this month.”

Stocks have some negative carryover from a slide in Asian stock markets today.  Technology stocks were under early pressure on concern China’s ban on Apple’s iPhones could impact other technology companies that rely on sales and production in China. 

A draft from the leaders of G-20 countries meeting in India this weekend warns that “cascading crises” have posed challenges to long-term economic growth and call for coordinated macroeconomic policies to support the world economy.  Also, global economic growth is uneven and below the long-term average as uncertainty on the economic outlook remains high, and the balance of risks is tilted to the downside.

The markets are discounting the odds at 4% for a +25 bp rate hike at the September 20 FOMC meeting and 45% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are mixed.  The 10-year T-note yield is down -1.2 bp at 4.232%.  The 10-year German bund yield is down -1.3 bp at 2.601%.  The 10-year UK gilt yield is down -3.3 bp at 4.421%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.35%.  China’s Shanghai Composite Index closed down -0.18%.  Japan’s Nikkei Stock Index closed down -1.16%.

Today’s stock movers…

A rally in WTI crude prices today of more than +1% is lifting energy stocks.  Valero Energy (VLO), Philips 66 (PSX), and Marathon Petroleum (MPC) are up more than +3%.  Also, Marathon Oil (MRO) is up more than +2%, and ConocoPhillips (COP), Diamondback Energy (FANG), Devon Energy (DVN), Exxon Mobil (XOM), Haliburton (HAL), and Occidental Petroleum (OXY) are up more than +1%. 

Gilead Sciences (GILD) is up more than +3% to lead gainers in the Nasdaq 100 after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $95. 

Kroger (KR) is up more than +4% to lead gainers in the S&P 500 after it announced it would sell 413 stores to C&S Wholesale Grocers in a bid to help win antitrust approval for its $24.6 billion deal to merge with Albertsons. 

Smartsheet (SMAR) is up more than +12% after reporting Q2 adjusted EPS of 16 cents, double the consensus of 8 cents, and raising its 2024 EPS forecast to 53 cents-57 cents from a prior estimate of 37 cents-44 cents, stronger than the consensus of 42 cents. 

Smith & Wesson Brands (SWBI) is up more than +12% after reporting Q1 net sales of $114.2 million, stronger than the consensus of $100.8 million.   

Snowflake (SNOW) is up more than +3% after D.A. Davidson initiated coverage of the stock with a recommendation of buy with a price target of $200. 

Adobe (ADBE) is up more than +1% after Mizuho Securities upgraded the stock to buy from neutral with a price target of $630.

Boeing (BA) is down more than -2% to lead losers in the Dow Jones Industrials after it warned that deliveries of its 737 jetliner will come in at the low end of its targeted range this year due to recently discovered manufacturing defects.

PDD Holdings (PDD) is down more than -3% to lead losers in the Nasdaq 100 after Grizzly Research said PDD is a dying fraudulent company and its shopping app TEMU is cleverly hidden spyware that poses an urgent security threat to U.S. national interests. 

RH (RH) is down more than -10% after forecasting Q3 revenue of $740 million-$760 million, weaker than the consensus of $774 million.

Hudson Pacific Properties (HPP) is down more than -4% after it suspended its quarterly dividend on its common stock, citing current market conditions. 

Essex Property Trust (ESS) is down more than -2% after Citigroup downgraded the stock to neutral from buy. 

Across the markets…

December 10-year T-notes (ZNZ23) today are up +7 ticks, and the 10-year T-note yield is down -2.8 bp at 4.217%.  Dec T-note prices today are moderately higher and garnered support on comments from Dallas Fed President Logan late Thursday night that bolstered expectations for a pause in Fed rate hikes when she said, "Another skip in raising interest rates could be appropriate when the FOMC meets later this month.”  Gains in T-notes are limited by an increase in inflation expectations after the 10-year inflation breakeven rate rose to a 2-week high today at 2.331%.

The dollar index (DXY00) today is down -0.17%.  Today's decline in T-note yields has weakened the dollar’s interest rate differentials.  Also, better-than-expected French economic news on manufacturing activity and industrial production today boosted the euro at the dollar's expense. 

EUR/USD (^EURUSD) is up by +0.24%.  A weaker dollar today has sparked short-covering in the euro as it rebounds from Thursday’s 3-month low.  Also, stronger-than-expected French economic news today is bullish for EUR/USD.

France Jul manufacturing production rose +0.7% m/m, stronger than expectations of +0.4% m/m.  Also, July industrial production rose +0.8% m/m, stronger than expectations of +0.1% m/m.

USD/JPY (^USDJPY) is up +0.11%.  The yen today gave up overnight gains and turned lower on weaker-than-expected Japanese economic news on Q2 GDP and July wage data.  The yen today initially moved higher amid speculation the Japanese government may step up its effort to stop the yen’s weakening after Japanese Finance Minister Suzuki said he would appropriately address excessive moves in the foreign exchange market.

Today’s Japanese economic news was weaker than expected and bearish for the yen.   Japan's Q2 GDP was revised lower to +4.8% (q/q annualized) from the previously reported +6.0%, weaker than expectations of +5.6%.  Also, July labor cash earnings rose +1.3% y/y, weaker than expectations of +2.4% y/y.  In addition, the Japan Aug eco watchers outlook survey fell -2.7 to a 6-month low of 51.4, weaker than expectations of 53.4.

October gold (GCV3) today is up +6.9 (+0.36%), and Dec silver (SIZ23) is up +0.070 (+0.30%). Precious metals prices this morning are moderately higher.  A weaker dollar today is bullish for metals.  Also, lower global bond yields today are supportive of precious metals.  In addition, dovish comments from Dallas Fed President Logan gave gold a boost when she said she supported a pause in Fed rate hikes.  Silver also found support from today’s stronger-than-expected French news on July manufacturing and industrial production, a sign of stronger industrial metals demand.  On the negative side is the continued liquidation of gold holdings by funds after long gold holdings in ETFs fell to a 3-1/3 year low Thursday.

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