Stocks Post Modest Gains on Hopes for a Fed Pause

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.14%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.22%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.14%.

Stocks on Friday closed slightly higher.  Friday’s strength in crude oil prices boosted energy stocks and the broader market.  Stocks also garnered support 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.”  Stock indexes fell back from their best levels Friday afternoon when T-note yields moved higher after being lower for most of the session.

Friday’s U.S. economic news was negative for stocks after July consumer credit rose +$10.399 billion, weaker than expectations of +$16.000 billion.

Stocks have some negative carryover from a slide in Asian stock markets on Friday.  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 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 Friday were mixed.  The 10-year T-note yield rose +1.2 bp to 4.256%.  The 10-year German bund yield fell -0.4 bp to 2.610%.  The 10-year UK gilt yield fell -3.0 bp to 4.423%. 

Overseas stock markets Friday settled mixed.  The Euro Stoxx 50 closed up +0.38%.  China’s Shanghai Composite Index closed down -0.18%. Japan’s Nikkei Stock Index closed down -1.16%.

Today’s stock movers…

Strength in crude prices Friday lifted energy stocks. Valero Energy (VLO) closed up more than +4%.  Also, Philips 66 (PSX), Marathon Petroleum (MPC), and Marathon Oil (MRO) closed up more than +2%.  In addition, Hess Corp (HES), Exxon Mobil (XOM), and Occidental Petroleum (OXY) closed up more than +1%. 

Regional bank stocks moved higher and lent support to the overall market.  Lincoln National (LNC), KeyCorp (KEY), and Zions Bancorp (ZION) closed up more than +3%.  Also, Comerica (CMA) and M&T Bank (MTB) closed up more than +2%.  In addition, Huntington Bancshares (HBAN), Citizens Financial Group (CFG), Truist Financial (TFC), Northern Trust (NTRS), and US Bancorp (USB) closed up more than +1%.

Kroger (KR) closed up more than +3% 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. 

Gilead Sciences (GILD) closed up more than +2% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $95. 

Smith & Wesson Brands (SWBI) closed up more than +10% after reporting Q1 net sales of $114.2 million, stronger than the consensus of $100.8 million.   

Smartsheet (SMAR) closed up more than +6% 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. 

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

Westrock (WRK) closed up more than +4% and extended Thursday’s +3% advance after the Wall Street Journal reported the company is nearing a deal to merge with Smurfit Kappa.

Insulet (PODD) closed down more than -4% Friday to lead losers in the S&P 500, adding to Thursday’s -7% plunge 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.

Boeing (BA) closed 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.

Lab tool makers exposed to China retreated on concerns about the impact of China’s anti-corruption crackdown in the healthcare sector.  As a result, Revvity (RVTY) closed down more than -3%.  Also, Bio-Techne (TECH), Danaher (DHR), Bio-Rad Laboratories (BIO), Thermo Fisher Scientific (TMO), and Waters Corp (WAT) closed down more than -2%.

RH (RH) closed down more than -15% after forecasting Q3 revenue of $740 million-$760 million, weaker than the consensus of $774 million.

Hudson Pacific Properties (HPP) closed down more than -2% after it suspended its quarterly dividend on its common stock, citing current market conditions. 

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

PDD Holdings (PDD) closed down more than -1% 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. 

Across the markets…

December 10-year T-notes (ZNZ23) on Friday closed down -2 ticks, and the 10-year T-note yield rose +1.2 bp to 4.256%.  Dec T-notes Friday gave up an early advance and closed slightly lower.  An increase in inflation expectations weighed on T-note prices after the 10-year inflation breakeven rate rose to a 2-week high Friday at 2.339%.  T-note priced Friday initially moved higher 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.”  

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