Stocks Mixed on Caution Ahead of Tue/Wed FOMC Meeting

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.09%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.13%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.12%.

Bearish factors include the UAW strike, the possibility of a U.S. government shutdown on September 30, and mildly higher global bond yields.  A +1.2% rally in Apple is supporting tech stocks.

Today’s NAHB U.S. housing market index fell by -5 points to a 5-month low of 45, much weaker than expectations for a -1 point drop to 49.  The reduced confidence expressed by U.S. homebuilders suggests that home building activity may weaken in the coming months.

Stocks are being undercut by caution ahead of the 2-day FOMC meeting on Tuesday and Wednesday.  The markets are fully expecting the FOMC this week to leave its funds rate target unchanged at 5.25/5.50%.  However, the FOMC is expected to maintain a hawkish tone and remain open to one last rate hike since inflation and the economy have not yet slowed enough.

Looking ahead for the FOMC, the markets are discounting a 31% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting on November 1, and a 13% chance for that 25 bp rate hike at the following meeting on December 13.  The markets are then expecting the FOMC to begin cutting rates in 2024 in response to an expected slowdown in the U.S. economy.

Global bond yields are steady to higher.  The 10-year T-note yield is little changed at 4.333%.  The 10-year German bund yield is up +3.0 bp at 2.705%.  The 10-year UK gilt yield is up +3.2 bp at 4.390%.  

Overseas stock markets are mixed today.  The Euro Stoxx 50 is down -1.09%.  China’s Shanghai Composite Index closed +0.26%.  Japan was closed today for a national holiday.

Today’s stock movers…

Apple (AAPL) is up +1.1% on optimism about strong pre-orders for the company’s latest iPhone 15. 

Micron (MU) is up +1.3% on an upgrade to buy from hold by Deutsche Bank on the basis that DRAM chip prices are rising faster than expected.  The news is supportive of other chipmakers. 

Leading losers in the Nasdaq 100 today include Moderna (MRNA), Tesla (TSLA), AstraZeneca (AZN).

L3Harris Technologies (LHX) is up +0.7% on an upgrade to overweight from equal-weight by Wells Fargo due to an improved risk-reward.

Alteryx (AYX) is up +3.8% on an upgrade to overweight from equal-weight by Morgan Stanley on the view of an attractive valuation versus its growth and profit potential.

PayPal Holdings (PYPL) is down -1.9% on a downgrade to market-perform from outperform by MoffettNathanson as the analyst expected weak profit growth due to increased competition.

NetApp (NTAP) is down -2.9% on a downgrade by William Blair to market-perform from outperform.

Carvana (CVNA) is up +4.9% on an upgrade by Wedbush to neutral from underperform.

Clorox (CLX) is down -1.2% after the company said there was “unauthorized activity” on some of its IT systems in August that would negatively impact its fiscal Q1 results due to order processing delays.

Across the markets…

December 10-year T-notes (ZNZ23) today are down -3 ticks, and the 10-year T-note yield is little changed at 4.333%.  T-notes are under pressure today as oil prices continue higher and put upward pressure on inflation expectations.  The 10-year breakeven inflation expectations rate today is up +0.3 bp at 2.353%.  T-notes received support today from the -5 point drop in the NAHB housing market index.

The dollar index (DXY00) today is little changed.  The dollar is seeing some underlying support from expectations for a mildly hawkish FOMC meeting outcome on Wednesday.  Meanwhile, EUR/USD (^EURUSD) is little changed, and USD/JPY (^USDJPY) is down -0.09%.  The Japanese markets were closed today but are looking forward to the Bank of Japan’s policy meeting on Friday.

October gold (GCV3) today is up +1.2 (+0.06%), and Dec silver (SIZ23) is down -0.036 (-0.15%).  Gold is seeing support today from increased safe-haven demand with the weakness in stocks. However, silver is being undercut by higher global bond yields and fears of weaker global economic growth.  Gold continues to be pressured by the liquidation pressures after long gold holdings in ETFs fell to a 3-1/3 year low last Thursday.

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