What you need to know…
The S&P 500 Index ($SPX) (SPY) Monday closed +0.07%, the Dow Jones Industrials Index ($DOWI) (DIA) closed +0.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed +0.15%.
Stocks on Monday stabilized after last Friday’s sell-off. Bullish factors Monday centered on a -3 bp decline in the 10-year T-note yield. Meanwhile, tech stocks saw support from a +1.7% rally in Apple and strength in chip stocks.
However, bearish factors that kept gains in check included the UAW strike, the possibility of a U.S. government shutdown on September 30, and a weak U.S. homebuilder report.
Monday’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 were undercut Monday 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 14% 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.
Overseas stock markets Monday closed mixed. The Euro Stoxx 50 fell -1.14%. China’s Shanghai Composite Index closed +0.26%. Japan was closed today for a national holiday.
Today’s stock movers…
Apple (AAPL) on Monday rallied by +1.69% on optimism about strong pre-orders for the company’s latest iPhone 15.
Micron (MU) rallied by +0.89% on an upgrade to buy from hold by Deutsche Bank on the basis that DRAM chip prices are rising faster than expected. The news supported other semiconductor stocks including Lam Research (LRCX) with a +2.01% gain, and gains of at least +1% in ON Semiconductor (ON), Applied Materials (AMAT), and NXP Semiconductors (NXPI).
Notable dlosers in the Nasdaq 100 Monday included Moderna (MRNA), Tesla (TSLA), AstraZeneca (AZN), and Paypal. PayPal Holdings (PYPL) fell -1.98% on a downgrade to market-perform from outperform by MoffettNathanson as the analyst expected weak profit growth due to increased competition.
L3Harris Technologies (LHX) rose +1.10% on an upgrade to overweight from equal-weight by Wells Fargo due to an improved risk-reward.
Alteryx (AYX) rose +4.49% on an upgrade to overweight from equal-weight by Morgan Stanley on the view of an attractive valuation versus its growth and profit potential.
NetApp (NTAP) fell -2.28% on a downgrade by William Blair to market-perform from outperform.
Clorox (CLX) fell -2.68% 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) Monday closed +2 ticks, and the 10-year T-note yield fell -3.2 bp to 4.301%. T-note prices Monday gained support from the weak NAHB report. By contrast, T-note prices were pressured early by the rise in oil prices to an 11-month high, which put upward pressure on inflation expectations. The 10-year breakeven inflation expectations rate Monday rose by +1.3 bp to 2.362%.
T-note prices were also under pressure from a rise in global bond yields. The 10-year German bund yield rose by +3.3 bp to 2.708%, and the 10-year UK gilt yield rose by +3.4 bp to 3.391%.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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