Strength in Tech Stocks Boosts the Broader Market

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.23%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.57%.

Stock indexes on Thursday settled mixed, with the Nasdaq 100 posting a new all-time high and the Dow Jones Industrials falling to a 1-week low. Stocks found support as bond yields fell after the US May PPI unexpectedly eased.  Also, weekly jobless claims unexpectedly rose to a nearly 10-month high, bolstering the outlook for a Fed rate cut later this year.  Gains in stocks were limited by negative carryover from Thursday’s slide in the Euro Stoxx 50 to a 5-week low. 

Some positive corporate news Thursday was also bullish for stocks. Broadcom closed up more than +12% to lead AI hardware stocks higher after reporting stronger-than-expected Q2 adjusted net revenue and forecasting full-year revenue above consensus.  Also, Tesla rose more than +3% after CEO Musk said proposals to re-ratify his pay package and move the company’s legal home to Texas from Delaware were passing by “wide margins.” 

US weekly initial unemployment claims unexpectedly rose +13,000 to a 10-month high of 242,000, showing a weaker labor market than expectations of a decline to 225,000.

US May PPI final demand unexpectedly eased to +2.2% y/y from +2.3% y/y in April, weaker than expectations of an increase of +2.5% y/y. May PPI ex-food and energy unexpectedly eased to +2.3% y/y from +2.5% y/y in April, weaker than expectations of +2.5% y/y.

The markets are discounting the chances for a -25 bp rate cut at 10% for the July 30-31 FOMC meeting and 62% for the next meeting on September 17-18.

Generally positive Q1 earnings results are supportive of stocks. Q1 earnings are expected to climb +7.1% y/y, well above the pre-earnings season estimate of +3.8%.  According to data compiled by Bloomberg Intelligence, about 81% of reporting S&P 500 companies have beaten Q1 earnings estimates. 

Overseas stock markets Thursday settled lower.  The Euro Stoxx 50 fell to a 5-week low and closed down -1.97%.  China's Shanghai Composite closed down -0.28%.  Japan's Nikkei Stock 225 Index closed down -0.40%.

Interest Rates

September 10-year T-notes (ZNU24) Thursday closed up +13 ticks.  The 10-year T-note yield fell -7.8 bp to 4.238%.  Sep T-note prices Thursday climbed to a 2-1/4 month high, and the 10-year T-note yield fell to a 2-1/4 month low of 4.221%. T-notes on Thursday extended Wednesday’s gains on dovish economic reports that showed weekly jobless claims rose to a 10-month high and May producer prices rose less than expected.  Also, a decline in inflation expectations boosted T-notes after the 10-year breakeven inflation rate Thursday fell to a 4-1/4 month low of 2.207%.  T-notes raced to their highs Thursday afternoon on strong demand for the Treasury’s $22 billion auction of 30-year T-bonds that had a bid-to-cover ratio of 2.49, well above the 10-auction average of 2.39.

European government bond yields Thursday moved lower.  The 10-year German bund yield fell to a 3-1/2 week low of 2.461% and finished down -6.0 bp at 2.470%.  The 10-year UK gilt yield fell to a 3-1/2 week low of 4.117% and finished down -0.4 bp at 4.123%. 

Eurozone Apr industrial production unexpectedly fell -0.1% m/m versus expectations of a +0.2% m/m increase.

ECB Governing Council member Muller said Eurozone inflation could quicken again, and "in order to achieve our goal, interest rates presumably still need to stay above average for some time."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 8% for the July 18 meeting and 49% for the September 12 meeting.

US Stock Movers

Broadcom (AVGO) closed up more than +12% to lead gainers in the Nasdaq 100 after reporting Q2 adjusted net revenue of $12.49 billion, stronger than the consensus of $12.06 billion, and forecasting full-year revenue of $51.0 billion, above the consensus of $50.58 billion.  Other AI hardware stocks gained on the news, with Super Micro Computer (SMCI) closing more than +12% to lead gainers in the S&P 500.  Also, Nvidia (NVDA) and Arista Networks (ANET) closed up more than +3%. 

Tesla (TSLA) closed up more than +3% after CEO Musk said proposals to re-ratify his pay package and move the company’s legal home to Texas from Delaware were passing by “wide margins.” 

Chipotle Mexican Grill (CMG) closed up more than +2% after Goldman Sachs initiated coverage on the stock with a recommendation of buy.

Kimberly-Clark (KMB) closed up more than +2% after Bank of America Global Research double-upgraded the stock to buy from underperform with a price target of $160.

Masco Corp (MAS) closed up more than +2% after it recommended that shareholders reject the below-market mini-tender offer by TRC Capital Investment Corp.

Ulta Beauty (ULTA) closed up more than +2% after Oppenheimer added the stock to its “top pick status” with a price target of $475. 

eBay (EBAY) closed up more than +1% after announcing that it launched Venmo as a new payment option for its platform.

Paramount Global (PARA) closed down more than -6% to lead losers in the S&P 500 after CreditSights said the company could get cut by Moody’s Ratings to junk by the end of the year after negotiations to sell the company to Skydance Media fell through.

Generac Holdings (GNRC) closed down more than -4% after Janney Montgomery LLC downgraded the stock to neutral from buy.

General Electric (GE) closed down more than -3% after JPMorgan Chase forecasted the company’s Q2 sales of $8.4 billion, below the consensus of $8.8 billion, citing supply-chain constraints weighing on new engine deliveries.

Dave & Buster’s Entertainment (PLAY) closed down more than -10% after reporting Q1 revenue of $588.1 million, weaker than the consensus of $615.5 million. 

Ares Management Corp (ARES) closed down more than -2% after announcing the launch of an underwritten public offering of 2.65 million shares of Class A common stock.

Airbnb (ABNB) closed down more than -1% on signs of insider selling after an SEC filing showed CEO Chesky sold $17 million shares on Monday.

Earnings Reports (6/14/2024)

Anterix Inc (ATEX).

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