Chip Stocks Rally to Push the S&P 500 and Nasdaq 100 to New Record Highs

The S&P 500 Index ($SPX) (SPY) today is up +0.31%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.28%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.25%.

Stock indexes today are mildly higher, with the S&P 500 and Nasdaq 100 climbing to new all-time highs and the Dow Jones Industrials posting a 1-week high.  A rally in chipmakers is leading the overall market higher, led by a +3% jump in Nvidia to a record high after the CEO of Dell Technologies tweeted that his company is building an AI factory with Nvidia to power Elon Musk’s xAI’s Grok supercomputer.  Also, Dell and Sumer Micro Computer are rallying today after Elon Musk said the companies will provide server racks for his xAI Grok supercomputer. 

Stock indexes remained higher after today’s weaker-than-expected US economic reports bolstered the outlook for the Fed to begin cutting interest rates later this year.

Higher T-note yields today are a bearish factor for stocks.  Minneapolis Fed President Kashkari said it will likely take a year or two for the US to get back to 2% inflation, suggesting he favors keeping interest rates higher for longer.

US weekly initial unemployment claims fell -5,000 to 238,000, signaling a weaker labor market than expectations of 235,000. 

US May housing starts unexpectedly fell -5.5% m/m to a 4-year low of 1.277 million, weaker than expectations of an increase to 1.370 million.  May building permits, a proxy for future construction, unexpectedly fell -3.8% m/m to a nearly 4-year low of 1.386 million, weaker than expectations of an increase to 1.450 million.

The US Jun Philadelphia Fed business outlook survey unexpectedly fell -3.2 to a 5-month low of 1.5, weaker than expectations of an increase to 5.0.

The markets are discounting the chances for a -25 bp rate cut at 10% for the next FOMC meeting on July 30-31 and 60% for the following 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 today are mixed.  The Euro Stoxx 50 is up +0.72%.  China's Shanghai Composite fell to a 2-month low and closed down -0.42%.  Japan's Nikkei Stock 225 Index closed up +0.16%.

Interest Rates

September 10-year T-notes (ZNU24) today are down -15 ticks.  The 10-year T-note yield is up +6.6 bp at 4.289%.  T-notes are under pressure today from strength in stocks, which reduces safe-haven demand for government debt.  Also, an increase in inflation expectations is bearish for T-notes after the 10-year breakeven inflation rate rose to a 1-week high today of 2.242%.  On the positive side, today’s weaker-than-expected US economic news was dovish for Fed policy. 

European government bond yields today are mixed.  The 10-year German bund yield is up +3.4 bp at 2.438%. The 10-year UK gilt yield is down -0.7 bp at 4.060%. 

Eurozone May new car registrations fell -3.0% y/y to 912,000.

German May PPI was unchanged m/m and fell -2.2% y/y, weaker than expectations of +0.1% m/m and -2.0% y/y.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 6% for the July 18 meeting and 61% for the September 12 meeting.

As expected, the BOE kept the bank rate unchanged at 5.25%, with seven officials voting to keep rates on hold and two voting for a rate cut. The BOE said the decision not to cut rates was "finely balanced," suggesting policymakers may be open to a rate cut in the coming months.

US Stock Movers

Super Micro Computer (SMCI) is up more than +8% to lead gainers in the S&P 500, and Dell Technologies (DELL) is up more than +7%, after Elon Musk tweeted that the companies will provide server racks for the supercomputer his startup xAI is building. 

Accenture (ACN) is up more than +6% after reporting Q3 bookings of $21.10 billion, well above the consensus of $17.69 billion.  UBS raised its price target for the stock to $170 from $130. 

Gilead Sciences (GILD) is up more than +4 to lead gainers in the Nasdaq 100 after announcing a Phase 3 Purpose 1 trial of its lenacapavir drug showed 100% efficacy in the prevention of HIV in cisgender women. 

Nvidia (NVDA) is up more than +3% at a record high after the CEO of Dell Technologies tweeted that his company is building an AI factory with Nvidia to power Elon Musk’s xAI’s Grok supercomputer. 

Westrock (WRK) is up more than +4% after S&P Dow Jones Indices said that Smurfit Westrock, the new company formed via the merger of Smurfit and Westrock, will be included in its indexes as of the open of trading on July 9. 

Darden Restaurants (DRI) is up more than +2% after reporting Q4 sales of $3.0 billion, above the consensus of $2.97 billion.

Jabil (JBL) is down more than -6% after cutting its full-year revenue estimate to $28.5 billion from a previous estimate of $30.6 billion. 

Trump Media & Technology Group (DJT) is down more than -13% after the SEC late Tuesday declared effective a regulatory filing that could dilute shareholders. 

Jazz Pharmaceuticals (JAZZ) is down more than -4% after saying its experimental therapy suvecaltamide to treat essential tremors didn’t achieve statistical significance in a mid-stage trial.

Winnebago Industries (WGO) is down more than -2% after reporting Q3 net revenue of $786 million, weaker than the consensus of $805.3 million.

Earnings Reports (6/20/2024)

Accenture PLC (ACN), Darden Restaurants Inc (DRI), Jabil Inc (JBL), Kroger Co/The (KR).

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