Stocks Settle Mostly Lower on Chip Stock Weakness

The S&P 500 Index ($SPX) (SPY) Friday closed down -0.16%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.26%.

Stock indexes Friday mainly settled lower, although the Dow Jones Industrials rose to a 4-week high.  Weakness in chip stocks on Friday weighed on the broader market, led by a -4% drop in Broadcom and a -3% fall in Nvidia.  Also, concerns about the Eurozone economy sparked a risk-off mood in asset markets after Friday’s news that the Eurozone June S&P manufacturing PMI unexpectedly fell to a 6-month low.

Friday’s US S&P PMI reports showed that the US economy continues to expand, which is positive for corporate profits but is hawkish for Fed policy and may prompt the Fed to delay interest rate cuts.  The US June S&P manufacturing PMI unexpectedly rose +0.4 to 51.7, stronger than expectations of a decline to 51.0.  Also, the June S&P services PMI unexpectedly rose +0.3 to a 2-year high of 55.1, stronger than expectations of a decline to 54.0.

US May existing home sales fell -0.7% m/m to a 4-month low of 4.11 million, slightly better than expectations of 4.10 million.

US May leading indicators fell -0.5% m/m, weaker than expectations of -0.3% m/m.

Stock volume and volatility were above normal Friday due to the triple-witching event, when derivatives contracts tied to equities, index options, and futures mature, which prompted traders to roll over their existing positions or start new ones.  According to options platform SpotGamma, about $5.5 trillion of positions expired Friday.

The markets are discounting the chances for a -25 bp rate cut at 10% for the next FOMC meeting on July 30-31 and 64% 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 Friday settled lower.  The Euro Stoxx 50 closed down -0.82%.  China's Shanghai Composite fell to a 2-3/4 month low and closed down -0.24%.  Japan's Nikkei Stock 225 Index closed down -0.09%.

Interest Rates

September 10-year T-notes (ZNU24) Friday closed down -1.5 ticks.  The 10-year T-note yield fell -0.7 bp to 4.252%.  T-notes Friday gave up an early advance and turned lower after the US Jun S&P manufacturing and services PMIs unexpectedly rose, a hawkish factor for Fed policy.  T-notes Friday initially moved higher on carryover support from rallies in European government bonds following weaker-than-expected Eurozone PMI reports. 

European government bond yields Friday finished mixed.  The 10-year German bund yield fell -2.0 bp to 2.412%.  The 10-year UK gilt yield rebounded from a 2-1/2 month low of 3.998% and rose +2.5 bp to 4.083%. 

The Eurozone June S&P manufacturing PMI unexpectedly fell -1.7 to a 6-month low of 45.6, weaker than expectations of an increase to 47.9.  The June S&P composite PMI unexpectedly fell -1.4 to 50.8, weaker than expectations of an increase to 52.5.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 6% for the July 18 meeting and 64% for the September 12 meeting.

US Stock Movers

Broadcom (AVGO) closed down more than -4% to lead losers in the S&P 500 and Nasdaq 100 and weighed on chip stocks.  Nvidia (NVDA) closed down more than -3%.  Also, Applied Materials (AMAT), Qualcomm (QCOM), Lam Research (LRCX), Marvell Technology (MRVL), KLA Corp (KLAC), and ASML Holding NV (ASML) closed down more than -1%.

Micron Technology (MU) closed down more than -3% after Aletheia Capital Limited downgraded the stock to hold from buy.

ResMed (RMD) closed down more than -3% after Eli Lilly said a Phase 3 trial of its Tirzepatide met all primary and key secondary endpoints and reduced the severity of obstructive sleep apnea.

Palantir (PLTR) closed down more than -6% after Monness, Crespi, Hardt & Co. downgraded the stock to sell from neutral with a price target of $20.

LendingTree (TREE) closed down more than -2% on a report that said hackers are selling data about consumers of its QuoteWizard subsidiary after it detected unauthorized access on a cloud database hosted by Snowflake. 

CME Group (CME) closed down more than -1% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $187.

Smith & Wesson Brands (SWBI) closed down more than -12% after it said in a conference call that it expects Q1 sales to be down approximately 10% y/y. 

FactSet Research Systems (FDS) closed up more than +3% to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $4.37, stronger than the consensus of $3.91.

Gilead Sciences (GILD) closed up more than +3% and added to Thursday’s 8% rally after announcing a Phase 3 Purpose 1 trial of its lenacapavir drug showed 100% efficacy in the prevention of HIV in cisgender women. 

McDonald’s (MCD) is up more than +2% to lead gainers in the Dow Jones Industrials after UBS said the company’s $5 meal deal implementation could boost its comparable sales by 2% this quarter. 

Sarepta Therapeutics (SRPT) closed up more than +30% after the US Foos and Drug Administration (FDA) approved expanded use of the company’s Elevidys gene therapy to treat children aged four and above with Duchenne muscular dystrophy. 

Spirit AeroSystems (SPR) closed up more than +6% after Reuters reported that Boeing is nearing a deal to buy the company. 

Alcoa (AA) closed up more than +3% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $50.

Pala Alto Networks (PANW) closed up more than +2% after DA Davidson initiated coverage on the stock with a recommendation of buy and a price target of $380.

Earnings Reports (6/24/2024)

Beyond Air Inc (XAIR), Eagle Pharmaceuticals Inc/DE (EGRX), Enerpac Tool Group Corp (EPAC), Luna Innovations Inc (LUNA).

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