Stocks Settle Mixed on Weakness in Tech Stocks

The S&P 500 Index ($SPX) (SPY) Monday closed down -0.31%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.67%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.15%.

Stock indexes Monday settled mixed, with the Dow Jones Industrials climbing to a 1-month high and the Nasdaq 100 falling to a 1-week low.  Weakness in technology stocks Monday weighed on the Nasdaq 100 and the overall market after Truist Advisory Services downgraded the technology sector to neutral from overweight, citing valuation concerns.

Strength in energy stocks Monday was supportive for the broader market.  Also, an increase in M&A activity today provided support for stocks after Sonoco Products agreed to buy Eviosys from KPS Capital Partners for about $3.9 billion.  Also, RXO Inc. agreed to buy United Parcel Service’s asset-light freight brokerage business Coyote Logistics for more than $1 billion. 

Dovish comments Monday from Chicago Fed President Goolsbee knocked T-note yields lower and supported stocks when he said it might be appropriate for the Fed to start thinking about whether restrictive policy is putting too much pressure on the economy.

San Francisco Fed President Daly said if inflation falls more slowly than expected, it would be appropriate for the Fed to hold interest rates higher for longer, but if inflation falls quickly or the labor market cools more than expected, cutting rates would be necessary.

The US Jun Dallas Fed manufacturing outlook survey rose +4.3 to -15.1, slightly weaker than expectations of -15.0.

The markets are awaiting Friday’s release of the US May core PCE deflator, the Fed’s preferred inflation gauge, to see if price pressures are abating, which could pave the way for the Fed to begin cutting interest rates.  The consensus is that the May core PCE deflator eased to +2.6% y/y from +2.8% y/y in April.

The markets are discounting the chances for a -25 bp rate cut at 10% for the next FOMC meeting on July 30-31 and 65% 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 Monday settled mixed.  The Euro Stoxx 50 rose to a 1-week high and closed up +0.89%.  China's Shanghai Composite fell to a 3-3/4 month low and closed down -1.17%.  Japan's Nikkei Stock 225 Index climbed to a 1-week high and closed up +0.54%.

Interest Rates

September 10-year T-notes (ZNU24) Monday closed up +1 tick.  The 10-year T-note yield fell -0.7 bp to 4.248%.  T-notes Monday recovered from early losses and settled slightly higher as short covering emerged when Chicago Fed President Goolsbee said the Fed needs to be watchful of an overly tight monetary policy. T-notes Monday initially opened lower on supply pressures as the Treasury will auction $211 billion of T-notes and floating-rate notes this week, beginning with Tuesday’s $69 billion auction of 2-year T-notes.

European government bond yields Monday finished mixed.  The 10-year German bund yield rose +0.7 bp to 2.419%.  The 10-year UK gilt yield fell -0.2 bp at 4.081%.

The German Jun IFO business climate index unexpectedly fell -0.7 to 88.6 versus expectations of an increase of 89.6.

ECB Executive Board member Schnabel said the risk of new inflation jolts means "the ECB hasn't pre-committed to a fixed rate path" and remains data dependent.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 5% for the July 18 meeting and 66% for the September 12 meeting.

US Stock Movers

Weakness in chip stocks and AI hardware companies Monday pressured the broader market.  Super Micro Computer (SMCI) closed down more than -8%, and Nvidia (NVDA) closed down more than -6% to lead losers in the Nasdaq 100.  Also, Qualcomm (QCOM) and Marvell Technology (MRVL) closed down more than -5%.  In addition, Broadcom (AVGO) closed down -4% and ASML Holding NV (ASML) closed down more than -3%.  Finally, Applied Materials (AMAT), KLA Corp (KLAC), Lam Research (LRCX), and Microchip Technology (MCHP) closed down more than -2%.

Cryptocurrency-linked stocks retreated Monday, with the price of Bitcoin (^BTCUSD) falling more than -6% to a 7-week low.  As a result, Coinbase Global (COIN), Marathon Digital (MARA), Riot Platforms (RIOT), and MicroStrategy (MSTR) closed down -2% or more.   

The strength in crude prices on Monday pushed energy stocks and energy service providers higher.  Baker Hughes (BKR) closed up more than +4% to lead gainers in the Nasdaq 100.  Also, APA Corp (APA) and Schlumberger (SLB) closed up more than +4%.  In addition, Devon Energy (DVN), Occidental Petroleum (OXY), Diamondback Energy (FANG), ConocoPhillips (COP), and Marathon Oil (MRO) closed up more than +3%.  Finally, Chevron (CVX), Exxon Mobil (XOM), Haliburton (HAL), and Hess Corp (HES) closed up more than +2%.

Packaging Corp of America (PKG) closed up more than +3% after data from Fastmarkets RISI showed containerboard prices were up $40 a ton in June.

Fertilizer producers rallied Monday after China restricted fertilizer exports to contain domestic prices.  As a result, Mosaic (MOS) closed up more than +4% to lead gainers in the S&P 500.  Also, CF Industries (CF) closed up more than +3%, and FMC Corp (FMC) closed up more than +1%. 

Target (TGT) closed up more than +2% after announcing it will partner with Shopify to expand its marketplace for third-party merchants.

RXO Inc (RXO) closed up more than +22% after agreeing to buy United Parcel Service’s asset-light freight brokerage business Coyote Logistics for over $1 billion.

Alnylam Pharmaceuticals  (ALNY) closed up +34% after it said its heart drug vutrisiran succeeded in a late-stage study for patients with a serious heart condition known as AYYR amyloidosis with cardiomyopathy.

Carrier Global (CARR) closed up more than +2% after Citigroup upgraded the stock to buy from neutral with a price target of $74.

International Business Machines (IBM) closed up more than +1% after Goldman Sachs initiated coverage on the stock with a buy recommendation and a price target of $200. 

ResMed (RMD) closed down more than -11% to lead losers in the S&P 500 after Citigroup downgraded the stock to neutral from buy and said Eli Lilly’s Tirzepatide is a viable alternative to breathing machines in treating obstructive sleep apnea.

Earnings Reports (6/25/2024)

Carnival Corp (CCL), FedEx Corp (FDX), Ocean Biomedical Inc (OCEA), Progress Software Corp (PRGS), TD SYNNEX Corp (SNX), Worthington Enterprises Inc (WOR).

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