Mega-Cap Tech Stocks Climb and Boost the Broader Market

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.39%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.76%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.16%.

Stock indexes Tuesday finished mixed.  A rally in mega-cap tech stocks Tuesday boosted the overall market.  Also, Carnival rose more than +8% after reporting above-consensus revenue and expected Ebitda.  The broader market maintained its gains after US June consumer confidence was stronger than expected. 

On the bearish side, Pool Corp cut its full-year EPS forecast, which undercut building-related stocks and knocked Home Depot down more than -3% to weigh on the Dow Jones Industrials.

Hawkish comments Tuesday from Fed Governor Bowman were bearish for stocks when she said she sees a number of upside risks to the inflation outlook, and "we are still not yet at the point where it is appropriate to lower the policy rate."  She added that she "didn't see any rate cuts by the Fed this year and shifted her outlook for rate cuts to 2025."

Fed Governor Cook said it will be appropriate for the Fed to reduce interest rates "at some point," but "the timing of any such adjustment will depend on how economic data evolve and what they imply for the economic outlook and balance of risks."

The Conference Board US June consumer confidence index fell -0.9 to 100.4, stronger than expectations of 100.0.

The US June Richmond Fed manufacturing survey fell -10 to -10, weaker than expectations of -3.

The US Apr S&P CoreLogic composite-20 home price index eased to +7.20% y/y from +7.46% y/y in March, stronger than expectations of +7.00% y/y.

The US June Chicago Fed national activity index unexpectedly rose +0.44 to 0.18, stronger than expectations of a decline to -0.25.

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 Tuesday settled mixed.  The Euro Stoxx 50 closed down -0.30%.  China's Shanghai Composite dropped to a 4-month low and closed down -0.44%.  Japan's Nikkei Stock 225 Index climbed to a 1-1/2 week high and closed up +0.95%.

Interest Rates

September 10-year T-notes (ZNU24) Tuesday closed up +2 ticks.  The 10-year T-note yield fell -0.2 bp to 4.230%.  T-notes Tuesday recovered from early losses and posted modest gains.  Hawkish comments from Fed Governor Bowman weighed on T-notes when she said she "didn't see any Fed rate cuts this year and shifted her outlook for rate cuts to 2025."  Also, supply pressures undercut T-notes as the Treasury auctioned $69 billion of 2-year T-notes Tuesday as part of this week’s $211 billion package of T-notes and floating-rate notes. 

T-notes recovered their losses Tuesday afternoon and moved slightly higher on strong demand for the Treasury’s $69 billion 2-year T-note auction with a bid-to-cover ratio of 2.75, above the 10-auction average of 2.63.  Also, a decline in inflation expectations supported T-notes as the 10-year breakeven inflation rate fell to a 1-week low Tuesday at 2.211%.

European government bond yields on Tuesday moved lower.  The 10-year German bund yield fell -0.7 bp to 2.411%.  The 10-year UK gilt yield fell -0.2 bp to 4.079%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 6% for the July 18 meeting and 71% for the September 12 meeting.

US Stock Movers

Mega-cap tech stocks rallied Tuesday and boosted the overall market.  Nvidia (NVDA) closed up more than +6% to lead gainers in the Nasdaq 100.  Also, Meta Platforms (META), Alphabet (GOOGL), and Tesla (TSLA) closed up more than +2%.  In addition, Amazon.com (AMZN) closed up +0.72% 

Cruise line operators moved higher Tuesday after Carnival reported Q2 revenue of $5.78 billion, better than the consensus of $5.69 billion, and forecasted Q3 adjusted Ebitda of $2.66 billion, stronger than the consensus of $2.62 billion.  As a result, Carnival (CCL) closed up more than +7% to lead gainers in the S&P 500.  Also, Norwegian Cruise Line Holdings (NCLH) closed up more than +4%, and Royal Caribbean Cruises Ltd (RCL) closed up more than +3%.

Apple (AAPL) closed up nearly +1% to lead gainers in the Dow Jones Industrials after Maxim Group LLC raised its price target on the stock to $195 from $178.

Chip stocks rebounded Tuesday after slumping on Monday.  KLA Corp (KLAC) and Lam Research (LRCX) closed up more than +2%.  Also, Applied Materials (AMAT), ASML Holding NV (ASML), Globalfoundries (GFS), Micron Technology (MU), and Western Digital (WDC) closed up more than +1%.

Capri Holdings (CPRI) closed up more than +1% after Wells Fargo upgraded the stock to overweight from equal weight with a price target of $43. 

Insmed Inc (INSM) closed up more than +1% after Barclays raised its price target on the stock to $90 from $63. 

Trump Media & Technology (DJT) closed up more than +7%, adding to Monday’s 20% surge following an announcement late Friday that the company would receive more than $69.4 million in proceeds from the cash exercise of stock warrants. 

Pool Corp (POOL) closed down more than -8% to lead losers in the S&P 500 after cutting its full-year EPS forecast to $11.04-$11.44 from a prior forecast of $$13.19-$14.19, well below the consensus of $13.11.  Other building-related stocks fell on the news with Home Depot (HD) closing down more than -3% to lead losers in the Dow Jones Industrials.  Also, Tractor Supply (TSCO) and Lowe’s (LOW) closed down more than -4%.

Builders FirstSource (BLDR) closed down more than -4% after Wedbush cut its price target on the stock to $175 from $215.

TD Synnex (SNX) closed down more than -9% after reporting Q2 revenue of $13.95 billion, weaker than the consensus of $14.10 billion, and forecasting Q3 revenue of $13.3 billion-$14.9 billion, the midpoint below the consensus of$14.5 billion. 

Spirit Aero (SPR) closed down more than -3% after Bloomberg reported that Boeing switched its proposed funding for the company from an all-cash offer to a deal funded mostly by stock. 

Birkenstock (BIRK) closed down more than -3% after holder L. Catterton Management offered 14 million shares of the stock via Morgan Stanley and JPMorgan Chase.

Norfolk Southern (NSC) closed down more than -2% after Susquehanna Financial cut its price target on the stock to $245 from $265.

Paramount Global (PARA) closed down more than -1% after Goldman Sachs reinstated coverage of the stock with a recommendation of sell and a price target of $9.50.

Earnings Reports (6/26/2024)

AeroVironment Inc (AVAV), Concentrix Corp (CNXC), Daktronics Inc (DAKT), DZS Inc (DZSI), Franklin Covey Co (FC), General Mills Inc (GIS), HB Fuller Co (FUL), Jefferies Financial Group Inc (JEF), Micron Technology Inc (MU), MillerKnoll Inc (MLKN), Novagold Resources Inc (NG), Paychex Inc (PAYX), UniFirst Corp/MA (UNF), Urban One Inc (UONEK), Worthington Steel Inc (WS).

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