Hawkish Comments from Fed Governor Bowman Weigh on Stocks

The S&P 500 Index ($SPX) (SPY) today is down -0.22%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.33%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.15%.

Stock indexes today are mildly lower after hawkish comments today from Fed Governor Bowman pushed T-note yields higher and dampened expectations for Fed rate cuts this year.  Bond yields rose after Fed Governor Bowman said that inflation will remain inflated for some time so it's not yet appropriate for the Fed to cut interest rates.

On the positive side, FedEx is up more than +12% after reporting better-than-expected Q4 adjusted EPS and forecasting 2025 adjusted EPS above consensus.

US MBA mortgage applications rose +0.8% in the week ended June 21.  The purchase mortgage sub-index rose +1.2%, and the refinancing mortgage sub-index fell -0.1%.  The average 30-year fixed rate mortgage fell -1 bp to 6.93% from 6.94%.

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 59% 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 fell back from a 1-1/2 week high and is down -0.62%.  China's Shanghai Composite recovered from a 4-month low and closed up +0.76%.  Japan's Nikkei Stock 225 Index climbed to a 2-1/2 month high and closed up +1.26%.

Interest Rates

September 10-year T-notes (ZNU24) today are down -12 ticks.  The 10-year T-note yield is up +5.5 bp at 4.298%.  Sep T-notes today fell to a 1-1/2 week low, and the 10-year T-note yield rose to a 1-1/2 week high of 4.308%.  T-notes are under pressure today on hawkish comments from Fed Governor Bowman, who said that inflation will remain inflated for some time so it's not yet appropriate for the Fed to cut interest rates.  Also, supply pressures are undercutting T-notes as the Treasury will auction $70 billion of 5-year T-notes and $28 billion of 2-year floating-rate notes later today as part of this week’s $211 billion package of T-notes and floating-rate notes. 

European government bond yields today are moving higher.  The 10-year German bund yield is up +2.6 bp at 2.438%.  The 10-year UK gilt yield rose to a 1-1/2 week high of 4.131% and is up +4.4 bp at 4.123%. 

The German July GfK consumer confidence index unexpectedly fell -0.8 to -21.8 versus expectations of an increase to -19.5.

ECB Governing Council member Rehn said investor expectations for the ECB to cut interest rates twice more this year "are reasonable expectations."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 9% for the July 18 meeting and 67% for the September 12 meeting.

US Stock Movers

Aptiv Plc (APTV) is down more than -8% to lead losers in the S&P 500 after Piper Sandler downgraded the stock to underweight from neutral with a price target of $63. 

General Mills (GIS) is down more than -5% after reporting Q4 net sales of $4.71 billion, below the consensus of $4.87 billion, and forecast 2025 organic net sales of 0% to +1%, weaker than the consensus of +1.18%. 

Airline stocks are on the defensive today after Southwest Airlines reduced its estimate for unit revenue in Q2 to a decline of -4.5% per available seat, weaker than a previous estimate of down -1.5% to -3.5%.  As a result, Southwest Airlines (LUV) is down more than -4%, and United Airlines Holdings (UAL) is down more than -3%.  Also, Delta Air Lines (DAL) and Alaska Air Group (ALK) are down more than -2%.  American Airlines Group (AAL) is down more than -1%.

Worthington Enterprises (WOR) is down more than -6% after reporting Q4 net sales of $318.8 million, well below the consensus of $353 million. 

Sarepta Therapeutics (SRPT) is down more than -3% after Citigroup downgraded the stock to neutral from buy. 

FedEx (FDX) is up +12% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of $5.41, better than the consensus of $5.34, and forecasting 2025 adjusted EPS of $20.00-$22.00, the midpoint above the consensus of $20.85.  Other shippers gained on the news, with United Parcel Service (UPS) up more than +2%, and Old Dominion Freight Line (ODFL) and JB Hunt Transport Services (JBHT) up more than +1%.

Whirlpool (WHR) is up more than +14% after Reuters reported that Robert Bosch GmbH is considering an offer for the company.

Vista Outdoor (VSTO) is up more than +9% after MNC Capital Partners said it increased its all-cash offer to buy the company to $42 per share, or approximately $3.2 billion.

Rivian Automotive (RIVN) is up more than +31% after Volkswagen said it plans to establish a joint venture and invest $5 billion in the company.

Chip stocks are climbing today to lead technology stocks higher.  Nvidia (NVDA) and Micron Technology (MU) are up more than +2%. 

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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