Stocks Mixed on Dovish Powell and Strong US Labor News

The S&P 500 Index ($SPX) (SPY) today is down -0.03%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.13%.

Stock indexes today are mixed.  The broader market is under pressure today on negative carryover from a slide in European stocks.  European stocks fell today on hawkish comments from ECB President Lagarde, who said Monday night that the ECB doesn’t yet have sufficient evidence that inflation threats have passed, bolstering expectations that the ECB will delay further interest rate cuts.  European stocks also retreated as political uncertainty in France remains high ahead of the second round of parliamentary elections this Sunday.  The broader market remained mixed after US May JOLTS job openings unexpectedly increased, a hawkish factor for Fed policy.

Stocks found some support today as bond yields fell on comments from Fed Chair Powell, who said prices now show signs of resuming their disinflation trend and the Fed can "take its time" with interest rate cuts with a strong economy and a job market.  Also, an +8% jump in Tesla today keeps the Nasdaq 100 in positive territory after it reported stronger-than-expected Q2 vehicle deliveries.

The US May JOLTS job openings unexpectedly rose +221,000 to 8.140 million, showing a stronger labor market than expectations of a decline to 7.946 million.

The markets are discounting the chances for a -25 bp rate cut at 9% for the next FOMC meeting on July 30-31 and 66% for the following meeting on September 17-18.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down -0.57%.  China's Shanghai Composite rose to a 1-week high and closed up +0.08%.  Japan's Nikkei Stock 225 Index rose to a 2-3/4 month high and closed up +1.12%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +9 ticks.  The 10-year T-note yield is down -3.0 bp to 4.432%.  Sep T-notes today are moderately higher after Fed Chair Powell said prices now show signs of resuming their disinflation trend.  T-notes also have some positive carryover from today’s rally in European government bonds. T-notes fell back from their best levels after US May JOLTS job openings unexpectedly increased, a hawkish factor for Fed policy. 

European government bond yields today are moving lower.  The 10-year German bund yield fell back from a 2-1/2 week high of 2.615% and is down -1.7 bp at 2.590%.  The 10-year UK gilt yield is down -4.8 bp at 4.234%. 

The Eurozone Jun CPI eased to +2.5% y/y from +2.6% y/y in May, right on expectations.  However, Jun core CPI rose +2.9% y/y, unchanged from May and stronger than expectations of a decline to +2.8% y/y.

ECB Governing Council member Simkus said core inflation is the "most important" indicator that will sway the ECB into action and that the ECB isn't in a rush to lower borrowing costs and is looking to September and the months beyond for more potential interest rate cuts.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 7% for the July 18 meeting and 67% for the September 12 meeting.

US Stock Movers

Tesla (TSLA) is up more than +8% at a 5-1/2 month high to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q2 vehicle deliveries of 443,956, stronger than the consensus of 436,000.

Paramount Global (PARA) is up more than +2% after the New York Times reported that Barry Diller was considering making a bid for the company.

Tyler Technologies (TYL) is up more than +2% after announcing that it signed a contract with the Arizona Supreme Court that expands the use of the company’s Enterprise Supervision solution to encompass juvenile probation for all 15 counties across Arizona.

PayPal Holdings (PYPL) is up more than +1% after Susquehanna upgraded the stock to positive from neutral with a price target of $71. 

Energy stocks and energy service providers are climbing today as the price of WTI crude oil climbs to a 2-1/2 month high.  As a result, Valero Energy (VLO), Marathon Petroleum (MPC), Diamondback Energy (FANG), and Phillips 66 (PSX) are up more than +1%. 

Homebuilders are falling today after Raymond James and Citigroup downgraded Lennar to hold-equivalent ratings, citing concerns around a softening Florida housing market.  As a result, Lennar (LEN) is down more than -2% to lead losers in the S&P 500.  Also, DR Horton (DHI), Toll Brothers (TOL), and PulteGroup (PHM) are down more than -2%.

Incyte (INCY) is down more than -2% after BMO Capital Markets downgraded the stock to underperform from market perform with a price target of $48. 

Eli Lilly (LLY) is down more than -2% after US President Biden demanded it cut its “unconscionably high prices” for its diabetes and weight loss drugs. 

CrowdStrike Holdings (CRWD) is down more than -2% to lead losers in the Nasdaq 100 after Piper Sandler downgraded the stock to neutral from overweight.

Nike (NKE) is down more than -1% to lead losers in the Dow Jones Industrials after RBC Capital Markets cut its price target on the stock to $75 from $100. 

Pure Storage (PSTG) is down more than -5% after UBS downgraded the stock to sell from neutral, saying the stock’s valuation is unjustified given the increased competition.   

R1 RCM (RCM) is down more than -13% after New Mountain Capital and TCP-ASC failed to agree on a joint takeover of the company. 

Earnings Reports (7/2/2024)

Avid Bioservices Inc (CDMO), MSC Industrial Direct Co Inc (MSM), Radius Recycling Inc (RDUS), Simulations Plus Inc (SLP).

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