S&P 500 and Nasdaq 100 Post Record Highs on Fed Rate Cut Hopes

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.51%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.87%.

Stock indexes Wednesday settled mixed in the holiday-shortened session, with the S&P 500 and Nasdaq 100 posting new record highs.  Stock indexes ended trading at 1 pm EST Wednesday and will be closed Thursday for the July 4 holiday.  T-note yields tumbled Wednesday and supported gains in the broader market after weaker-than-expected US economic news bolstered hopes the Fed will begin cutting interest rates this year.  Labor market news showed that the June ADP employment change rose less than expected, and weekly continuing unemployment claims rose to a 2-1/2 year high.  Also, activity in the US service sector contracted by the most in 4 years in June.  

Weakness in defensive healthcare stocks weighed on the Dow Jones Industrials.  Another bearish factor for stocks was Wednesday’s news that showed the US May trade deficit widened to a 19-month high, a negative factor for Q2 GDP.

US MBA mortgage applications fell -2.6% in the week ended June 28, with the purchase mortgage sub-index falling -3.3% and the refinancing mortgage sub-index falling-1.5%.  The average 30-year fixed rate mortgage rose +10 bp to 7.03% from 6.93% in the prior week.

The US Jun ADP employment change rose +150,000, weaker than expectations of +165,000.

US weekly initial unemployment claims rose +4,000 to 238,000, showing a weaker labor market than expectations of 235,000.  Weekly continuing claims rose +26,000 to a 2-1/2 year high of 1.858 million, showing a weaker labor market than expectations of 1.840 million.

The US May trade deficit widened to a 19-month high of -$75.1 billion from -$74.5 billion in April.

US May factory orders unexpectedly fell -0.5% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 4 months.

The US Jun ISM services index fell -5.0 to 48.8, weaker than expectations of 52.7 and the steepest pace of contraction in 4 years.

The minutes of the Jun 11-12 FOMC meeting showed that officials didn't expect it would be appropriate to lower borrowing costs "until additional information had emerged to give them greater confidence that inflation" is on track to their 2% goal.

The markets are discounting the chances for a -25 bp rate cut at 9% for the next FOMC meeting on July 30-31 and 70% for the following meeting on September 17-18.

Overseas stock markets Wednesday settled mixed.  The Euro Stoxx 50 closed up +1.21%.  China's Shanghai Composite closed down -0.49%.  Japan's Nikkei Stock 225 Index climbed to a 3-month high and closed up +1.26%.

Interest Rates

September 10-year T-notes (ZNU24) Wednesday closed up +18.5 ticks.  The 10-year T-note yield fell -8.1 bp to 4.351%.  Sep T-notes rallied Wednesday on weaker-than-expected US labor market news, a dovish factor for Fed policy.  The June ADP employment change rose less than expected, and weekly continuing unemployment claims climbed to a 2-1/2 year high. T-notes added to their gains and raced to their highs Wednesday after the Jun ISM services index fell to a 4-year low. 

European government bond yields Wednesday ended lower.  The 10-year German bund yield fell back from a 3-week high of 2.642% and finished down -1.7 bp at 2.585%.  The 10-year UK gilt yield fell -7.6 bp to 4.172%. 

Eurozone May PPI fell -0.2% m/m and -4.2% y/y, weaker than expectations of -0.1% m/m and -4.1% y/y.

The Eurozone Jun S&P composite PMI was revised upward by +0.1 to 50.9 from the previously reported 50.8.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 6% for the July 18 meeting and 70% for the September 12 meeting.

US Stock Movers

Paramount Global (PARA) closed up more than +6% to lead gainers in the S&P 500 after Bloomberg News reported that Skydance Media had reached a preliminary agreement to buy National Amusements and merge with Paramount. 

Tesla (TSLA) closed up more than +6% to lead gainers in the Nasdaq 100 after Bank of America Global Research raised its price target on the stock to $260 from $220.

Mining stocks rose Wednesday after gold, silver, and copper prices rallied sharply to 1-1/2 week highs.  As a result, Newmont (NEM) closed up more than +4%, and Freeport McMoRan (FCX) closed up more than +3%.

Wednesday’s sharp decline in bond yields boosted chip stocks. Nvidia (NVDA) and Broadcom (AVGO) closed up more than +4%.  Also, Micron Technology (MU) closed up more than +3%, and ASML Holding NV (ASML) and ARM Holdings Plc (ARM) closed up more than +2%.  In addition, Microchip Technology (MCHP), KLA Corp (KLAC), Qualcomm (QCOM), and Applied Materials (AMAT) closed up more than +1%. 

Quest Diagnostics (DGX) closed up more than +2% after agreeing to buy LifeLabs from Omers for about C$1.35 billion, including net debt. 

Permian Resources (PR) closed up more than +2% after BMO Capital Markets upgraded the stock to outperform from market perform with a price target of $21. 

Defensive healthcare stocks retreated Wednesday.  Humana (HUM) closed down more than -3%, and UnitedHealth Group (UNH) closed down more than -1% to lead losers in the Dow Jones Industrials.  Also, Elevance Health (ELV) and Cardinal Health (CAH) closed down more than -1%.

Cryptocurrency-related stocks moved lower Wednesday after the price of Bitcoin (^BTCUSD) fell more than -2% to a 1-week low.  As a result, Coinbase Global (COIN), Marathon Digital (MARA), MicroStrategy (MSTR), and Riot Platforms (RIOT) closed down more than -1%. 

Simulations Plus (SLP) closed down more than -15% after cutting its 2024 diluted EPS estimate to 46 cents-48 cents from a June estimate of 54 cents-56 cents and after the company’s Board of Directors said it is discontinuing its quarterly cash dividend.

Azek Co. (AZEK) closed down more than -2% after D.A. Davidson downgraded the stock to neutral from buy.

Charter Communications (CHTR) closed down more than -1% after Citigroup downgraded the stock to sell from neutral with a price target of $255.

Earnings Reports (7/5/2024)

Amer Sports Inc (AS), Park Aerospace Corp (PKE).

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