Stocks Finish Higher on Balanced Comments from Fed Chair Powell

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.07%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.13%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.07%.

Stock indexes settled mixed on Tuesday, with the S&P 500 and Nasdaq 100 posting new all-time highs.  Strength in bank stocks and chip stocks led the overall market higher.  Weakness in restaurant stocks and higher T-note yields were negative factors for equities.  The broader market remained higher Tuesday after balanced comments from Fed Chair Powell.

Fed Chair Powell said Tuesday that "more good data" would strengthen confidence that inflation is moving down toward the Fed's 2% target, and recent readings point to "modest further progress" on prices.  He added that the labor market is strong but not overheated, and easing too soon and too much could harm inflation progress.

The markets are looking ahead to Thursday’s June US CPI report to see if price pressures are continuing to ease. The consensus is that the June CPI eased to +3.1% y/y from +3.3% y/y in May, and the June core CPI remained unchanged from May at +3.4% y/y.  Finally, Q2 earnings season begins Friday as some of the biggest US banks, including JPMorgan Chase, Citigroup, and Wells Fargo, will report quarterly results.  

The markets are discounting the chances for a -25 bp rate cut at 5% for the next FOMC meeting on July 30-31 and 71% for the following meeting on September 17-18.

Overseas stock markets on Tuesday settled mixed.  The Euro Stoxx 50 closed down -1.33%.  China's Shanghai Composite recovered from a 4-1/2 month low and closed up +1.26%.  Japan's Nikkei Stock 225 Index rallied to a new all-time high and closed up +1.96%.

Interest Rates

September 10-year T-notes (ZNU24) Tuesday closed down -6 ticks.  The 10-year T-note yield rose +2.0 bp to 4.298%.  Sep T-notes Tuesday were under pressure on negative carryover from a fall in European government bonds.  Also, comments from Fed Chair Powel undercut T-notes when he said policymakers want to see more evidence of cooling inflation before cutting interest rates.  T-notes recovered from their worst levels Tuesday on solid demand for the Treasury’s $58 billion auction of 3-year T-notes with a bid-to-cover ratio of 2.67, above the 10-auction average of 2.58. 

European government bond yields Tuesday moved higher.  The 10-year German bund yield rose +4.0 bp to 2.580%.  The 10-year UK gilt yield rose +4.6 bp to 4.159%.

ECB Governing Council member Panetta said the ECB shouldn't be overly worried about stubborn services inflation and still-robust wage growth and that "the reduction in key interest rates will continue at a gradual pace, accompanying the return of inflation to target, if macroeconomic developments remain in line with the ECB Governing Council's expectations."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 4% for the July 18 meeting and 74% for the September 12 meeting.

US Stock Movers

Bank stocks rallied Tuesday to boost the overall market after Reuters reported the Fed is weighing a reduction in the amount of extra capital that the biggest US banks need to hold as part of the GSIB surcharge.  As a result, Citigroup (C) and Morgan Stanley (MS) closed up more than +2%.  Also, Goldman Sachs (GS), JPMorgan Chase (JPM), Bank of America (BAC), Northern Trust (NTRS), M&T Bank (MTB), and Wells Fargo (WFC) closed up more than +1%.

Chip stocks rose Tuesday after KeyBanc Capital Markets raised its price target on Nvidia to $180 from $130.  As a result, Nvidia (NVDA) and Applied Materials (AMAT) closed up more than +2%.  Also, Intel (INTC) closed up more than +1% to lead gainers in the Dow Jones Industrials.  In addition, Lam Research (LRCX) closed up +0.99%, and KLA Corp (KLAC)  closed up +0.96%,   

Corning (GLW) closed up more than +3% after Argus Research raised its price target on the stock to $50 from $40.

Principal Financial Group (PFG) closed up more than +3% after Raymond James upgraded the stock to strong buy from market perform with a price target of $99.

Fair Isaac (FICO) closed up more than +2% after Wolfe Research initiated coverage of the stock with a recommendation of outperform and a price target of $1,725.

CRH Plc (CRH) closed up more than +2% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $88.

Albemarle (ALB) is down more than -8% to lead losers in the S&P 500 after UBS cut its price target on the stock to $109 from $124.

Restaurant stocks fell Tuesday after Piper Sandler said June traffic trends for casual dining, family dining, fine dining, and quick service establishments failed to show “any real evidence of noteworthy improvement” from an “uninspiring” May.  As a result, Brinker International (EAT) closed down more than -5%, and Domino’s Pizza (DPZ) and Jack in the Box (JACK) closed down more than -4%.  Also, Chipotle Mexican Grill (CMG), Darden Restaurants (DRI), and Papa John’s International (PZZA) closed down more than -3%. 

Heartland Express (HTLD) closed down more than -4% after UBS downgraded the stock to neutral from buy.

CSX Corp (CSX) closed down more than -2% after it said it would review the capitalization of certain prior engineering materials and labor.

Helen of Troy (HELE) closed down more than -27% after reporting preliminary Q1 adjusted EPS of 99 cents, well below the consensus of $1.59, and cutting its 2025 adjusted EPS estimate to $7.00-$7.50 from a prior estimate of $8.70-$9.20, weaker than the consensus of $8.93.

Helios Technologies (HLIO) closed down more than -10% after placing CEO and president Matosevic on paid leave following allegations of a potential violation of the company’s Code of Business Conduct and Ethics.

Earnings Reports (7/10/2024)

AZZ Inc (AZZ), E2open Parent Holdings Inc (ETWO), PriceSmart Inc (PSMT), Pure Cycle Corp (PCYO), WD-40 Co (WDFC).

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