Stocks Hold Near Record Highs on Chip Stock Strength

The S&P 500 Index ($SPX) (SPY) today is up +0.22%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.28%.

Stock indexes today are mildly higher, with the S&P 500 and Nasdaq 100 posting new all-time highs.  The strength of chip stocks is leading technology stocks and the broader market higher today after Taiwan Semiconductor Manufacturing Co, the sole supplier of Nvidia's and Apple's most advanced chips, reported stronger-than-expected Q2 sales.  Also, a decline in T-note yields today is supportive of stocks.

The weakness in software stocks is limiting gains in the overall equity market after Intuit cut 1,800 employees today, or about 10% of its workforce.

US MBA mortgage applications fell -0.2% in the week ended July 5.  The purchase mortgage sub-index rose +1.0%, and the refinancing mortgage sub-index fell -2.2%.  The average 30-year fixed mortgage rate fell -3 bp to 7.00% from 7.03% in the prior week.

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 75% for the following meeting on September 17-18.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +0.87%.  China's Shanghai Composite closed down -0.68%.  Japan's Nikkei Stock 225 Index rallied to a new all-time high and closed up +0.61%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +2 ticks.  The 10-year T-note yield is down -0.4 bp at 4.292%.  Sep T-notes today are modestly higher, garnering carryover support from a rally in European government bonds.  The upside in T-notes is limited by supply pressures as the Treasury will auction $39 billion of reopened 10-year T-notes later today as part of this week’s $119 billion T-notes and T-bonds auction package.  T-notes fell back from their best levels today after Fed Chair Powell said the Fed “has a ways to go” on shrinking its balance sheet. 

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 1-1/2 week low of 2.514% and is down -5.0 bp at 2.530%.  The 10-year UK gilt yield fell to a 2-week low of 4.090% and is down -3.0 bp at 4.129%. 

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 4% for the July 18 meeting and 73% for the September 12 meeting.

US Stock Movers

Chip stocks are moving higher today after Taiwan Semiconductor Manufacturing Co, the sole supplier of Nvidia's and Apple's most advanced chips, reported Q2 sales above expectations.  As a result, Advanced Micro Devices (AMD) is up more than +3%.  Also, Micron Technology (MU) and ON Semiconductor (ON) are up more than +2%.  In addition, Nvidia (NVDA), Marvell Technology (MRVL), Analog Devices (ADI), GlobalFoundries (GFS), NXP Semiconductors NV (NXPI), Microchip Technology (MCHP) are up more than +1%. 

Newmont (NEM) is up more than +3% after CIBC Capital Markets upgraded the stock to outperform from neutral with a price target of $61. 

Illumina (ILMN) is up more than +4% to lead gainers in the Nasdaq 100 after acquiring Fluent BioSciences, a developer of single-cell technology.   

Aehr Test Systems (AEHR) is up more than +25% after reporting Q4 preliminary revenue of $16.6 million, better than the consensus of $15.4 million.

SMART Global Holdings (SGH) is up more than +16% after reporting Q3 adjusted EPS of 37 cents, above the consensus of 30 cents. 

Carvana (CVNA) is up more than +1% after Needham upgraded the stock to buy from hold with a price target of $160. 

Honeywell International (HON) is up more than +1% after buying the liquified natural gas process technology and equipment business of Air Products & Chemicals for $1.81 billion.

Software stocks are under pressure today after Intuit cut 1,800 employees, or about 10% of its workforce.  As a result, Atlassian (TEAM) is down more than -4% to lead losers in the Nasdaq 100.  Also, MongoDB (MDB) and Intuit (INTU) are down more than -4%.  Salesforce (CRM) is down more than -2% to lead losers in the Dow Jones Industrials.  Datadog (DDOG) and Adobe (ADBE) are down more than -1%.

Mastercard (MA) is down more than -2% after Bank of America Global Research downgraded the stock to neutral from buy. 

Warner Music Group (WMG) is down more than -2% after Redburn downgraded the stock to sell from neutral with a price target of $24.

Generac Holdings (GNRC) is down more than -2% after OTR Global downgraded the stock to neutral from positive.

Target (TGT) is down more than -2% after Piper Sandler assumed coverage on the stock with a neutral rating, citing a lack of catalysts to push sales and margins above estimates in the near term.

Visa (V) is down more than -1% after Bank of America Global Research downgraded the stock to neutral from buy.

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