Stocks Settle Higher on Positive Corporate News and Lower Bond Yields

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.64%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.85%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.06%.

Stock indexes closed higher on Tuesday, with the S&P 500 and Dow Jones Industrials posting new all-time highs. Positive corporate news boosted the broader market Tuesday, with Bank of America up more than +5% after reporting better-than-expected Q2 net interest income and forecasting Q4 net interest income above consensus.  Also, Match Group closed up more than +7% after Starboard Value said it had built a 6.6% stake in the company.  In addition, UnitedHealth Group closed up more than +6% after forecasting full-year adjusted EPS above consensus. 

Stock indexes also found support from lower bond yields as the 10-year T-note yield Tuesday fell to a 4-month low.  Finally, Tuesday’s news showed that US retail sales rose more than expected in June, indicating that the economy was holding up.

On the negative side for stocks, Charles Schwab closed down more than -10% after reporting fewer-than-expected new accounts in Q2.  Also, weakness in chip stocks limited gains in the Nasdaq 100 as investors rotated out of large-cap chip stocks and into smaller-cap stocks. 

US June retail sales were unchanged m/m, stronger than expectations of a -0.3% m/m decline. Also, June retail sales ex-autos rose +0.4% m/m, stronger than expectations of +0.1% m/m.

The US June import price index ex-petroleum unexpectedly rose +0.2% m/m versus expectations of a -0.2% m/m decline.

The US July NAHB housing market index unexpectedly fell -1 to a 7-month low of 42, weaker than expectations of no change at 43.

Fed Governor Kugler said it would be appropriate for the Fed to lower borrowing costs "later this year" if inflation continues to moderate alongside a cooling labor market.

The markets are discounting the chances for a -25 bp rate cut at 7% for the next FOMC meeting on July 30-31 and 100% for the following meeting on September 17-18.

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 closed down -0.71%.  China's Shanghai Composite closed up +0.08%.  Japan's Nikkei Stock 225 Index closed up +0.20%.

Interest Rates

September 10-year T-notes (ZNU24) Tuesday closed up +11 ticks.  The 10-year T-note yield fell -6.0 bp to 4.169%.  Sep T-notes Tuesday rallied to a 4-month high, and the 10-year T-note yield fell to a 4-month low of 4.162%.  T-notes opened higher Tuesday on carryover support from rallies in European government bonds.  T-notes extended their gains after the July NAHB housing market index unexpectedly fell to a 7-month low and after Fed Governor Kugler said it would be appropriate for the Fed to lower borrowing costs "later this year" if inflation continues to moderate.  Limiting gains in T-notes were the stronger-than-expected US retail sales and import price reports, which were hawkish for Fed policy.

European government bond yields on Tuesday moved lower.  The 10-year German bund yield fell to a 2-1/2 week low of 2.417% and finished down -4.5 bp at 2.427%.  The 10-year UK gilt yield fell to a 3-week low of 4.048% and finished down -5.2 bp at 4.049%.

The German Jul ZEW survey expectations of economic growth index fell -5.7 to a 4-month low of 41.8, stronger than expectations of 41.0.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 4% for the July 18 meeting and 80% for the September 12 meeting.

US Stock Movers

Building product makers and homebuilders rallied Tuesday after the July NAHB sub-index of future home sales ticked higher for the first time since March, even after the overall index fell to a 7-month low.  As a result, Builders FirstSource (BLDR) closed up more than +8%, and PulteGroup (PHM) and Toll Brothers (TOL) closed up more than +7%.  Also, Lennar (LEN) and DR Horton (DHI) closed up more than +6%.   

Bank of America (BAC) closed up more than +5% after reporting Q2 net interest income of $13.86 billion, better than the consensus of $13.81 billion and forecasting Q4 net interest income of $14.50 billion, above the consensus of $14.33 billion. 

Match Group (MTCH) closed up more than +7% after Starboard Value said it had built a 6.6% stake in the company.

UnitedHealth Group (UNH) closed up more than +6% to lead gainers in the Dow Jones Industrials after forecasting full-year adjusted EPS of $27.50-$28.00, stronger than the consensus of $27.48.  Other health insurance stocks rallied on the news, with Molina Healthcare (MOH) closing up more than +8% to lead gainers in the S&P 500.  Also, Elevance Health (ELV) and Centene (CNC) closed up more than +4%. 

State Street (STT) closed up more than +7% after reporting Q2 revenue of $3.19 billion, better than the consensus of $3.14 billion.

Morgan Stanley (MS) closed up more than +1% after reporting Q2 net revenue of $15.0 billion, stronger than the consensus of $14.27 billion. 

DoorDash (DASH) closed up more than +3% after Wolfe Research initiated coverage on the stock with a recommendation of outperform and a price target of $130.

Datadog (DDOG) closed up more than +1% after Mizuho Securities upgraded the stock to outperform from neutral with a price target of $155.

Charles Schwab (SCHW) closed down more than -10% to lead losers in the S&P 500 after reporting that it added 985,000 new accounts in Q2, below the consensus of 1.04 million.  Other financial service firms fell on the news as Raymond James Financial (RJF) closed down more than -6% and Ameriprise Financial (AMP) closed down more than -3%.

Chip stocks retreated Tuesday and limited gains in the Nasdaq 100. Micron Technology (MU) closed down more than -2%.  Also, Nvidia (NVDA), Advanced Micro Devices (AMD), Super Micro Computer (SMCI), Western Digital (WDC), and Broadcom (AVGO) closed down more than -1%.

Reddit (RDDT) closed down more than -3% after Loop Capital Markets downgraded the stock to hold from buy. 

Earnings Reports (7/17/2024)

Citizens Financial Group Inc (CFG), Crown Castle Inc (CCI), Discover Financial Services (DFS), Elevance Health Inc (ELV), Equifax Inc (EFX), Johnson & Johnson (JNJ), Kinder Morgan Inc (KMI), Northern Trust Corp (NTRS), Prologis Inc (PLD), Steel Dynamics Inc (STLD), Synchrony Financial (SYF), United Airlines Holdings Inc (UAL), US Bancorp (USB).

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