Stocks Mixed as Broader Market Falls on Chip Stock Weakness

The S&P 500 Index ($SPX) (SPY) today is down -0.89%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.70%.

Stock indexes today are mixed, with the Dow Jones Industrials posting a new record high and the Nasdaq 100 falling to a 2-week low.  The broader market is under pressure from a slide in chip stocks on concerns the US may adopt harsher restrictions on Chinese trade and semiconductor technology. Bloomberg reported today that the Biden administration has told allies it is considering using the most severe trade restrictions against chip makers if they continue giving China access to advanced semiconductor technology.  Stocks maintained their losses as bond yields rose after US Jun housing starts and Jun manufacturing production rose more than expected.

US Jun housing starts rose +3.0% m/m to 1.353 million, stronger than expectations of 1.300 million.  Jun building permits, a proxy for future construction, rose +3.4% m/m to 1.446 million, stronger than expectations of 1.400 million.

US Jun manufacturing production rose +0.4% m/m, stronger than expectations of +0.1% m/m.

Fed Governor Waller said the Fed is getting "closer" to cutting rates, but he'd like to see a "bit more evidence" inflation is on a sustained downward path.

New York Fed President Williams said current Fed policy is appropriate until we see "more data." He added that US inflation readings from the last three months are "getting us closer to a disinflationary trend that we're looking for, and I would like to see more data to gain further confidence inflation is moving sustainably to our 2% goal."

The markets are discounting the chances for a -25 bp rate cut at 5% for the next FOMC meeting on July 30-31 and 99% for the following meeting on September 17-18.

Overseas stock markets today are lower.  The Euro Stoxx 50 fell to a 2-week low and is down -1.12%. China's Shanghai Composite closed down -0.45%.  Japan's Nikkei Stock 225 Index fell to a 1-week low and closed down -0.43%.

Interest Rates

September 10-year T-notes (ZNU24) today are down -4 ticks.  The 10-year T-note yield is up +2.5 bp to 4.183%.  Sep T-notes are under pressure today on hawkish comments from New York Fed President Williams who said current Fed policy is appropriate until we see "more data."  Supply pressures also weigh on T-note prices as the Treasury will auction $13 billion of reopened 20-year T-bonds later today. T-notes maintained moderate losses after reports on US Jun housing starts and Jun manufacturing production rose more than expected. 

European government bond yields today are moving higher.  The 10-year German bund yield recovered from a 3-week low of 2.408% and is up +1.5 bp at 2.442%.  The 10-year UK gilt yield is up +4.6 bp at 4.094%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 4% for the July 18 meeting and 78% for the September 12 meeting.

US Stock Movers

Chip stocks are under pressure today, as Bloomberg reported that the Biden administration has told allies it is considering using the most severe trade restrictions available if companies continue giving China access to advanced chip technology.  As a result, ASML Holding NV (ASML) is down more than -8% to lead losers in the Nasdaq 100, and Applied Materials (AMAT), Qualcomm (QCOM), and KLA Corp (KLAC) are down more than -6%.  Also, Advanced Micro Devices (AMD), Lam Research (LRCX), and Micron Technology (MU) are down more than -5%.  In addition, Super Micro Computer (SMCI), Nvidia (NVDA),  Broadcom (AVGO), and Marvell Technology (MRVL) are down more than -4%.

Mega-cap technology stocks are sliding today and weighing on the overall market.  Apple (AAPL) is down more than -2% to lead losers in the Dow Jones Industrials.  Also, Amazon.com (AMZN) and Microsoft (MSFT) are down more than -1%.

Elevance Health (ELV) is down more than -4% after forecasting full-year adjusted EPS of $37.20, below the consensus of $37.28.

Five Below (FIVE) is down more than -15% after forecasting Q2 comparable sales to fall -6% to -7%, weaker than the consensus of -4.66%. 

First Horizon (FHN) is down more than -4% after reporting Q2 adjusted revenue of $819 million, weaker than the consensus of $822.1 million. 

American Airlines Group (AAL) is down more than -2% after TD Cowen downgraded the stock to hold from buy. 

GitLab (GTLB) is up more than +10% after Reuters reported the company was exploring a sale after attracting interest from potential bidders. 

Prologis (PLD) is up more than +4% after raising its full-year EPS forecast to $3.25-$3.45 from a previous estimate of $3.15-$3.35.

Gates Industrial (GTES) is up more than +4% after S&P Dow Jones Indices said the stock will be added to the S&P Smallcap 600 Index before trading opens July 22. 

US Bancorp (USB) is up more than +3% after reporting Q2 adjusted EPS of 98 cents, above the consensus of 94 cents. 

Valero Energy (VLO) is up more than +3% after Mizuho Securities upgraded the stock to outperform from neutral with a price target of $175.

VF Corp (VFC) is up more than +5% after it sold its Supreme brand to EssilorLuxottica for $1.5 billion in cash.

Aehr Test Systems (AEHR) is up more than +17% after reporting Q4 revenue of $16.6 million, better than the consensus of $15.5 million, and forecast 2025 total revenue of at least $70 million, stronger than the consensus of $67.9 million.

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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