Stocks Higher on Strength in Chip Stocks and China’s Rate Cut

The S&P 500 Index ($SPX) (SPY) today is up +1.00%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.43%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.53%.

US stocks today are trading higher as companies recover from last Friday’s major IT outage and as China unexpectedly cut rates by -10 bp.  Also, chip stocks are leading the stock market higher.  However, US political uncertainty rose after President Biden on Sunday dropped out of the presidential race and endorsed Vice President Harris.

Global stocks received a boost after China on Monday unexpectedly cut its short-term policy rates by -10 bp, leading to a cut by large Chinese banks of their benchmark lending rates.  The Peoples Bank of China (PBOC) on Monday cut its 7-day reverse repo rate, a key short-term policy rate, by -10 bp to 1.7%. The PBOC’s rate cut was seen as a consolation stimulus measure after China’s twice-a-decade Third Plenum last week confirmed that the Chinese government does not plan to implement a massive fiscal stimulus program to boost the weak economy.  China’s 10-year government bond yield today fell by -2 bp after the PBOC’s rate cut was announced.

The so-called Trump trade is seeing a note of caution today after he likely now faces Vice President Harris as his opponent when President Biden dropped out of the race on Sunday.  The Trump trade favors sectors benefiting from tax cuts, looser fiscal policy, higher trade tariffs, and weaker regulations.  The markets will be watching to see how quickly VP Harris can wrap up the nomination as the Democratic presidential candidate and how she polls against Mr. Trump once she becomes the nominee.

The markets are focused on tech stocks with the arrival of earnings.  Tesla and Alphabet are reporting on Tuesday.

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on July 30-31 and 100% for the following meeting on September 17-18.

Overseas stock markets Monday are mixed.  The Euro Stoxx 50 recovered from last Friday’s 5-week low and is up +1.73%.  China's Shanghai Composite closed down -0.61%.  Japan's Nikkei Stock 225 Index closed down -1.16%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +3.5 ticks.  The 10-year T-note yield is down -2.0 bp at 4.219%. T-note prices are slightly higher after China unexpectedly cut interest rates by -10 bp, and as the 10-year breakeven inflation expectations rate today fell -1.5 bp to 2.28%.  However, T-note prices are being undercut by supply pressure as the Treasury this week will auction $213 billion of T-notes and floating-rate notes.  The Treasury will auction $69 billion of 2-year T-notes on Tuesday, $30 billion of 2-year floating rate notes and $70 billion of 5-year T-notes on Wednesday, and $44 billion of 7-year T-notes on Thursday.

European government bond yields today are narrowly mixed.  The 10-year German bund yield is down -0.6 bp at 2.461%.  The 10-year UK gilt yield is up +0.1 bp at 4.124%.

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

US Stock Movers

ON Semiconductor (ON) is up +5% today after news of a multi-year deal for the company to become the primary supplier of a fully optimized power system solution for Volkswagen’s next-generation electric vehicles.

ON Semiconductor’s positive news has boosted chip stocks overall, which dominate the leader board for the Nasdaq 100 Index.  Lam Research (LRCX), KLA Corp (KLAC), Applied Materials (AMAT), and ASML Holding NV (ASML) are all up by more than +4%.  Nvidia (NVDA) and Microchip Technology (MCHP) are up by more than +3%.

Other leaders in the Nasdaq 100 index include Tesla (TSLA) with a +4.2% gain and Netflix (NFLX) with a +2.9% gain.

CrowdStrike  (CRWD) is down by another -10% today after plunging -10.85% last Friday due to the global IT outage that its software update caused last Friday for some Windows computers.  Guggenheim Securities today cut its rating on the stock to neutral from buy.  CrowdStrike competitors are higher again today, with SentinelOne (S) up +9% and Palo Alto Networks (PANW) up +0.4%. 

Verizon (VZ) is down more than -6% today on a revenue miss in its earnings report as fewer people upgraded wireless equipment.

Bank of America (BAC) is down -0.5% after a filing last Friday that showed that Warren Buffett’s

Berkshire Hathaway sold about 34 million shares in the bank.

McDonald’s (MCD) is up +0.8% on support from news that most McDonald’s restaurants will extend their $5 meal deal in a bid to attract budget-conscious diners, which may increase foot-traffic to the restaurants.

10X Genomics (TXG) is up more than +4% after Jefferies raised its rating on the company to buy from hold on an attractive stock valuation and expectations for positive developments for the company.

Earnings Reports (7/22/2024)

AGNC Investment Corp (AGNC), Alexandria Real Estate Equities (ARE), BOK Financial Corp (BOKF), Brown & Brown Inc (BRO), Cadence Design Systems Inc (CDNS), Cleveland-Cliffs Inc (CLF), Crown Holdings Inc (CCK), Equity LifeStyle Properties In (ELS), IQVIA Holdings Inc (IQV), Medpace Holdings Inc (MEDP), Nucor Corp (NUE), NXP Semiconductors NV (NXPI), RLI Corp (RLI), Simpson Manufacturing Co Inc (SSD), Truist Financial Corp (TFC), Verizon Communications Inc (VZ), W R Berkley Corp (WRB), Zions Bancorp NA (ZION).

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