Stocks Finish Mostly Higher Ahead of FOMC and Mega-Cap Tech Earnings

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.08%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.19%.

US stocks on Monday finished mostly higher.  The broader market gained Monday and extended last Friday’s rally on expectations for a Fed rate cut in September after the Jun personal consumption expenditures price index, the Fed’s preferred inflation gauge, eased as expected.  Monday's strength in chip stocks also boosted the overall market after ON Semiconductor reported better-than-expected Q2 EPS.  In addition, lower T-note yields on Monday supported stocks as the 10-year T-note yield fell to a 1-1/2 week low of 4.149%.

Monday’s US economic news was weaker-than-expected and negative for stocks after the Jul Dallas Fed manufacturing outlook level of general business activity survey unexpectedly fell -2.4 to -17.5, weaker than expectations of an increase to -14.2.

Major central banks are meeting this week to decide on monetary policy. The Bank of Japan (BOJ) is expected to release details of plans to cut monthly bond purchases after its two-day policy meeting on Wednesday and possibly signal it will begin raising interest rates at its September meeting.  The Federal Reserve is likely to signal its intention to cut interest rates in September after its two-day meeting on Wednesday.  On Thursday, the Bank of England (BOE) is expected to cut its bank rate by 25 bp to 5.00% from 5.25%. 

Stock investors will continue to focus on tech stocks, with key earnings reports on tap for this week.  Magnificent 7 companies reporting this week include Microsoft (MSFT) on Tuesday, Meta (META) on Wednesday, and Apple (AAPL) and Amazon (AMZN) on Thursday.  Nvidia (NVDA) is expected to report earnings on August 28.  Tesla (TSLA) and Alphabet (GOOG) were the first of the Magnificent 7 to report earnings, with their reports last Wednesday. 

The market consensus is that Q2 earnings for the S&P 500 companies will rise +9% y/y.  About one-third of the companies in the S&P 500 have reported thus far.  According to Bloomberg, most reporting companies have beaten their earnings consensus, but only 43% have beaten revenue expectations, the lowest percentage in five years.

The markets are discounting the chances for a -25 bp rate cut at 4% for this week's FOMC meeting on Tue/Wed and 100% for the following meeting on September 17-18 if the FOMC does not cut rates next week.

Overseas stock markets Monday settled mixed.  The Euro Stoxx 50 closed down -0.97%.  China's Shanghai Composite closed up +0.03%.  Japan's Nikkei Stock 225 Index closed up sharply by +2.13%.

Interest Rates

September 10-year T-notes (ZNU24) Monday closed up +4.5 ticks.  The 10-year T-note yield fell by -2.7 bp to 4.167%.  Sep T-notes Monday climbed to a 4-1/2 month nearest-futures high, and the 10-year T-note yield fell to a 1-1/2 week low of 4.149%.  T-notes moved higher Monday on carryover support from rallies in European government bonds.  Also, T-notes have support from falling inflation expectations as the 10-year breakeven inflation expectations rate today fell to a 2-week low of 2.234%.  Strength in stocks Monday limited gains in T-notes.

European government bond yields Monday moved lower.  The 10-year German bund yield dropped to a 6-week low of 2.344% and finished down -4.9 bp at 2.359%.  The 10-year UK gilt yield fell to a 5-week low of 4.017% and finished down -5.0 bp at 4.049%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 91% for the September 12 meeting.

US Stock Movers

Chip stocks rallied Monday and supported gains in the overall market after ON Semiconductor reported Q2 adjusted EPS of 96 cents, better than the consensus of 92 cents.  As a result, ON Semiconductor (ON) closed up more than +12% to lead gainers in the S&P 500 and Nasdaq 100.  Also, NXP Semiconductors (NXPI), Analog Devices (ADI), and Microchip Technology (MCHP) closed up more than +1%.

Tesla (TSLA) closed up more than +5% after Morgan Stanley named the company as its new top pick within the US auto sector.

McDonald’s (MCD) closed up more than +3% to lead gainers in the Dow Jones Industrials after reporting a -0.7% decline in Q2 US comparable store sales, a smaller decline than expectations of low single-digit losses according to Citigroup. 

Charter Communications (CHTR) closed up more than +3% after Evercore ISI raised its price target on the stock to $425 from $350. 

Alphabet (GOOGL) closed up more than +1% after Phillip Securities upgraded the stock to buy from accumulate with a price target of $205.

Revvity (RVTY) closed up more than +8% after reporting Q2 EPS from continuing operations of 59 cents, better than the consensus of 42 cents. 

Guardant Health (GH) closed up more than +6% after its Shield blood test received FDA approval for colorectal cancer screening in adults 45 and older who are at average risk for the disease. 

Inspire Medical Systems (INSP) closed up more than +6% after boosting its full-year revenue forecast to $788 million-$798 million from a previous estimate of $783 million-$793 million, stronger than the consensus of $788 million. 

ARM Holdings Plc (ARM) closed down more than -5% to lead losers in the Nadaq 100 after HSBC downgraded the stock to reduce from hold. 

Stellantis NV (STLA) closed down more than -3% after Deutsche Bank downgraded the stock to hold from buy, saying the company’s Ebit margin was lower than reported on first-half results.

Constellation Brands (STZ) closed down more than -2% after Heineken announced first-half results that analysts said were slightly disappointing.

Molson Coors Beverage (TAP) closed down more than -2% after Deutsche Bank cut its price target on the stock to $56 from $62.

Western Digital Technologies (WDC) closed down more than -2% after a California federal jury determined the company owes MR Technologies GMBH $262 million for infringing on two patents with its magnetic hard drives.

Bristol-Myers Squibb (BMY) closed down more than -2% after Barclays downgraded the stock to underweight from equal weight.

Charles Schwab (SCHW) closed down more than -1% after Piper Sandler downgraded the stock to neutral from overweight.

Ford Motor (F) closed down more than -1% after Morgan Stanley removed the stock from its top pick in the US auto sector.

Earnings Reports (7/30/2024)

Advanced Micro Devices Inc (AMD), American Electric Power Co Inc (AEP), American Tower Corp (AMT), Arch Capital Group Ltd (ACGL), Archer-Daniels-Midland Co (ADM), Arista Networks Inc (ANET), BXP Inc (BXP), Caesars Entertainment Inc (CZR), CenterPoint Energy Inc (CNP), Corning Inc (GLW), Ecolab Inc (ECL), Electronic Arts Inc (EA), Essex Property Trust Inc (ESS), Extra Space Storage Inc (EXR), First Solar Inc (FSLR), FirstEnergy Corp (FE), Gartner Inc (IT), Howmet Aerospace Inc (HWM), Hubbell Inc (HUBB), Illinois Tool Works Inc (ITW), Incyte Corp (INCY), Leidos Holdings Inc (LDOS), Live Nation Entertainment Inc (LYV), Match Group Inc (MTCH), Merck & Co Inc (MRK), Microsoft Corp (MSFT), Mondelez International Inc (MDLZ), PayPal Holdings Inc (PYPL), Pfizer Inc (PFE), Phillips 66 (PSX), Procter & Gamble Co/The (PG), Public Service Enterprise Group (PEG), Public Storage (PSA), Qorvo Inc (QRVO), S&P Global Inc (SPGI), Skyworks Solutions Inc (SWKS), Smurfit WestRock PLC (SW), Stanley Black & Decker Inc (SWK), Starbucks Corp (SBUX), Stryker Corp (SYK), Sysco Corp (SYY), UDR Inc (UDR), Xylem Inc/NY (XYL), Zebra Technologies Corp (ZBRA).

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