Stocks Rally as Chip Stocks Rebound and Bond Yields Fall

The S&P 500 Index ($SPX) (SPY) today is up +1.71%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.44%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +2.89%.

US stocks today are moderately higher, with the S&P 500 and Nasdaq 100 posting 1-week highs and the Dow Jones Industrials posting a 1-1/2 week high. A flurry of bullish news today is powering a rebound in chip stocks.  Nvidia is up more than +10% after Morgan Stanley named the stock a top US chip stock pick and said the recent selloff in the stock has opened up a good entry point.  Also, ASML Holding NV is up more than +7% after Reuters reported the Biden administration planned to exempt chip equipment makers in Japan, the Netherlands, and South Korea from upcoming export restrictions.  In addition, Advanced Micro Devices is up more than +6% after an upbeat revenue forecast.

Stock indexes extended their gains today after the 10-year T-note yield fell to a 4-1/2 month low when the US Jul ADP employment change and the Q2 employment cost index rose less than expected, dovish factors for Fed policy.

The US Jul ADP employment change rose +122,000, weaker than expectations of +150,000 and the smallest increase in 6 months.

The US Q2 employment cost index rose +0.9% q/q, weaker than expectations of +1.0% q/q.

The US Jul MNI Chicago PMI fell -2.1 to 45.3, a smaller decline than expectations of 45.0.

US Jun pending home sales rose +4.8% m/m, stronger than expectations of +1.5% m/m and the biggest increase in 6 months.

After today’s 2-day FOMC meeting, the Federal Reserve is expected to keep the fed funds target range unchanged at 5.25%-5.50% and is likely to signal its intention to cut interest rates in September.  The markets will scour comments from Fed Chair Powell after today’s FOMC meeting for clues to the future of Fed policy.

Today, The BOJ unexpectedly voted 7-2 to raise its benchmark interest rate to 0.25% from 0% to 0.1%.  The BOJ also said it would reduce its monthly pace of bond purchases to around 3 trillion yen ($19.9 billion) by the first quarter of 2026 from 5.7 trillion yen in July. 

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 Meta (META) after today’s close and Apple (AAPL) and Amazon (AMZN) on Thursday.  Nvidia (NVDA) is expected to report earnings on August 28.  

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 3% 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 today are higher.  The Euro Stoxx 50 rose to a 1-week high and is up +0.71%. China's Shanghai Composite rose to a 1-week high and closed up +2.06%.  Japan's Nikkei Stock 225 Index rose to a 1-week high and closed up by +1.49%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +8 ticks.  The 10-year T-note yield is down -4.1 bp at 4.099%.  Sep T-notes today climbed to a 6-month nearest-futures high, and the 10-year T-note yield fell to a 4-1/2 month low of 4.089%. T-note prices are underpinned by an increase in safe-haven demand due to rising geopolitical tensions in the Middle East after Israel said it assassinated top leaders of Hezbollah in Beirut and Hamas in Tehran.  T-notes also have carryover support from today’s rally in European government bonds.  In addition, a decline in inflation expectations is bullish for T-notes after the 10-year breakeven inflation rate today fell to a 5-week low of 2.225%.  T-notes extended their gains after the US Jul ADP employment change, and the Q2 employment cost index rose less than expected, dovish factors for Fed policy.

T-notes also found support today on reduced supply concerns after the Treasury left its quarterly issuance of longer-term debt unchanged for a second quarter at $125 billion and maintained its guidance that it doesn’t expect to need increasing issuance of notes and bonds for “several quarters.”

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 4-month low of 2.303% and is down -3.2 bp at 2.308%.  The 10-year UK gilt yield fell to a 4-month low of 3.971% and is down -6.3 bp to 3.980%.

Eurozone Jul CPI rose +2.6% y/y, stronger than expectations of +2.5% y/y.  The Jul core CPI rose +2.9% y/y, stronger than expectations of +2.8% y/y.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 95% for the September 12 meeting.

US Stock Movers

Nvidia (NVDA) is up more than +10% to lead gainers in the Nasdaq 100 after Morgan Stanley named the stock a top US chip stock pick and said recent weakness in the stock provides a “good entry point.”

Vistra Corp (VST) is up more than +13% to lead gainers in the S&P 500 after announcing the Nuclear Regulatory Commission approved its request to extend the operation of Comanche Park Nuclear Power Plant through 2053, an additional 20 years beyond its original licenses. 

Match Group (MTCH) is up more than +11% after reporting Q2 revenue of $864.1 million, above the consensus of $856.6 million, and it said it plans to cut about 6% of its global staff. 

ASML Holding NV (ASML) is up more than +7% after Reuters reported the company will be exempt from new US chip export restrictions. 

Advanced Micro Devices (AMD) is up more than +6% after reporting Q2 revenue of $5.80 billion, above the consensus of $5.73 billion, and said it will commit to annual introductions of new AI processors. 

Chip stocks rebounded today from Tuesday’s selloff and support gains in the overall market.  Broadcom (AVGO) is up more than +8%, and ARM Holdings Plc (ARM) and Micron Technology (MU) are up more than +6%.  Also, Applied Materials (AMAT) and Lam Research (LRCX) are up more than +5%.  In addition, KLA Corp (KLAC), ON Semiconductor Corp (ON), Qualcomm (QCOM), and Western Digital (WDC) are up more than +4%. 

BorgWarner (BWA) is up more than +8% after reporting Q2 adjusted EPS of $1.19, stronger than the consensus of $1.00. 

Dupont de Nemours (DD) is up more than +5% after reporting Q2 net sales of $3.20 billion, better than the consensus of $3.05 billion, and raised its full-year net sales forecast to $12.40 billion-$12.50 billion from a previous estimate of $12.10 billion-$12.40 billion. 

Starbucks (SBUX) is up more than +3% after reporting Q3 adjusted EPS of 93 cents, better than the consensus of 92 cents. 

Bunge Global (BG) is down more than -8% to lead losers in the S&P 500 after reporting Q2 net sales of $13.24 billion, well below the consensus of $14.19 billion.

Verisk Analytics (VRSK) is down more than -7% to lead losers in the Nasdaq 100 after forecasting full-year adjusted EPS of $6.30-$6.60, the midpoint below the consensus of $6.57.

Humana (HUM) is down more than -8% after cutting its full-year EPS estimate to $12.81 from a prior view of $13.93 and warned of higher-than-expected inpatient hospital admissions that point toward elevated costs for the company. 

Skyworks Solutions (SWKS) is down more than -7% after reporting Q3 adjusted EPS of $1.21, below the consensus of $1.22.  forecast to $11.55-$11.65 from a previous estimate of $11.75-$12.05, below the consensus of $11.80.

Microsoft (MSFT) is down more than -1% to lead losers in the Dow Jones Industrials after reporting Q4 cloud revenue of $36.80 billion, weaker than the consensus of $36.84 billion. 

Groupon (GRPN) is down more than -7% after cutting its full-year adjusted Ebitda estimate to $65 million-$80 million from a previous forecast of $80 million-$100 million, well below the consensus of $98.7 million. 

Pinterest (PINS) is down more than -13% after forecasting Q3 revenue of $885 million-$900 million, weaker than the consensus of $907.7 million.

Marriott International (MAR) is down more than -6% after cutting its full-year adjusted EPS forecast to $9.23-$9.40 from a previous estimate of $9.31-$9.65, weaker than the consensus of $9.50. 

Earnings Reports (7/31/2024)

Aflac Inc (AFL), Albemarle Corp (ALB), Allstate Corp/The (ALL), Altria Group Inc (MO), American International Group Inc (AIG), American Water Works Co Inc (AWK), ANSYS Inc (ANSS), APA Corp (APA), Automatic Data Processing Inc (ADP), AvalonBay Communities Inc (AVB), Boeing Co/The (BA), BorgWarner Inc (BWA), Bunge Global SA (BG), CDW Corp/DE (CDW), Cencora Inc (COR), CH Robinson Worldwide Inc (CHRW), Cognizant Technology Solutions (CTSH), Corteva Inc (CTVA), Dayforce Inc (DAY), DuPont de Nemours Inc (DD), eBay Inc (EBAY), Etsy Inc (ETSY), Everest Group Ltd (EG), Eversource Energy (ES), Fair Isaac Corp (FICO), FMC Corp (FMC), Garmin Ltd (GRMN), GE HealthCare Technologies Inc (GEHC), Generac Holdings Inc (GNRC), Hess Corp (HES), Host Hotels & Resorts Inc (HST), Humana Inc (HUM), IDEX Corp (IEX), Ingersoll Rand Inc (IR), Johnson Controls International (JCI), KKR & Co Inc (KKR), Kraft Heinz Co/The (KHC), Lam Research Corp (LRCX), Marriott International Inc/MD (MAR), Mastercard Inc (MA), Meta Platforms Inc (META), MetLife Inc (MET), MGM Resorts International (MGM), Mid-America Apartment Communities (MAA), Norwegian Cruise Line Holdings (NCLH), Paycom Software Inc (PAYC), PTC Inc (PTC), QUALCOMM Inc (QCOM), T-Mobile US Inc (TMUS), Trane Technologies PLC (TT), Verisk Analytics Inc (VRSK), VICI Properties Inc (VICI), Waters Corp (WAT), WEC Energy Group Inc (WEC), Western Digital Corp (WDC).

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