Stocks Sink on Disappointing Tech Earnings and Weak US Payrolls

The S&P 500 Index ($SPX) (SPY) today is down -1.52%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.27%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -2.13%.

US stocks today are extending Thursday’s sharp losses, with the S&P 500 falling to a 7-week low, the Nasdaq 100 dropping to a 2-month low, and the Dow Jones Industrials sliding to a 1-week low.  Global equity markets are falling today as weaker-than-expected economic news this week has fueled concerns the Fed is behind the curve and is too slow in cutting interest rates.  Also, disappointing technology earnings results are weighing on stocks, with Intel down more than -26% and Amazon.com down more than -12%. 

Stock index futures extended their slide after today’s monthly US payroll report showed July nonfarm payrolls rose less than expected, and the July unemployment rate unexpectedly rose to a 2-3/4 year high, suggesting the US labor market is cooling faster than expected.

On the positive side, today’s Fed-friendly US July nonfarm payroll report knocked the 10-year T-note yield down to a 7-month low.

 US Jul nonfarm payrolls rose +114,000, weaker than expectations of +175,000, and Jun nonfarm payrolls were revised lower to +179,000 from the previously reported +206,000. The Jul unemployment rate unexpectedly rose +0.2 to a 2-3/4 year high of 4.3%, showing a weaker labor market than expectations of 4.1%.

US Jul average hourly earnings eased to +3.6% y/y from +3.8% y/y in June, weaker than expectations of +3.7% y/y and the slowest pace of increase in 3 years.

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 100% for the September 17-18 FOMC meeting and a 71% chance for a -50 bp rate cut.

Overseas stock markets today are sharply lower.  The Euro Stoxx 50 fell to a 5-3/4 month low and is down -1.84%.  China's Shanghai Composite closed down -0.92%.  Japan's Nikkei Stock 225 fell to a 5-3/4 month low and closed down sharply by -5.81%.

Interest Rates

September 10-year T-notes (ZNU24) today are up by +27 ticks.  The 10-year T-note yield is down -11.4 bp at 3.862%. Sep T-notes today surged to a 14-month nearest-futures high, and the 10-year T-note yield fell to a 7-month low of 3.787%.  Today’s slump in global equity markets has boosted safe-haven demand for T-notes.  Also, this week’s slate of weaker-than-expected US economic news has bolstered the prospects for several Fed rate hikes this year.  In addition, a slide in inflation expectations is boosting T-note prices as the 10-year breakeven inflation rate fell to a 16-month low today at 2.105%. 

T-notes raced to their highs today after the US July unemployment rate unexpectedly rose to a 2-3/4 year high, and after July average hourly earnings posted their smallest increase in 3 years, dovish factors for Fed policy.

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 6-month low of 2.153% and is down -6.4 bp at 2.180%.  The 10-year UK gilt yield fell to a 6-month low of 3.789% and is down -4.3 bp at 3.839%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.

US Stock Movers

Intel (INTC) is down more than -26% to lead losers in the S&P 500, Dow Jones Industrial, and Nasdaq 100 after reporting Q2 revenue of $12.83 billion, below the consensus of $12.95 billion and forecasting Q3 revenue of $12.5 billion-$13.5 billion, well below the consensus of $14.38 billion.

Amazon.com (AMZN) is down more than -12% after forecasting Q3 operating income of $11.5 billion-$15.0 billion, weaker than the consensus of $15.66 billion.

Booking Holdings (BKNG) is down more than -9% after forecasting Q3 revenue will climb +2% to +4%, weaker than the consensus of +6.9%. 

Atlassian (TEAM) is down more than -11% after forecasting a Q1 revenue of $1.15 billion-$1.16 billion, below the consensus of $1.16 billion. 

Microchip Technology (MCHP) is down more than -7% after forecasting Q2 net sales of $1.12 billion-$1.18 billion, well below the consensus of $1.33 billion.   

Snap (SNAP) is down more than -25% after reporting Q2 revenue of $1.24 billion, weaker than the consensus of $1.25 billion, and forecasting Q3 adjusted Ebitda of $70 million-$100 million, below the consensus of $110.5 million.   

Lululemon Athletica (LULU) is down more than -4% after Goldman Sachs downgraded the stock to neutral from buy. 

Chevron (CVX) is down more than -2% after reporting Q2 adjusted EPS of $2.55, weaker than the consensus of $2.93.

GoDaddy (GDDY) is up more than +6% to lead gainers in the S&P 500 after reporting Q2 revenue of $1.12 billion, better than the consensus of $1.11 billion, and raising its full-year revenue forecast to $4.53 billion-$4.57 billion from a previous estimate of $4.50 billion-$4.56 billion. 

Consolidated Edison (ED) is up more than +5% after reporting Q2 operating revenue of $3.22 billion, better than the consensus of $3.08 billion.

Camden Property Trust (CPT) is up more than +5% after reporting Q2 FFO/share of $1.71, stronger than the consensus of $1.67. 

Clorox (CLX) is up more than +4% after reporting Q4 adjusted EPS of $1.82, stronger than the consensus of $1.55. 

MercadoLibre (MELI) is up more than +9% to lead gainers in the Nasdaq 100 after reporting Q2 net revenue of $5.1 billion, stronger than the consensus of $4.67 billion.

DoorDash (DASH) is up more than +7% after reporting a Q2 marketplace gross order value of $19.71 billion, stronger than the consensus of $19.30 billion and forecasting a Q3 marketplace gross order value of $19.4 billion-$19.8 billion, the midpoint above the consensus of $19.44 billion.   

Cloudflare (NET) is up more than +2% after reporting Q2 revenue of $401.0 million, better than the consensus of $394.8 million, and raising its full-year revenue estimate to $1.66 billion from a previous estimate of $1.65 billion. 

Earnings Reports (8/2/2024)

Ares Management Corp (ARES), Berry Global Group Inc (BERY), Brookfield Renewable Corp (BEPC), Cboe Global Markets Inc (CBOE), Chevron Corp (CVX), Church & Dwight Co Inc (CHD), Esab Corp (ESAB), Exxon Mobil Corp (XOM), Frontier Communications Parent (FYBR), Healthcare Realty Trust Inc (HR), Linde PLC (LIN), LyondellBasell Industries NV (LYB), Perrigo Co PLC (PRGO), PPL Corp (PPL), RBC Bearings Inc (RBC).

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