Stocks Rally Sharply on Positive US Labor Market News

The S&P 500 Index ($SPX) (SPY) Thursday closed up +2.30%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.76%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +3.06%.

US stocks on Thursday settled sharply higher.  Stocks rallied Thursday after US weekly initial unemployment claims fell more than expected, signaling labor market strength and easing economic concerns that arose after last Friday’s weaker-than-expected July payroll report.  Also, chip stocks recovered some of Wednesday’s losses and rallied sharply Thursday, boosting the overall market.  Stock indexes fell back from their best levels Thursday afternoon after weak demand for the Treasury’s $25 billion 30-yer T-bond auction pushed T-note yields to their highs for the day.

Some positive corporate news was also supportive of stocks.  Parker-Hannifin rose more than +10% after reporting better-than-expected Q4 net sales.  Also, Eli Lilly rose more than +9% after raising its full-year revenue forecast. In addition, Datadog rose more than +5% after reporting Q2 adjusted EPS above consensus and raising its full-year adjusted EPS estimate.

US weekly initial unemployment claims fell -17,000 to 233,000, showing a stronger labor market than expectations of 240,000.  Weekly continuing claims rose +6,000 to a 3-1/2 year high of 1.875 million, right on expectations.

Richmond Fed President Barkin said the Fed “has time” to assess whether the US economy is normalizing or whether it's softening in a way that would require policymakers to act more forcefully.

Strength in the yen weighed on Japanese stocks Thursday as the Nikkei Stock Index closed down -0.74%, a slight negative for US stocks. The yen moved higher even after a summary of opinions from the BOJ's July 31 policy meeting showed officials expected monetary policy to remain accommodative even after they raised interest rates, suggesting they didn't expect the move to be big enough to disrupt global financial markets.

Financial markets have been in turmoil since last week when the BOJ unexpectedly raised interest rates, which sparked a surge in the yen to a 7-month high against the dollar and fueled a rapid unwinding of the yen carry trade that dragged down risk assets globally. 

The market consensus is that Q2 earnings for the S&P 500 companies will rise +9% y/y.  More than half 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 at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 62% for a -50 bp rate cut at that meeting.

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 closed up +0.01%.  China's Shanghai Composite closed unchanged.  Japan's Nikkei Stock 225 closed down -0.74%.

Interest Rates

September 10-year T-notes (ZNU24) Thursday closed down -7.5 ticks.  The 10-year T-note yield rose +6.0 bp to 4.003%.  T-notes on Thursday gave up an overnight advance and turned lower after US weekly jobless claims fell more than expected, signaling labor market strength that is hawkish for Fed policy.  T-note prices fell to their lows of the day Thursday afternoon on weak demand for the Treasury‘s $25 billion of 30-year bonds that had a bid-to-cover ratio of 2.31, below the 10-auction average of 2.38. Thursday’s sharp rally in stocks also curbed safe-haven demand for T-notes. 

European government bond yields Thursday were mixed.  The 10-year German bund yield fell -0.1 bp to 2.268%. The 10-year UK gilt yield rose to a 1-week high of 3.990% and finished up +2.9 bp at 3.978%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% for the September 12 meeting.

US Stock Movers

Chip stocks rallied Thursday and boosted the overall market. ARM Holdings Plc (ARM) closed up more than +10% to lead gainers in the Nasdaq 100, and ON Semiconductor (ON) and Marvell Technology (MRVL) closed up more than +8%.  Also, Intel (INTC) closed up more than +7% to lead gainers in the Dow Jones Industrials, and KLA Corp (KLAC) closed up more than +7%.  In addition, Nvidia (NVDA), Broadcom (AVGO), Applied Materials (AMAT), NXP Semiconductors (NXPI), Microchip Technology (MCHP), Micron Technology (MU), and Lam Research (LRCX) closed up more than +6%. 

Parker-Hannifin (PH) closed up more than +10% after reporting Q4 net sales of $5.19 billion, stronger than the consensus of $5.08 billion.

Eli Lilly (LLY) closed up more than +9% after raising its full-year revenue forecast to $45.4 billion-$46.6 billion from a previous forecast of $43.6 billion. 

Viatris (VTRS) closed up more than +6% after reporting Q2 adjusted net income of $826.5 million, better than the consensus of $820.2 million.

Datadog (DDOG) closed up more than +5% after reporting Q2 adjusted EPS of 43 cents, better than the consensus of 37 cents, and raising its full-year adjusted EPS estimate to $1.62-$1.66 from a previous estimate of $151-$1.57.

Zillow Group (ZG) closed up more than +18% after reporting Q2 revenue of $572 million, well above the consensus of $538.2 million.

CRH Plc (CRH) closed up more than +7% after raising its full-year net income forecast to $3.70 billion-$3.85 billion from a previous estimate of $3.55 billion-$3.80 billion, stronger than the consensus of $3.67 billion. 

SharkNinja (SN) closed up more than +17% after reporting Q2 net sales of $1.25 billion, stronger than the consensus of $1.09 billion.

Vornado Realty Trust (VNO) closed up more than +5% after BMO Capital Markets upgraded the stock to outperform from market perform with a price target of $40. 

McKesson (MCK) closed down more than -11% to lead losers in the S&P 500 after reporting Q1 revenue of $79.3 billion, weaker than the consensus of $82.65 billion.

Monster Beverage (MNST) closed down more than -10% to lead losers in the Nasdaq 100 after reporting Q2 net sales of $1.90 billion, below the consensus of $2.02 billion.

Warner Bros Discovery (WBD) closed down more than -8% after reporting Q2 revenue of $9.71 billion, weaker than the consensus of $10.12 billion. 

Dutch Bros (BROS) closed down more than -19% after projecting it will open 150 to 165 new shops, at the lower end of its previous guidance. 

Sarepta Therapeutics (SRPT) closed down more than -2% after reporting Q2 revenue of $362.9 million, weaker than the consensus of $389.5 million.

Akamai Technologies (AKAM) closed down more than -1% after cutting its full-year revenue estimate to $3.97 billion-$4.01 billion from a previous estimate of $3.95 billion-$4.02 billion, the midpoint below the consensus of $4.00 billion. 

Earnings Reports (8/9/2024)

Dillard's Inc (DDS), Evergy Inc (EVRG), New Fortress Energy Inc (NFE).

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