Stocks Close Narrowly Mixed, Awaiting US Inflation Reports

The S&P 500 Index ($SPX) (SPY) on Monday closed unchanged, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.36%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.16%.

US stocks on Monday ended narrowly mixed.  Stocks saw support from a -3.6 bp decline in the 10-year T-note yield and from some positive corporate news.  KeyCorp rose more than +9% after announcing Scotiabank entered an agreement to acquire a 14.9% pre-forma stake for a minority investment in KeyCorp. Also, Monday.com rose nearly +15% after reporting Q2 adjusted EPS well above the consensus.  Starbucks rose +2.7% after the Wall Street Journal reported that activist investor Starboard Value has taken a stake in the company.

Strength in chip stocks Monday also supported the overall market, led by a +4% gain in Nvidia.  Also, energy stocks climbed on Monday with the price of WTI crude oil up more than +3%.

On the negative side, B Riley Financial plunged -52% after saying it expects a Q2 loss between $435 million-$475 million and suspending its quarterly dividend.

Hawkish comments on Saturday from Fed Governor Bowman were negative for stocks as she signaled she may not yet favor Fed rate cuts when she said, "The progress in lowering inflation during May and June is a welcome development, but inflation is still uncomfortably above the FOMC's 2% goal."

The markets are awaiting US producer and consumer price reports this week, which should help clarify the likely timing and size of any Fed interest rate cuts.  On Tuesday, July PPI is expected to ease to +2.3% y/y from +2.6% y/y in June, and July PPI ex-food and energy is expected to ease to +2.7% y/y from +3.0% y/y in June. On Wednesday, July CPI is expected to remain unchanged at +3.0% y/y from June, and July CPI ex-food and energy is expected to ease to +3.2% y/y from +3.3% y/y in June.

The market consensus is that Q2 earnings for the S&P 500 companies will rise +7.4% y/y.  More than 80% 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 57% for a -50 bp rate cut at that meeting.

Overseas stock markets on Monday closed lower.  The Euro Stoxx 50 closed down -0.07%.  China's Shanghai Composite closed down -0.14%.  Japan's Nikkei Stock 225 did not trade, with markets closed today for the Mountain Day holiday.

Interest Rates

September 10-year T-notes (ZNU24) closed up +10 ticks.  The 10-year T-note yield fell by -3.6 bp to 3.904%.  T-note prices rallied on safe-haven demand from expectations for an attack soon by Iran on Israel and on concern about the economic impact if oil prices spike higher on new Middle East tensions.

T-note prices were undercut after Fed Governor Bowman said Saturday that "inflation is still uncomfortably above the FOMC's 2% goal," suggesting she does not yet favor the Fed cutting interest rates.  Also, corporate bond supply pressures are bearish for T-notes on the outlook for as much as $25-$30 billion of corporate debt to be issued this week, which will prompt bond dealers to short T-note futures as a hedge against the new supply.

European government bond yields on Monday closed mixed.  The 10-year German bund yield rose by +0.1 bp to 2.226%.  The 10-year UK gilt yield fell by -2.8 bp to 3.916%.

The German July wholesale price index fell -0.1% y/y, the fifteenth consecutive month wholesale prices have declined.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 96% for the September 12 meeting.

US Stock Movers

KeyCorp (KEY) rallied +9.10% to lead gainers in the S&P 500 after announcing Scotiabank entered an agreement to acquire a 14.9% pre-forma stake for a minority investment of about $2.8 billion through the issuance of common shares at a price of $17.17 per share.

Chip stocks moved higher and lent support to the overall market. Nvidia (NVDA) rallied +4.08%.  Advanced Micro Devices (AMD), Micron Technology (MU), KLA Corp (KLAC), and Applied Materials (AMAT) rallied more than +1%.

Energy stocks and energy service providers rallied, with WTI crude prices rising more than +3%.  Marathon Oil (MRO) rallied +2.05%.  McKesson (MCK), Conoco Philips (COP), and Haliburton (HAL) all rallied more than +1%. 

Starbucks (SBUX) rallied +2.71% after the Wall Street Journal reported that activist investor Starboard Value has taken a stake in the company. 

Take-Two Interactive Software (TTWO) rallied +1.83% after HSBC upgraded the stock to buy from hold with a price target of $179. 

Walmart (WMT) rallied +1.10% after Evercore ISI initiated a positive tactical trading call on the stock ahead of earnings on Thursday.

Monday.com (MNDY) rallied +14.92% after reporting Q2 adjusted EPS of 94 cents, well above the consensus of 56 cents. 

Qualcomm (QCOM) fell -0.84% after Wolfe Research downgraded the stock to peer-perform from outperform. 

Procter & Gamble (PG) fell -2.07% on signs of insider selling after an SEC filing showed CEP Moeller sold $12.2 million shares of stock last Friday.

B Riley Financial (RILY) plunged -51.86% after saying it expects a Q2 loss between $435  million-$475 million and suspended its quarterly dividend. 

Hawaiian Electric Industries (HE) fell -14.35% after pegging losses from the estimated accrual of liabilities at $1.7 billion from the wildfires in Maui and issued a "going concern" risk in their financial statements until plans to finance the settlement are finalized.   

HiIlenbrand Inc (HI) fell -6.53% after D.A. Davidson downgraded the stock to neutral from buy with a price target of $33. 

Pilgrim's Pride (PPC) fell -1.47% after BMO Capital Markets downgraded the stock to market perform from outperform. 

Earnings Reports (8/13/2024)

GRAIL Inc (GRAL), Home Depot Inc/The (HD), Loar Holdings Inc (LOAR), Madison Square Garden Sports Corp (MSGS), XP Inc (XP).

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