Stocks Rally on a Muted US July PPI Report

The S&P 500 Index ($SPX) (SPY) today is up +0.92%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.37%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.50%.

US stocks today are moderately higher, with the S&P 500 and Nasdaq 100 posting 1-1/2 week highs and the Dow Jones Industrials posting a 1-week high. Stocks are climbing today as bond yields dropped after US July producer prices rose less than expected, bolstering expectations for the Fed to begin cutting interest rates next month. 

Strength in semiconductor stocks and megacap technology stocks today is also supporting the overall market.  In addition, Starbucks is up more than +21% after appointing a new CEO.

On the negative side, Baxter International is down more than -7% after selling its kidney-care unit, which accounted for about a third of its revenue last year, to Carlyle Group for $3.8 billion.

US July PPI final demand eased to +2.2% y/y from +2.7% y/y in June, a smaller increase than expectations of +2.3% y/y.  Also, July PPI ex-food and energy eased to +2.4% y/y from +3.0% y/y in June, better than expectations of +2.6% y/y.

The markets are awaiting Wednesday’s consumer price report, which should also help clarify the likely timing and size of any Fed interest rate cuts.  The 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 60% for a -50 bp rate cut at that meeting.

Overseas stock markets today are higher.  The Euro Stoxx 50 is up +0.06%.  China's Shanghai Composite closed up +0.34%.  Japan's Nikkei Stock 225 rallied to a 1-week high and closed up sharply by +3.45%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +9 ticks.  The 10-year T-note yield is down by -3.6 bp at 3.867%. Sep T-notes rose to a 1-week high today, and the 10-year T-note yield fell to a 1-week low of 3.847%.  Today’s Fed-friendly US July PPI report pushed T-note prices higher.  T-notes also have carryover support from today’s rally in 10-year German bunds to a 1-week high.  Strength in stocks today is limiting the upside in T-note prices. 

European government bond yields today are lower.  The 10-year German bund yield fell to a 1-week low of 2.181% and is down -3.5 bp at 2.190%.  The 10-year UK gilt yield fell to a 1-week low of 3.873% and is down -3.5 bp at 3.882%.

The German Aug ZEW expectation of economic growth survey fell -22.6 to a 7-month low of 19.2, weaker than expectations of 34.0.

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

US Stock Movers

Starbucks (SBUX) is up more than +21% to lead gainers in the S&P 500 and Nasdaq 100 after appointing Brian Nicol as CEO effective Sep 9, replacing Laxman Narasimhan, who is stepping down as CEO effective immediately.

Chip stocks are climbing today and are providing support to the overall market.  Nvidia (NVDA) is up more than +4%, adding to Monday’s +4% gain.  Also, Intel (INTC) and Marvell Technology (MRVL) are up more than +3%.  In addition, Advanced Micro Devices (AMD), KLA Corp (KLAC), ARM Holdings Plc (ARM), GlobalFoundries (GFS), Micron Technology (MU), and Broadcom (AVGO) are up more than +2%.

Mega-cap technology stocks are rising today and underpinning the broader market.  Apple (AAPL), Amazon.com (AMZN), Microsoft (MSFT), Meta Platforms (META), and Netflix (NFLX) are up more than +1%. 

Dell Technologies (DELL) is up more than +6% after Barclays upgraded the stock to equal weight from underweight. 

ARS Pharmaceuticals (SPRY) is up more than +10% after Raymond James upgraded the stock to strong buy from outperform with a price target of $22.

Ducommun Inc (DCO) is up more than +6% after Goldman Sachs upgraded the stock to buy from neutral with a price target of $80. 

Hormel Foods (HRL) is up more than +1% after Citigroup upgraded the stock to buy from neutral with a price target of $37. 

First Industrial Realty Trust (FR) is up more than +1% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $64. 

Chipotle Mexican Grill (CMG) is down more than -12% to lead losers in the S&P 500 after CEO Niccol left the company to become CEO of Starbucks.

Baxter International (BAX) is down more than -7% after selling its kidney-care unit to Carlyle Group for $3.8 billion.  Kidney care accounted for about a third of Baxter’s revenue last year.

EQT Corp (EQT) is down more than -3% after BMO Capital Markets cut its price target on the stock to $39 from $45. 

Western Midstream Partners (WES) is down more than -3% after holder Occidental Petroleum offered 19 million shares via Barclays. 

Diamondback Energy (FANG) is down more than -2% to lead losers in the Nasdaq 100 on signs of insider selling after an SEC filing showed CFO Van’t sold $9.91 million of shares last Thursday. 

Occidental Petroleum (OXY) is down more than -2% after holder CrownRock Holdings LP is said to sell 29.6 million shares of its OXY holdings. 

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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