Stocks See Support from Favorable July CPI Report

The S&P 500 Index ($SPX) (SPY) today is up +0.10%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.32%.

US stocks today are mixed, with the S&P 500 and Nasdaq 100 posting 1-1/2 week highs.  The broader market is modestly higher as the US July CPI report was slightly weaker than expectations, reinforcing expectations for the Fed to cut interest rates next month.  Also, M&A activity supported stocks today after Mars agreed to buy Kellanova in a deal valued at $36 billion.

On the negative side for stocks, weakness in chip stocks is weighing on the Nasdaq 100.  Also, T-note yields ticked higher today after the release of the US July CPI report showed the details of the report were close to expectations and dampened speculation that the Fed will cut rates by 50 bp next month instead of 25 bp.

US July CPI eased to 2.9% y/y from 3.0% y/y, slightly better than expectations of no change at 3.0% y/y and the smallest year-on-year increase in more than three years.  July CPI ex-food and energy eased to 3.2% y/y from 3.3% y/y in June, right on expectations and the smallest annual increase in 3-1/4 years.

US MBA mortgage applications rose +16.8% in the week ended Aug 9, with the purchase mortgage sub-index up +2.8% and the refinancing sub-index up +34.5%.  The average 30-year fixed rate mortgage fell -1 bp to a 5-month low of 6.54% from 6.55% the previous week. 

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 47% for a -50 bp rate cut at that meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 rose to a 1-1/2 week high and is up +0.64%. China's Shanghai Composite closed down -0.60%.  Japan's Nikkei Stock 225 rose to a 1-1/2 week high and closed up by +0.58%.

Interest Rates

September 10-year T-notes (ZNU24) today are down -3 ticks.  The 10-year T-note yield is up +0.4 bp at 3.847%.  Sep T-notes today fell back from a 1-week high and are slightly lower, and the 10-year T-note yield rebounded from a 1-week low of 3.803% and is slightly higher.  Today’s as-expected US July CPI report weighed on T-notes as it reduced expectations for a 50 bp Fed rate cut at next month’s FOMC meeting to 47% from 75% last week. 

European government bond yields today are mixed.  The 10-year German bund yield rebounded from a 1-week low of 2.176% and is up +1.8 bp at 2.204%.  The 10-year UK gilt yield fell to a 1-week low of 3.837% and is down -3.6 bp at 3.852%.

Eurozone June industrial production unexpectedly fell -0.1% m/m, weaker than expectations of +0.5% m/m.

Eurozone employment eased last quarter as Q2 employment rose +0.2% q/q and +0.8% y/y, weakening from +0.3% q/q and +1.0% y/y in Q1. 

UK July CPI rose +2.2% y/y, weaker than expectations of +2.3% y/y. Also, July core CPI rose +3.3% y/y, weaker than expectations of +3.4% y/y.

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

US Stock Movers

Weakness in chip stocks is weighing on the Nasdaq 100.  Intel (INTC) is down more than -2% to lead losers in the Dow Jones Industrials.  Also, Nvidia (NVDA), Advanced Micro Devices (AMD), Microchip Technology (MCHP), GlobalFoundries (GFS),  ON Semiconductors NV (ON), NXP Semiconductors (NXPI), and Texas Instruments (TXN) are down more than -1%.

Kellanova (K) is up more than +7% to lead gainers in the S&P 500 after Mars agreed to buy the company for $83.50 a share in a deal valued at $36 billion. 

Cardinal Health (CAH) is up more than +3% after reporting Q4 adjusted EPS of $1.84, stronger than the consensus of $1.73, and raising its 2025 adjusted EPS forecast to $7.55-$7.70 from a prior forecast of $$7.50, above the consensus of $7.54. 

Illumina (ILMN) is up more than +4% to lead gainers in the Nasdaq 100 after TD Cown upgraded the stock to buy from hold with a price target of $144. 

Allstate (ALL) is up more than +2% after agreeing to sell its employer voluntary benefits unit to The Standard for $2 billion in cash.

Progressive Corp (PGR) is up more than +2% after reporting net premiums earned for July of $6.07 billion. 

Mercury Systems (MRCY) is up more than +20% after reporting Q4 revenue of $248.6 million, above the consensus of $230.7 million. 

Victoria’s Secret (VSCO) is up more than +19% after the company said it is replacing CEO Waters with Hillary Super, the former CEO of Rihanna’s lingerie brand.

Alphabet (GOOGL) is down more than -2% after the US Justice Department said it is considering several options to break up Google after a landmark court ruling found that the company monopolized the online search market. 

Brinker International (EAT) is down more than -15% after reporting Q4 adjusted EPS of $1.61, weaker than the consensus of $1.68, and forecasting 2025 adjusted EPS of $4.35-$4.75, the midpoint below the consensus of $4.68.

Global-e-Online (GLBE) is down more than -8% after cutting its full-year revenue forecast to $710 million-$750 million from a previous forecast of $733 million-$773 million, weaker than the consensus of $748.6 million. 

Intuit (INTU) is down more than -1% after Morgan Stanley downgraded the stock to equal weight from overweight. 

Medtronic Plc (MDT) is down more than -1% after Stifel downgraded the stock to hold from buy, citing unclear growth catalysts. 

Earnings Reports (8/14/2024)

Cardinal Health Inc (CAH), Cisco Systems Inc (CSCO), Lumentum Holdings Inc (LITE), Paycor HCM Inc (PYCR), Performance Food Group Co (PFGC).

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