US Economic Strength and Dovish Fed Comments Push Stocks Higher

The S&P 500 Index ($SPX) (SPY) today is up +1.23%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.95%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.95%.

US stocks today are moving higher, with the S&P 500, Dow Jones Industrials, and Nasdaq 100 posting 2-week highs.  Signs of strength in the US economy are boosting stocks today after July retail sales posted their largest increase in 1-1/2 years, and weekly initial unemployment claims unexpectedly fell to a 5-week low. The strong reports bolstered the outlook for a soft economic landing.  Also, Walmart, the largest US retailer and a barometer of consumer spending, is up more than +6% after raising its full-year sales guidance.

Dovish Fed comments today are also supporting stocks.  Atlanta Fed President Bostic said he is "open" to an interest rate cut in September, and the Fed can't "afford to be late" to ease monetary policy amid signs of cooling in the labor market.  Also, St. Louis Fed President Musalem said that from his perspective, "the risk to both sides of the Fed's mandate seems more balanced. Accordingly, the time may be nearing when an adjustment to moderately restrictive policy may be appropriate as we approach future meetings."

On the negative side for stocks is a jump in T-note yields after today’s US economic reports dampened speculation that the Fed will cut interest rates by 50 bp next month instead of 25 bp.

US weekly initial unemployment claims unexpectedly fell -7,000 to a 5-week low of 227,000, showing a stronger labor market than expectations of an increase to 235,000.

US July retail sales rose +1.0% m/m, stronger than expectations of +0.4% m/m and the biggest increase in 1-1/2 years.  Jul retail sales ex-autos rose +0.4% m/m, stronger than expectations of +0.1% m/m.

The US Aug Philadelphia Fed business outlook survey fell -20.9 to a 7-month low of -7.0, weaker than expectations of 5.2.

The US Aug Empire manufacturing survey general business conditions rose +1.9 to -4.7, stronger than expectations of -6.0.

US July manufacturing production fell -0.3% m/m, right on expectations.

The US Aug NAHB housing market index unexpectedly fell -2 to an 8-month low of 39, weaker than expectations of an increase to 43.

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 28% for a -50 bp rate cut at that meeting.

Overseas stock markets today are higher.  The Euro Stoxx 50 rose to a 2-week high and is up +1.57%. China's Shanghai Composite climbed to a 1-week high and closed up +0.94%.  Japan's Nikkei Stock 225 rose to a 1-week high and closed up +0.78%.

Interest Rates

September 10-year T-notes (ZNU24) today are down -25 ticks.  The 10-year T-note yield is up +9.5 bp at 3.930%.  Sep T-notes retreated today after US weekly jobless claims unexpectedly fell to a 5-week low, and July retail sales rose by the most in 1-1/2 years, hawkish factors for Fed policy.  Today’s strong US economic reports reduced expectations for a 50 bp Fed rate cut at next month’s FOMC meeting to 28% from 75% last week.   Also, today’s rally in the S&P 500 to a 2-week high has reduced safe-haven demand for T-notes. 

European government bond yields today are moving higher.  The 10-year German bund yield is up +7.8 bp at 2.258%.  The 10-year UK gilt yield is up +8.8 bp at 3.913%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 93% for the September 12 meeting.

US Stock Movers

Walmart (WMT) is up more than +6% after reporting Q2 revenue of $169.34 billion, better than the consensus of $168.46 billion, and boosting its full-year net sales estimate to +3.75%-4.75% from a previous estimate of +4%. Other retailers rallied on the news with Dollar Tree (DLTR) up more than +8%.  Target (TGT), Best Buy (BBY), and Dollar General (DG) are up more than +4%.

Cisco Systems (CSCO) is up more than +8% to lead gainers in the Dow Jones Industrials and Nasdaq 100 after reporting Q4 revenue of $13.64 billion, better than the consensus of $13.53 billion, and forecasting Q1 revenue of $13.65 billion-$13.85 billion, the midpoint above the consensus $13.71 billion. 

Chip stocks are climbing today to provide support to the overall market.  Marvell Technology (MRVL) is up more than +7%, and Micron Technology (MU) is up more than +5%.  Also, ON Semiconductor (ON) and Broadcom (AVGO) are up more than +4%.  In addition, Nvidia (NVDA), Advanced Micro Devices (AMD), KLA Corp (KLAC), GlobalFoundries (GFS), NXP Semiconductors (NXPI), and Qualcomm (QCOM) are up more than +3%.

Telecommunication stocks are under pressure today.  Verizon Communications (VZ) is down more than -1% to lead losers in the Dow Jones Industrials.  Also, AT&T (T) and SBA Communications (SBAC) are down more than -1%.

Ulta Beauty (ULTA) is up more than +10% to lead gainers in the S&P 500 after Berkshire Hathaway disclosed it took a new stake in the company.

Deere & Co (DE) is up more than +5% after reporting Q3 net sales of $11.39 billion, stronger than the consensus of $10.84 billion. 

Nike (NKE) is up more than +4% after Pershing Square Capital Management LP disclosed it added a new position of about 3 million shares of Nike at the end of Q2. 

Dell Technologies (DELL) is up more than +6% after JPMorgan Chase added the stock to its Focus List, citing an “attractive entry point.” 

Tapestry (TPR) is up more than +1% after reporting Q4 net sales of $1.59 billion, above the consensus of $1.57 billion. 

Spire Global (SPIR) is down more than -25% after it notified the SEC that its 10-Q filing for the quarter ended June 30 will be late. 

Dillard’s (DDS) is down more than -8% after reporting Q2 net sales of $1.49 billion, below the consensus of $1.53 billion.

Higher bond yields today are weighing on utility and real estate investment trust stocks.  As a result, Eversource Energy (ES) is down more than -2% to lead losers in the S&P 500.  Also, American Tower (AMT), Consolidated Edison (ED), Welltower (WELL), Entergy (ETR), Digital Real Estate Trust (DLR), and Ventas (VTR) are down more than -1%.

T-Mobile US (TMUS) is down more than -1% to lead losers in the Nasdaq 100 on signs of insider selling after an SEC filing showed President and CEO Sievert sold $7.79 million worth of shares on Monday and Tuesday.

Earnings Reports (8/15/2024)

Amcor PLC (AMCR), Applied Materials Inc (AMAT), Coherent Corp (COHR), Deere & Co (DE), Globant SA (GLOB), H&R Block Inc (HRB), Tapestry Inc (TPR), Walmart Inc (WMT).

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