Stocks Gain on Economic Optimism and Lower Bond Yields

The S&P 500 Index ($SPX) (SPY) today is up +0.40, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.53%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.27%.

US stocks today are mostly higher, with the S&P 500 and Nasdaq 100 posting 3-1/2 week highs and the Dow Jones Industrials climbing to a 2-week high.  Positive corporate news is supporting stocks today, with Advanced Micro Devices up more than +2% after acquiring server maker ZT Systems in a deal valued at $4.9 billion.  Also, ZIM Integrated Shipping is up more than +23% after reporting stronger-than-expected Q2 adjusted Ebitda and raising its full-year adjusted Ebitda forecast.

Dovish Fed comments today knocked bond yields lower and were supportive of stocks.  San Francisco Fed President Daly said recent US economic data has given the Fed "more confidence" that inflation is under control and it is time to consider adjusting benchmark borrowing costs. Also, Minneapolis Fed President Kashkari signaled he would be open to a Fed rate cut at the September FOMC meeting when he said, "The balance of risks has shifted, so the debate about potentially cutting interest rates in September is an appropriate one to have."

US July leading indicators fell 0.6% m/m, weaker than expectations of -0.4% m/m.

The markets are awaiting the minutes of the July 30-31 FOMC meeting on Wednesday for clues as to how close the Fed is to cutting interest rates.  Also, the markets are awaiting opening comments Friday from Fed Chair Powell at the Fed’s annual symposium in Jackson Hole, Wyoming for fresh insights on the future course of Fed policy. 

The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 24% for a -50 bp rate cut at that meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 climbed to a 2-week high and is up +0.70%. China's Shanghai Composite rose to a 2-week high and closed up +0.49%.  Japan's Nikkei Stock 225 closed down by -1.77%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +2 ticks.  The 10-year T-note yield is down -0.8 bp at 3.875%.  Sep T-notes today are slightly higher on dovish Fed comments.  San Francisco Fed President Daly said recent US economic data has given the Fed "more confidence" that inflation is under control and it is time to consider adjusting benchmark borrowing costs.  Also, Minneapolis Fed President Kashkari said, “The debate about potentially cutting interest rates in September is an appropriate one to have." T-notes also garnered support today after US July leading indicators fell more than expected.

Strength in stocks today is limiting the upside in T-notes.  Also, corporate supply pressures are weighing on T-notes, with as much as $20 billion of corporate debt expected to be sold this week, prompting bond dealers to short T-notes as a hedge against the incoming supply. 

European government bond yields today are moving higher.  The 10-year German bund yield is up +1.0 bp at 2.257%.  The 10-year UK gilt yield is up +1.1 bp at 3.936%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.

US Stock Movers

Home builders and suppliers are climbing today after Barron’s said in a weekend report that US home sales should improve in coming quarters as long-term mortgage rates are expected to head down toward 5% as the Fed gains on inflation.  As a result, Builders FirstSource (BLDR), DR Horton (DHI), Lennar (LEN), and Toll Brothers (TOL) are up more than +1%.

McDonald’s (MCD) is up more than +2% to lead gainers in the Dow Jones Industrials after Evercore ISI raised its price target on the stock to $320 from $300.

Advanced Micro Devices (AMD) is up more than +2% to lead gainers in the Nasdaq 100 after acquiring server maker ZT Systems in a deal valued at $4.9 billion. 

ZIM Integrated Shipping (ZIM) is up more than +23% after reporting Q2 adjusted Ebitda of $488 million, stronger than the consensus of $311 million, and raising its full-year adjusted Ebitda forecast to $2.6 billion-$3.0 billion from a previous forecast of $1.15 billion-$1.55 billion, above the consensus of $2.31 billion.

PROG Holdings (PRG) is up more than +3% after Loop Capital Markets upgraded the stock to buy from hold with a price target of $55. 

MercadoLibre (MELI) is up more than +2% after Susquehanna Financial raised its price target on the stock to $2,300 from $2,000. 

Gates Industrial Corp (GTES) is up more than +1% after RBC Capital Markets upgraded the stock to outperform from neutral with a price target of $22. 

HP Inc (HPQ) is down more than -3% to lead losers in the S&P 500 after Morgan Stanley downgraded the stock to equal weight from overweight. 

Apple (AAPL) is down nearly -1% to lead losers in the Dow Jones Industrials after MoffettNathanson rated the stock neutral with a price target of $211, saying the company’s potential with artificial intelligence is already priced in.

Dutch Bros (BROS) is down more than -2% after Piper Sandler downgraded the stock to neutral from overweight. 

Shake Shack (SHAK) is down more than -1% after Piper Sandler downgraded the stock to neutral from overweight. 

Weakness in chip stocks is weighing on the broader market.  KLA Corp (KLAC), Micron Technology (MU), Broadcom (AVGO), Lam Research (LRCX), and Marvell Technology (MRVL) are down more than -1%. 

Earnings Reports (8/19/2024)

3D Systems Corp (DDD), Bit Digital Inc (BTBT), Estee Lauder Cos Inc/The (EL), Fabrinet (FN), Flexsteel Industries Inc (FLXS), Maui Land & Pineapple Co Inc (MLP), Palo Alto Networks Inc (PANW).

More Stock Market News from Barchart

• What Are Wall Street Analysts’ Target Price for FirstEnergy Stock?
• Dollar Undercut by Dovish Fed Comments
• Alliant Energy Stock: Is Wall Street Bullish or Bearish?