Stocks End Higher on Economic Optimism and Hopes for a Dovish Fed

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.97, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.58%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.32%.

US stocks Monday settled moderately higher, with the S&P 500 posting a 1-month high, the Nasdaq 100 posting a 3-1/2 week high, and the Dow Jones Industrials posting a 2-week high.  Positive corporate news supported stocks Monday, with Advanced Micro Devices climbing more than +4% to lead chip stocks higher after acquiring server maker ZT Systems in a deal valued at $4.9 billion.  Also, ZIM Integrated Shipping rose more than +15% after reporting stronger-than-expected Q2 adjusted Ebitda and raising its full-year adjusted Ebitda forecast.

Dovish Fed comments on Monday knocked bond yields lower and supported 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 await opening comments from Fed Chair Powell on Friday 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 Monday settled mixed.  The Euro Stoxx 50 climbed to a 2-week high and closed up +0.64%.  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) Monday closed up +3.5 ticks.  The 10-year T-note yield fell -2.1 bp to 3.862%.  Sep T-notes Monday found support from 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 Monday after US July leading indicators fell more than expected.

Strength in stocks Monday limited 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 Monday moved slightly lower. The 10-year German bund yield fell -0.1 bp to 2.246%.  The 10-year UK gilt yield fell -0.4 bp to 3.922%.

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

US Stock Movers

Advanced Micro Devices (AMD) closed up more than +4% to lead gainers in the Nasdaq 100 and power chip stocks higher after acquiring server maker ZT Systems in a deal valued at $4.9 billion.  Also, Nvidia (NVDA) closed up more than +4%, and Intel (INTC) closed up more than +3%.  In addition, ON Semiconductor (ON) and Marvell Technology (MRVL) closed up more than +2%.  Finally, ASML Holding NV (ASML), GlobalFoundries (GFS), Applied Materials (AMAT), Microchip Technology (MCHP), and NXP Semiconductors NV (NXPI) closed up more than +1%.

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, Toll Brothers (TOL) closed up more than +2%, and.

Builders FirstSource (BLDR), DR Horton (DHI), and Lennar (LEN) closed up more than +1%. 

McDonald’s (MCD) closed up more than +3% to lead gainers in the Dow Jones Industrials after Evercore ISI raised its price target on the stock to $320 from $300.

ZIM Integrated Shipping (ZIM) closed up more than +15% 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) closed up more than +4% after Loop Capital Markets upgraded the stock to buy from hold with a price target of $55. 

Gates Industrial Corp (GTES) closed up more than +2% after RBC Capital Markets upgraded the stock to outperform from neutral with a price target of $22. 

MercadoLibre (MELI) closed up more than +1% after Susquehanna Financial raised its price target on the stock to $2,300 from $2,000. 

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

Estee Lauder (EL) closed down more than -2% after forecasting full-year revenue growth between a -1% decrease and a +2% increase, weaker than the consensus of a +5.6% increase.

Deere & Co (DE) closed down more than -1% after HSBC downgraded the stock to hold from buy. 

Dutch Bros (BROS) closed down more than -4% after Piper Sandler downgraded the stock to neutral from overweight. 

Shake Shack (SHAK) closed down more than -2% after Piper Sandler downgraded the stock to neutral from overweight. 

Earnings Reports (8/20/2024)

Amer Sports Inc (AS), Coty Inc (COTY), Jack Henry & Associates Inc (JKHY), Keysight Technologies Inc (KEYS), Lowe's Cos Inc (LOW), Medtronic PLC (MDT), Premier Inc (PINC), Toll Brothers Inc (TOL).

• Dollar Tumbles to a 7-1/2 Month Low on Expectations of a Dovish Fed
• Up 510% YTD, Is It Too Late to Buy This Breakout Space Stock?
• 2 'Strong Buy'-Rated Stocks That Wall Street Believes Can Soar Over 360%
• Up 58% YTD, is Eli Lilly Stock Still a Buy?