Stocks Pressured by Chip Stocks and Diabetes Device Makers

The S&P 500 Index ($SPX) (SPY) today is down -0.18%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.10%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.32%.

US stocks today gave up an early advance and turned lower.  Weakness in chip stocks is weighing on the overall market.  Also, diabetes device makers are under pressure today, with Insulet and Dexcom down more than -5% on the news that Eli Lilly’s weight-loss drug Zepbound helped cut the risk of diabetes by 94% in obese and pre-diabetic patients.  In addition, Boeing is down more than -4% after it said it paused test flights of its 777X jetliner while it inspects cracks in a crucial structural component, marking the latest setback to certify its largest jetliner. 

Stocks today initially moved higher, with the S&P 500 climbing to a 1-month high and the Nasdaq 100 posting a 4-week high.  A decline in T-note yields today is supportive of stocks.  Positive corporate news is another supportive factor for stocks.  Palo Alto Networks is up more than +6% after reporting Q4 revenue above consensus and forecasting stronger-than-expected 2025 revenue.  Also, Eli Lilly is up more than +3% after it said a study of patients taking its Zepbound weight-loss drug were 94% less likely to develop diabetes in a three-year study. 

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 waiting for the opening comments from Fed Chair Powell on Friday at the Fed’s annual symposium in Jackson Hole, Wyoming, for any 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 32% for a -50 bp rate cut at that meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 fell back from a 2-1/2 week high and is down -0.21%.  China's Shanghai Composite closed down -0.93%.  Japan's Nikkei Stock 225 climbed to a 2-1/2 week high and closed up by +1.80%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +10 ticks.  The 10-year T-note yield is down -4.9 bp at 3.822%.  Sep T-notes today are moderately higher. Dovish ECB comments knocked 10-year German bund yields lower today and are providing carryover support to T-notes. Also, a benign Canadian July CPI report today sparked a rally in 10-year Canadian bonds that underpinned T-note prices. Gains in T-notes are limited by corporate supply pressures, 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 lower.  The 10-year German bund yield is down -3.3 bp at 2.212%.  The 10-year UK gilt yield fell back from a 1-week high of 3.948% and is down -0.9 bp at 3.913%.

Eurozone June construction output rose +1.7% m/m, the largest increase in 17 months.

Germany’s July PPI fell -0.8% y/y, the thirteenth consecutive month prices have fallen year-over-year.

ECB Governing Council member Rehn said, "In my view, the recent increase in negative growth risks in the Eurozone has reinforced the case for a rate cut at the next ECB monetary meeting in September, provided that disinflation is indeed on track."

The Bundesbank said in its monthly report that "the high level of willingness to strike until recently and the still widespread labor shortage suggest that comparatively high wage increases will continue in the future."  This will probably keep underlying inflation "at an elevated level."

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

US Stock Movers

Diabetes device makers are under pressure on the news that Eli Lilly’s weight-loss drug Zepbound helped cut the risk of diabetes by 94% in obese and pre-diabetic patients in a three-year study, suggesting reduced rates of diabetes and a reduced need for diabetes monitoring devices in the future.  Insulet (PODD) is down more than -5% to lead losers in the S&P 500.  Also, Dexcom (DXCM) is down more than -5% to lead losers in the Nasdaq 100.

Chip stocks are weaker today and are weighing on the broader market. Nvidia (NVDA), ARM Holdings Plc (ARM), Microchip Technology (MCHP), Applied Materials (AMAT), Lam Research (LRCX), and Intel (INTC) are down more than -2%.  Also, KLA Corp (KLAC), NXP Semiconductors NV (NXPI), Marvell Technology (MRVL), and Analog Devices (ADI) are down more than -1%. 

Boeing (BA) is down more than -4% to lead losers in the Dow Jones Industrials after it said it paused test flights of its 777X jetliner while it inspects cracks in a crucial structural component, marking the latest setback to certify its largest jetliner that is already about five years behind schedule. 

Viking Therapeutics (VKTX) is down more than -6% on signs of insider selling after an SEC filing showed CEO Lin sold $7.43 million of shares on Monday. 

Stride (LRN) is down more than -5% after Citigroup downgraded the stock to neutral from buy, citing valuation. 

Estee Lauder (EL) is down more than -5% after Morgan Stanley cut its price target on the stock to $100 from $140.

Dentsply Sirona (XRAY) is down more than -4% after announcing that CFO Coleman will resign effective November 7.

Bank of America (BAC) is down more than -2% after an SEC filing showed Berkshire Hathaway sold $550.7 million of its Bank of America stock holdings between August 15-19.

Palo Alto Networks (PANW) is up more than +6% to lead gainers in the S&P 500 and the Nasdaq 100 after reporting Q4 revenue of $2.20 billion, better than the consensus of $2.16 billion, and forecasting 2025 revenue of $9.10 billion-$9.15 billion, with the midpoint above the consensus of $9.11 billion. 

Darden Restaurants (DRI) is up more than +5% after Raymond James said the company’s endless pasta promotion for its Olive Garden chain will boost its comparable sales in the coming weeks. 

Eli Lilly (LLY) is up more than +3% after it said a study of patients taking its Zepbound weight-loss drug were 94% less likely to develop diabetes in a three-year study.  

Fabrinet (FN) is up more than +16% after reporting Q4 adjusted EPS of $2.41.  better than the consensus of $2.25 and forecasting Q1 adjusted EPS of $.33-$2.40, stronger than the consensus of $2.25. 

Hawaiian Holdings (HA) is up more than +11% after Alaska Air Group said the waiting period for the antitrust review by the US Justice Department of its takeover of Hawaiian Holdings has expired, bringing the $1.9 billion merger one step closer to being finalized.

Amer Sports (AS) is up more than +10% after reporting Q2 adjusted EPS of 5 cents, better than the consensus of a -6 cent loss, and raising its full-year adjusted EPS estimate to 40 cents-44 cents from a previous estimate of 30 cents-40 cents. 

Medtronic Plc (MDT) is up more than +2% after boosting the lower end of its full-year adjusted EPS estimate to $5.42-$5.50 from a previous estimate of $5.40-$5.50.   

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).

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