Stocks Turn Cautious on Speculation Powell Will Downplay Aggressive Fed Easing

The S&P 500 Index ($SPX) (SPY) today is up +0.02%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.13%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.09%.

US stocks today gave up an early advance and turned mixed as bond yields rose and after the US manufacturing PMI fell to the lowest level in 8 months. Stocks are also being weighed down by speculation that Fed Chair Powell, in his comments at the Jackson Hole Fed symposium on Friday, will downplay the need for a 50 bp rate cut at next month’s FOMC meeting.

The S&P 500 and Nasdaq 100 today initially posted 1-month highs, and the Dow Jones Industrials posted a 3-week high on some favorable corporate news.  Zoom Video Communications is up more than +11% after reporting better-than-expected Q2 revenue and raising its full-year revenue estimate.  Also, Nordson is up more than +2% after reporting stronger-than-expected Q3 sales.

On the negative side, Advance Auto Parts is down more than -16% after cutting its full-year net sales forecast. Also, Williams-Sonoma is down more than -8% after reporting weaker-than-expected Q2 net revenue and cutting its full-year net revenue forecast.

Higher bond yields today are negative for stocks.  Hawkish comments today from Kansas City Fed President Schmid pushed bond yields higher when said he wants to see more economic data before supporting any decision to begin cutting interest rates since demand could pick up again if the Fed isn't careful. 

However, the rise in bond yields was limited after Boston Fed President Collin said she expects the Fed to begin easing interest rates soon and that "a gradual, methodical pace" of cuts is likely to be appropriate.  Also, Philadelphia Fed President Harker said he's on board with a September interest rate cut if data is as expected and that "a slow, methodical approach to lowering rates is the right way to go."

US weekly initial unemployment claims rose +4,000 to 232,000, right on expectations.  Weekly continuing claims rose +4,000 to 1.863 million, showing a slightly stronger labor market than expectations of 1.870 million. 

S&P’s US manufacturing PMI fell -1.6 to 48.0, weaker than expectations of 49.5 and the weakest report in 8 months.

US July existing home sales rose +1.3% m/m to 3.95 million, slightly stronger than expectations of 3.94 million.

The markets are awaiting 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 29% for a -50 bp rate cut at that meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 rose to a 4-week high and is up +0.14%. China's Shanghai Composite closed down -0.27%.  Japan's Nikkei Stock 225 rallied to a 3-week high and closed up by +0.68%.

Interest Rates

September 10-year T-notes (ZNU24) today are down -18 ticks.  The 10-year T-note yield is up +6.1 bp at 3.862%.  Sep T-notes today are under pressure from higher European government bond yields.  T-notes extended their losses on hawkish comments from Kansas City Fed President Schmid, who said he wants to see more economic data before supporting any decision to begin cutting interest rates.  T-note prices are also being weighed down by speculation that Fed Chair Powell, in his comments at the Jackson Hole Fed symposium on Friday, will downplay the need for a 50 bp rate cut at next month’s FOMC meeting.

European government bond yields today are higher.  The 10-year German bund yield is up +5.3 bp at 2.244%.  The 10-year UK gilt yield rose to a 1-1/2 week high of 3.964% and is up +7.3 bp at 3.963%.

The S&P Aug Eurozone manufacturing PMI fell -0.2 to 45.6, weaker than expectations of no change at 45.8.  However, the Aug Eurozone composite PMI unexpectedly rose +1.0 to 51.2, stronger than expectations of a decline to 50.1. 

The ECB reported that Q2 Eurozone negotiated wage growth eased to +3.6% y/y from +4.7% y/y in Q1.

The Eurozone Aug consumer confidence index unexpectedly fell -0.4 to -13.4, weaker than expectations of an increase to -12.6.

The summary of the ECB's July 17-18 policy meeting stated that "The September meeting was widely seen as a good time to re-evaluate the level of monetary-policy restriction as new economic data and a new set of staff projections would be available."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 98% for the September 12 meeting.

US Stock Movers

Weakness in chip stocks today is a drag on the broader market. Intel (INTC) is down more than -3% to lead losers in the S&P 500, Nasdaq 100 and Dow Jones Industrials.  Also, Microchip Technology (MCHP) is down more than -2%.  In addition, Applied Materials (AMAT), Lam Research (LRCX), GlobalFoundries (GFS), ON Semiconductor (ON), ASML Holding NV (ASML), Advanced Micro Devices (AMD), and NXP Semiconductors NV (NXPI) are down more than -1%.

Software stocks are under pressure today, led by a -12% fall in Snowflake (SNOW) after it forecasted full-year product revenue of $850 million-$855 million, below some estimates of as much as $900 million.  Also, MongoDB (MDB) is down more than -2%. 

Zoom Video Communications (ZM) is up more than +11% after reporting Q2 revenue of $1.16 billion, better than the consensus of $1.15 billion, and raising its full-year revenue estimate to $4.63 billion-$4.64 billion from a previous estimate of $4.61 billion-$4.62 billion. 

Nordson (NDSN) is up more than +2% after reporting Q3 sales of $661.6 million, better than the consensus of $656.3 million.

Estee Lauder (EL) is up more than +2% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $114.

Edwards Lifesciences (EW) is up more than +1% after Citigroup opened a 90-day positive watch on the stock. 

SentinelOne (S) is up more than +2% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $29. 

Paramount Global (PARA) is up more than +1% after media investor Bronfman raised his offer to buy the company to $6 billion from a $4.3 billion offer he made last week.

Advance Auto Parts (AAP) is down more than -16% after cutting its full-year net sales forecast to $11.15 billion-$11.25 billion from a previous view of $11.30 billion-$11.40 billion, weaker than the consensus of $11.29 billion. 

Williams-Sonoma (WSM) is down more than -8% after reporting Q2 net revenue of $1.79 billion, weaker than the consensus of $1.81 billion, and cutting its full-year net revenue forecast to down -1.5% to -4.0% from a previous estimate of -3% to +3%. 

Urban Outfitters (URBN) is down more than -10% after reporting Q2 comparable retail segment sales rose +2.00%, below the consensus of +2.94%. 

Sprout Social (SPT) is down more than -5% after KeyBank Capital Markets downgraded the stock to underweight from sector weight with a price target of $28.

Earnings Reports (8/22/2024)

Advance Auto Parts Inc (AAP), BILL Holdings Inc (BILL), BJ's Wholesale Club Holdings Inc (BJ), Cava Group Inc (CAVA), Intuit Inc (INTU), Ross Stores Inc (ROST), Williams-Sonoma Inc (WSM), Workday Inc (WDAY).

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