Stocks Gain as Bond Yields Fall on Dovish Powell

The S&P 500 Index ($SPX) (SPY) today is up +0.81%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.87%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.79%.

US stocks today are moderately higher, with the Dow Jones Industrials posting a 3-week high.  Comments from Fed Chair Powell knocked bond yields lower and pushed stocks higher. Powell reinforced expectations that the Fed will cut interest rates at the Sep 17-18 FOMC meeting when he said cooling in the labor market conditions is "unmistakable," and his confidence has grown that inflation is on the path to 2%. Therefore, "the time has come for policy to adjust."

Dovish comments today from Atlanta Fed President Bostic also supported stocks when he said it is possible that more than one interest rate cut by the Fed may now be needed by year-end as inflation had slowed more than he had expected.

Today’s slump in bond yields has fueled a rally in chip stocks, boosting the overall market.  Also, positive corporate news is bullish for stocks, with Workday up more than +10% after reporting better-than-expected Q2 adjusted EPS and saying it would sharply increase profitability over the next three years. 

US July new home sales rose +10.6% m/m to a 14-month high of 739,000, stronger than expectations of 623,000.

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 higher.  The Euro Stoxx 50 rose to a 1-month high and is up +0.60%. China's Shanghai Composite recovered from a 6-1/2 month low and closed up +0.40%.  Japan's Nikkei Stock 225 climbed to a 3-week high and closed up +0.40%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +9 ticks.  The 10-year T-note yield is down -5.3 bp at 3.799%.  Dovish comments today from Atlanta Fed President Bostic gave T-notes a boost when he said more than one interest rate cut by the Fed may be needed by year-end.  T-notes extended their gains today after Fed Chair Powell cemented expectations for a Fed rate cut next month when he said the time has come for the Fed to adjust policy. Today’s stock rally and the stronger-than-expected US July new home sales report limited the upside in T-notes.

European government bond yields today are lower.  The 10-year German bund yield is down -2.0 bp at 2.224%. The 10-year UK gilt yield fell from a 1-1/2 week high of 3.964% and is down -4.2 bp at 3.918%.

The ECB's Eurozone July 1-year inflation expectations indicator was unchanged from June at 2.8%, stronger than expectations of an easing to 2.7%.  Also, the July 3-year inflation expectations indicator unexpectedly rose to 2.4% from 2.3% in June, which was stronger than the expectations of no change at 2.3%.

ECB Governing Council member Vujcic said, "As long as data fall in line with our projections, which foresee inflation to fall to 2% in 2025, that increases confidence that we can gradually ease the restrictiveness of our monetary policy." 

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 97% for the September 12 meeting.

US Stock Movers

Chip stocks are climbing today and are supporting gains in the broader market.  Nvidia (NVDA), Marvell Technology (MRVL), and GlobalFoundries (GFS) are up more than +3%.  Also, Intel (INTC) is up more than +2% to lead gainers in the Dow Jones Industrials.  In addition, ON Semiconductor (ON), Analog Devices (ADI), NXP Semiconductors NV (NXPI), Microchip Technology (MCHP), Qualcomm (QCOM), and Texas Instruments (TXN) are up more than +2%.

Lower T-note yields and today’s better-than-expected US July new home sales report are boosting home building stocks.  Builders FirstSource (BLDR) is up more than +4%.  Also, PulteGroup (PHM), Toll Brothers (TOL), and Lennar (LEN) are up more than +3%.  In addition, DR Horton (DHI) is up more than +1%.

Workday (WDAY) is up more than +11% to lead gainers in the Nasdaq 100 after reporting Q2 adjusted EPS of $1.75, above the consensus of $1.64 and said it would increase profitability over the next three years to enable strategic investments.

Moderna (MRNA) is up more than +1% after the European Commission approved the company’s RSV vaccinee Mresvia for use in 27 EU member states.

Cava Group (CAVA) is up more than +16% after boosting its full-year restaurant comparable sales forecast to +8.5% to +9.5% from a previous estimate of +4.5% to +6.5%, well above the consensus of +6.05%.

Roku Inc (ROKU) is up more than +11% after Guggenheim Securities upgraded the stock to buy from neutral with a price target of $75.

Intuit (INTU) is down more than -7% to lead losers in the S&P 500 and Nasdaq 100 after forecasting Q1 adjusted EPS of $2.33-$2.38, well below the consensus of $2.80. 

GE Vernova (GEV) is down more than -3% after reports of a blade failure occurred at the Dogger Bank A offshore wind farm.

Las Vegas Sands (LVS) is down more than -1% after UBS downgraded the stock to neutral from buy, noting the recovery in the company’s Macau business is getting more protracted. 

Bill Holdings (BILL) is down more than -4% after forecasting 2025 adjusted EPS of $1.36-$1.61, well below the consensus of $2.23. 

Earnings Reports (8/23/2024)

Aviat Networks Inc (AVNW), Buckle Inc/The (BKE), Dakota Gold Corp (DC), Dakota Gold Corp (DC), Movado Group Inc (MOV).

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