Stocks Turn Lower as Chip Stocks Slide

The S&P 500 Index ($SPX) (SPY) is down -0.26%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.29%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.08%.

US stocks today are mixed, with the Dow Jones Industrials posting a new record high.  Weakness in chip stocks today is weighing on the broader market.  Stocks have carryover support from last Friday when Fed Chair Powell said "the time has come for policy to adjust" to policy easing.  Also, energy stocks are climbing today, with WTI crude oil up more than +3% at a 1-week high.

Dovish comments today from Richmond Fed President Barkin pushed bond yields lower and supported stocks when he said he still sees upside risks for inflation, though he supports "dialing down" interest rates in the face of a cooling labor market.

Stocks are being undercut by concern about the escalation of conflict in the Middle East when more than 100 Israeli warplanes Sunday attacked sites in southern Lebanon. Israeli intelligence said that Hezbollah was about to fire thousands of missiles and drones at northern Israel in retaliation for the killing of one of its commanders in July.

Today’s US economic news was bearish for stocks after July capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, unexpectedly fell -0.1% m/m, weaker than expectations of unchanged m/m.

The markets are awaiting earnings results from Nvidia on Wednesday and the US July core PCE price index, the Fed’s preferred inflation gauge, on Friday.

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 is down -0.16%.  China's Shanghai Composite closed up +0.04%.  Japan's Nikkei Stock 225 closed down -0.66%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +4 ticks.  The 10-year T-note yield is down -1.1 bp at 3.788%.  T-notes are slightly higher today after the US July core capital goods new orders, a proxy for capital spending, unexpectedly fell, a supportive factor for Fed policy.  Also, dovish comments today from Richmond Fed President Barkin were bullish for T-notes when he said he supports "dialing down" interest rates. 

Higher German bund yields today undercut T-note prices after the 10-year German bund yield rose to a 1-week high.  Also, an increase in inflation expectations in bearish for T-notes after the US 10-year breakeven inflation rate today rose to a 2-week high of 2.143% 

European government bond yields today are moving higher.  The 10-year German bund yield climbed to a 1-week high of 2.265% and is up +1.3 bp at 2.238%.  The 10-year UK gilt is not trading today as UK markets were closed for a bank holiday.

The German Aug IFO business confidence index fell -0.4 to 86.6, stronger than expectations of 86.0.

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

US Stock Movers

Weak chip stocks are weighing on the broader market.  ARM Holdings Plc (ARM) is down more than -5%, and Micron Technology (MU) is down more than -4%.  Also, Nvidia (NVDA), Advanced Micro Devices (MRO), Marvell Technology (MRO), Broadcom (MRO), Applied Materials (MRO), Lam, Research (LRCX), ASML Holding NV (ASML), and KLA Corp (KLAC) are down more than -2%.  Finally, Intel (INTC) is down more than -1% to lead losers in the Dow Jones Industrials.

Energy stocks and energy service providers are climbing today, with the price of WTI crude up by more than +3% at a 1-week high.  As a result, Devon Energy (DVN), Schlumberger (SLB), and Marathon Oil (MRO) are up more than +2%.  Also, ConocoPhillips (COP), Occidental Petroleum (OXY), Diamondback Energy (FANG), Haliburton (HAL), and Valero Energy (VLO) are up more than +1%.  Finally, Chevron (CVX) is up more than +1% to lead gainers in the Dow Jones Industrials,

Everest Group (EG) is up more than +1% after a weekend article in Barron’s said the stock is a “buy” as its price-to-earnings ratio doesn’t reflect the full extent of the company’s success.

Kymera Therapeutics (KYMR) is up more than +3% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $65. 

Xcel Energy (XEL) is up more than +1% after Argus Research upgraded the stock to buy from hold with a price target of $68.

Guardant Health (GH) is down more than -10% after Nephron Research LLC downgraded the stock to sell from hold with a price target of $23. 

Boeing (BA) is down more than -1% on concern about the future of its Starliner space program after NASA announced it would use a SpaceX craft to return astronauts from the international space station instead of Boeing’s Starliner craft. 

Tesla (TSLA) is down more than -3% after Canada said it will impose a new 100% tariff on Chinese-made electric vehicles, which includes Teslas made in China. 

PDD Holdings (PDD) is down more than -28% to lead losers in the Nasdaq 100 after reporting Q2 revenue of 97.06 billion yuan, well below the consensus of 99.99 billion yuan. 

Arista Networks (ANET) is down more than -2% on signs of insider selling after an SEC filing showed CEO Ullal sold $6.29 million of shares last Wednesday.

Uber Technologies (UBER) is down more than -2% after being fined $324 million by the Dutch Data Protection Authority for failing to abide by European protection standards when it shipped sensitive data about its drivers to the US.

Invitation Homes (INVH) is down nearly -1% after Wells Fargo Securities downgraded the stock to equal weight from overweight.

Earnings Reports (8/26/2024)

Critical Metals Corp (CRML), HEICO Corp (HEI).

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