Stocks Mixed on Lower Bond Yields and US Labor Market Weakness

The S&P 500 Index ($SPX) (SPY) today is up +0.11%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.33%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.23%.

Stocks today are mixed.  A fall in the 10-year T-note yield today to a 1-month low is supporting stocks.  Also, an upward revision to US Q2 nonfarm productivity and a downward revision to Q2 unit labor costs are supportive for stocks. However, signs of weakness in the US labor market have fueled growth concerns and are negative for stocks after the Aug ADP employment change showed employers added the fewest jobs in 3-1/2 years. 

The US Aug ADP employment change rose +99,000, weaker than expectations of +145,000 and the smallest increase in 3-1/2 years.

US weekly initial unemployment claims fell -5,000 to 227,000, showing a slightly stronger labor market than expectations of 230,000.

US Q2 nonfarm productivity was revised upward to +2.5% from +2.3%, right on expectations.  Q2 unit labor costs were revised lower to 0.4% from 0.9%, better than expectations of +0.8%.

The financial markets are awaiting fresh US economic news that will offer insight into the health of the US economy and help determine the path of the Fed’s interest rate policy.  Later this morning, the Aug ISM services index is expected to ease to 51.2 from 51.4 in July. Also, Friday’s monthly payroll report is expected to show Aug nonfarm payrolls rose +165,000 from +114,000 in July, and the Aug unemployment rate is expected to ease to 4.2% from 4.3% in July.

The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 43% for a -50 bp rate cut at that meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 fell to a 2-1/2 week low and is down -0.46%. China's Shanghai Composite recovered from a 6-3/4 month low and closed up +0.14%.  Japan's Nikkei Stock 225 fell to a 3-week low and closed down by -1.05%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up +9 ticks.  The 10-year T-note yield is down -2.6 bp at 3.729%.  Dec T-notes rallied to a 1-month high today, and the 10-year T-note yield fell to a 1-month low of 3.723%.  Signs of weakness in the US labor market are pushing T-note prices higher after the Aug ADP employment change rose by the least in 3-1/2 years.  T-notes also garnered support from an upward revision to US Q2 nonfarm productivity and a downward revision to Q2 unit labor costs.  In addition, a decline in inflation expectations is bullish for T-notes after the 10-year breakeven inflation rate today fell to a 1-month low of 2.049%.

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 2-week low of 2.195% and is down -2.1 bp at 2.204%.  The 10-year UK gilt yield fell to a 2-week low of 3.901% and is down -3.2 bp at 3.903%.

Eurozone July retail sales rose +0.1% m/m, weaker than expectations of +0.2% m/m.

German July factory orders unexpectedly rose +2.9% m/m, stronger than expectations of a -1.7% m/m decline.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% for the September 12 meeting.

US Stock Movers

Copart (CPRT) is down more than -7% to lead losers in the S&P 500 and Nasdaq 100 after reporting Q4 operating income of $359.5 million, weaker than the consensus of $411.8 million. 

Hewlett Packard Enterprise (HPE) is down more than -7% after reporting Q3 adjusted gross margin of 31.8%, weaker than the consensus of 33.4%. 

Old Dominion Freight Line (ODFL) is down more than -6% after reporting less-than-truckload (LTL) tonnage per day in August fell -6.1% versus a year ago. 

Verint Systems (VRNT) is down more than -12% after reporting Q2 adjusted EPS of 49 cents, below the consensus of 53 cents. 

XPO Inc (XPO) is down more than -8% after reporting less-than-truckload (LTL) tonnage per day in August fell -4.6% versus a year ago. 

Zimmer Biomet Holdings (ZBH) is down more than -6% after CEO Tornos said the company expects a software issue to hurt revenue in the second half of 2024.

Dollar Tree (DLTR) is down more than -1% after BMO Capital Markets downgraded the stock to market perform from outperform. 

MarketAxess Holdings (MKTX) is up more than +4% to lead gainers in the S&P 500 after reporting Aug trading volume of $41.6 billion and a 27% growth in total credit ADV year-over-year.

Tesla (TSLA) is up more than +4% to lead gainers in the Nasdaq 100 after announcing plans to launch its Full Self Driving system in China and Europe in Q1 of next year, pending regulatory approvals.   

Amazon.com (AMZN) is up more than +2% to lead gainers in the Dow Jones Industrials after Cantor Fitzgerald initiated coverage on the stock with a recommendation of overweight with a price target of $230. 

Airline stocks are climbing today on speculation that lower jet fuel costs will boost profit margins after crude prices tumbled to an 8-3/4 month low Wednesday.  As a result, American Airlines Group (AAL) is up more than +4% and United Airlines Holdings (UAL) is up more than +3%.  Also, Delta Air Lines (DAL) and Southwest Airlines (LUV) are up more than +2%.

Roku (ROKU) is up more than +6% after Wells Fargo Securities upgraded the stock to equal weight from underweight. 

Beazer Homes USA (BZH) is up more than +4% after Wedbush upgraded the stock to outperform from neutral with a price target of $45. 

Fortive Corp (FTV) is up more than +1% after announcing plans to spin off its Precision Technologies segment and create two independent publicly traded companies.   

Earnings Reports (9/5/2024)

Broadcom Inc (AVGO), DocuSign Inc (DOCU), Guidewire Software Inc (GWRE), Science Applications International (SAIC), Smartsheet Inc (SMAR), Toro Co/The (TTC), UiPath Inc (PATH).

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