Stocks Undercut as US Core Inflation Fails to Decline

The S&P 500 Index ($SPX) (SPY) today is down by -0.60%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -1.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.19%.

Stocks are under pressure today, with the Dow Jones Industrials falling to a 4-week low.  Today’s as-expected US consumer price report is weighing on stocks after US core consumer prices in August rose +3.2% y/y, unchanged from July and well above the Fed’s +2.0% target.  The stickiness of core prices boosted T-note yields and knocked the chances of a 50 bp rate cut at next week’s FOMC meeting down to 17% from 50% after the release of last Friday’s US payroll report.  The strength of chip stocks today is limiting losses in the Nasdaq 100.

US MBA mortgage applications rose +1.4% in the week ended September 6, with the purchase mortgage sub-index up +1.8% and the refinancing mortgage sub-index up +0.9%.  The average 30-year fixed rate mortgage fell -14 bp to a 19-month low of 6.29% from 6.43% in the prior week.

US Aug CPI eased to +2.5% y/y from +2.9% y/y in July, right on expectations and the smallest increase in 3-1/2 years.  However, Aug CPI ex-food and energy was unchanged from July at +3.2% y/y, right on expectations.

In the wake of last night’s debate, the odds on the betting website PredictIt of Vice President Harris winning the presidency rose to 56% from 53% before the debate. 

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

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +0.42%.  China's Shanghai Composite fell to a 7-month low and closed down -0.82%.  Japan's Nikkei Stock 225 closed down by -1.49%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down by -6 ticks.  The 10-year T-note yield is up +0.4 bp at 3.646%.  Dec T-notes today fell back from a 15-month high and are mildly lower, and the 10-year T-note yield rebounded from a 15-month low of 3.603%.  T-notes gave up an early advance and turned lower after the US Aug core CPI rose +3.2% y/y, right on expectations but well above the Fed’s 2.0% price target.  The core CPI report knocked the chances of a 50 bp rate cut at next week’s FOMC meeting down to 17% from 50% last Friday.  Supply pressures are also negative for T-notes as the Treasury will auction $39 billion 10-year T-notes later today. Losses in T-notes are limited due to carryover support from strength in European government bonds. 

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 5-week low of 2.107% and is down -2.1 bp at 2.110%.  The 10-year UK gilt fell to a 5-week low of 3.756% and is down -5.1 bp at 3.768%.

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

US Stock Movers

Strength in chip stocks today is supportive for the overall market. Nvidia (NVDA) is up more than +3% to lead gainers in the Nasdaq 100.  Also, ASML Holding NV (ASML) and ARM Holdings Plc (ARM) are up more than +2%.  In addition, Marvell Technology (MRVL), Micron Technology (MU), Advanced Micro Devices (AMD), and Applied Materials (AMAT) are up more than +1%.

Trump Media & Technology (DJT) is down more than -16% following last night’s Harris-Trump debate as the odds on the betting website PredictIt of Vice President Harris winning the presidency rose to 56% from 53% before the debate. 

GameStop (GME) is down more than -12% after reporting Q2 net sales of $798.3 million, weaker than the consensus of $895.5 million.   

Palantir Technologies (PLTR) is down more than -2% after a trading update showed exchange-traded funds managed by Cathie Wood’s Ark Investment Management sold 124,626 shares of Palantir. 

Rollins Inc (ROL) is down more than -3% on negative carryover from a -20% plunge in peer Rentokil after it issued a surprise downgrade to its full-year growth estimates. 

Morgan Stanley (MS) is down more than -1% after Goldman Sachs downgraded the stock to neutral from buy. 

Viridian Therapeutics (VRDN) is down more than -2% after announcing an underwritten public offering of $150 million of shares of its common stock and series B preferred stock.

Albemarle (ALB) is up more than +13% to lead gainers in the S&P 500 as lithium stocks rallied after UBS said CATL curtailed lithium production at its Jiangxi operation. 

Dave & Buster’s Entertainment (PLAY) is up more than +6% after reporting Q2 adjusted EPS of $1.12, stronger than the consensus of 84 cents. 

AES Corp (AES) is up more than +4% after Jeffries initiated coverage on the stock with a recommendation of buy and a price target of $20. 

Viking Therapeutics (VKTX) is up more than +3% after JPMorgan Chase initiated coverage on the stock with a recommendation of overweight and a price target of $80.

William-Sonoma (WSM) is up more than +2% after Jeffries upgraded the stock to buy from hold with a price target of $156.   

Earnings Reports (9/11/2024)

Designer Brands Inc (DBI), Oxford Industries Inc (OXM), Vera Bradley Inc (VRA).

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