Stocks Recover Early Losses and Close Higher as Chip Stocks Surge

The S&P 500 Index ($SPX) (SPY) Wednesday closed up by +1.07%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.31%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +2.17%.

Stocks on Wednesday recovered from early losses and settled higher, with the Nasdaq 100 climbing to a 1-week high.  Strength in chip stocks on Wednesday led to gains in technology stocks and powered the overall market higher.

Wednesday’s as-expected US consumer price report initially weighed on stocks after the Aug US core CPI was unchanged from July at +3.2% y/y, 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 14% from 50% after the release of last Friday’s US payroll report. 

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.

The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 14% for a -50 bp rate cut at that meeting.

Overseas stock markets Wednesday settled mixed.  The Euro Stoxx 50 closed up +0.35%.  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) Wednesday closed down by -4 ticks.  The 10-year T-note yield rose +1.1 bp to 3.653%.  Dec T-notes Wednesday fell back from a 15-month high, and the 10-year T-note yield rebounded from a 15-month low of 3.603%.  T-notes retreated 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 14% from 50% last Friday.   The recovery in stocks on Wednesday also curbed safe-haven demand for T-notes. 

T-notes Wednesday initially moved higher on carryover support from a rally in European government bonds as 10-year German bunds and 10-year UK gilts climbed to 5-week highs.  T-notes also found support on strong demand for the Treasury’s $39 billion auction of reopened 10-year T-notes that had a bid-to-cover ratio of 2.64, well above the 10-auction average of 2.50. 

European government bond yields on Wednesday moved lower.  The 10-year German bund yield fell to a 5-week low of 2.085% and finished down -1.9 bp at 2.112%.  The 10-year UK gilt fell to a 5-week low of 3.742% and finished down -5.8 bp at 3.761%.

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

US Stock Movers

Wednesday’s rally in chip stocks supported gains in the broader market.  ARM Holdings Plc (ARM) closed up more than +9% to lead gainers in the Nasdaq 100.  Also, Nvidia (NVDA) closed up more than +8%, and Broadcom (AVGO) and ASML Holding NV (ASML) closed up more than +6%.  In addition, KLA Corp (KLAC), Lam Research (LRCX), Advanced Micro Devices (AMD), Marvell Technology (MRVL), Micron Technology (MU), and Applied Materials (AMAT) closed up more than +4%.  Finally, Intel (INTC), ON Semiconductor Corp (ON), and Qualcomm (QCOM) closed up more than +3%. 

Health insurance stocks with Medicare Advantage plans fell for a second day Wednesday after Leerink Partners published a report Tuesday that said those plans might have a tougher time earning high-quality “star ratings” that drive bonus payments.  As a result, Humana (HUM) closed down more than -5% to lead losers in the S&P 500.  Also, UnitedHealth Group (UNH) and CVS Health Corp (CVS) closed down more than -1%.

Defensive food manufacturers retreated Wednesday on the rally in the broader equity market.  As a result, Conagra Brands (CAG) closed down more than -4%, and Campbell Soup (CPB) closed down more than -3%.  Also, Hershey (HSY), Sysco (SYY), Hormel Foods (HRL), Tyson Foods (TSN), and General Mills (GIS) closed down more than -2%.

Albemarle (ALB) closed up more than +13% as lithium stocks rallied after UBS said CATL curtailed lithium production at its Jiangxi operation. 

Starbucks (SBUX) closed up more than +5% after CEO Niccol said he is open to exploring a new joint venture partnership structure in China.

AES Corp (AES) closed up more than +8% after Jeffries initiated coverage on the stock with a recommendation of buy and a price target of $20. 

Viking Therapeutics (VKTX) closed up more than +11% after JPMorgan Chase initiated coverage on the stock with a recommendation of overweight and a price target of $80.

Viridian Therapeutics (VRDN) closed up more than +5% after Needham & Co. raised its price target on the stock to $48 from $30.

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

Trump Media & Technology (DJT) closed down more than -10% 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% Wednesday morning from 53% before the debate. 

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

Rollins Inc (ROL) closed down more than -2% on negative carryover from a -20% plunge in peer Rentokil after it issued a surprise downgrade to its full-year growth estimates. 

Earnings Reports (9/12/2024)

Adobe Inc (ADBE), Caleres Inc (CAL), IBEX Holdings Ltd (IBEX), Ispire Technology Inc (ISPR), Kroger Co/The (KR), Lovesac Co/The (LOVE), NexPoint Diversified Real Esta (NXDT), Radiant Logistics Inc (RLGT), RH (RH), Signet Jewelers Ltd (SIG), Value Line Inc (VALU).

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