Stocks Fall Back as Weakness in Chip Stocks Drag the Market Lower

The S&P 500 Index ($SPX) (SPY) today is down by -0.18%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.35%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.12%.

Stocks today are weaker.  Chip stocks are under pressure today and are weighing on the overall market after Micron Technology was downgraded to underperform at BNP Paribas Exane.  Also, today’s as-expected US Aug PPI report dampened speculation that the Fed will be able to cut interest rates by 50 bp at next week’s FOMC meeting.  In addition, an unexpected increase in US initial unemployment claims signaled weakness in the labor market that is negative for economic growth. 

US stocks garnered some carryover support from the rally in European stocks today, as the Euro Stoxx 50 climbed +1.01% after the ECB cut its deposit facility rate by 25 bp to 3.50% from 3.75%.

US weekly initial unemployment claims unexpectedly rose +2,000 to 230,000, showing a slightly weaker labor market than expectations of a decline to 226,000.

US Aug PPI final demand eased to +1.7% y/y from +2.1% y/y in Jul, right on expectations and the smallest increase in 6 months.  Aug PPI ex-food and energy rose +2.4% y/y, up from +2.3% y/y in July and 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 today are mixed.  The Euro Stoxx 50 is up +1.01%.  China's Shanghai Composite closed down -0.17%.  Japan's Nikkei Stock 225 closed up sharply by +3.41%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down by -2 ticks.  The 10-year T-note yield is up +1.7 bp at 3.670%.  Dec T-notes today are slightly lower on negative carryover from a slide in European government bonds.  Also, supply pressures are negative for T-notes as the Treasury will auction $22 billion of reopened 30-year T-bonds later today to conclude this week’s auction slate of $119 billion of T-notes and T-bonds.  Losses in T-notes are limited after weekly US jobless claims unexpectedly increased, a dovish factor for Fed policy. 

European government bond yields today are moving higher.  The 10-year German bund yield is up +3.5 bp at 2.146%.  The 10-year UK gilt is up +1.1 bp at 3.772%.

As expected, the ECB cut its deposit facility rate by -25 bp to 3.50% from 3.75% and said it will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of interest rates. 

The ECB cut its Eurozone 2024 GDP forecast to +0.8% from a previous forecast of +0.9% and raised its 2024 core inflation forecast to +2.9% from +2.8%.

ECB President Lagarde said Eurozone growth risks are tilted to the downside and, "according to survey indicators, the recovery in the Eurozone is continuing to face some headwinds."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 52% for the October 17 meeting.

US Stock Movers

Micron Technology (MU) is down more than -5% to lead chip stocks lower after BNP Paribas Exane downgraded the stock to underperform from outperform with a price target of $67.  Also, NXP Semiconductors NV (NXPI), Applied Materials (AMAT), ON Semiconductor (ON), KLA Corp (KLAC), Microchip Technology (MCHP), and Lam Research (LRCX) are down more than -2%.  Finally, Intel (INTC) is down more than -2% to lead losers in the Dow Jones Industrials.

Warner Bos Discovery (WBD) is up more than +4% to lead gainers in the S&P 500 and Nasdaq 100 after it said its multiyear distribution partnership with Charter Communications was renewed early.

Gilead Sciences (GILD) is up more than +3% after it stopped the blinded phase of its trial of the HIV drug lenacapavir after the drug reduced infections by 96%

Kroger (KR) is up more than +3% after raising the lower end of its full-year sales guidance to +0.75% to +1.75% from a previous forecast of +0.25% to +1.75%

Signet Jewelers Ltd (SIG) is up more than +14% after reporting Q2 adjusted EPS of $1.25, stronger than the consensus of $1.12, and forecast 2025 adjusted EPS of $9.90-$11.52, with the midpoint above the consensus of $10.24. 

Netgear (NTGR) is up more than +29% after raising its Q3 revenue guidance to $170 million-$180 million from a previous estimate of $160 million-$175 million.

US Bancorp (USB) is up more than +1% after announcing it will increase its quarterly dividend to $0.50 per share and authorized a buyback program for up to $5 billion of the company’s outstanding shares.

Alaska Air Group (ALK) is up more than +1% after raising its outlook for Q3 EPS to $2.15-$2.25 from a previous forecast of $1.40-$1.60. 

Roku (ROKU) is up more than +4% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $93. 

Moderna (MRNA) is down more than -16% to lead losers in the S&P 500 after it said it will cut its research and development budget by about 20% over the next three years to achieve a $1.1 billion cut from its R&D budget by 2027. 

Caleres (CAL) is down more than -15% after reporting Q2 net sales of $683.3 million, weaker than the consensus of $723.8 million, and cutting its 2025 operating margin forecast to 7.0% to 7.1% from a previous view of 7.3% to 7.5%. 

Oxford Industries (OXM) is down more than -3% after reporting Q2 adjusted EPS of $2.77, weaker than the consensus of $3.04, and cutting its 2025 adjusted EPS forecast to $7.00-$7.30 from a previous forecast of $8.60-$9.00, well below the consensus of $8.79. 

EQT Corp (EQT) is down more than -3% after JPMorgan Chase cut its price target on the stock to $37 from $42. 

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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