S&P 500 and Dow Jones Industrials Rally to Record Highs on Soft-Landing Hopes

The S&P 500 Index ($SPX) (SPY) today is up by +1.56%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.95%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +2.60%.

Stocks today are sharply higher, with the S&P 500 and Dow Jones Industrials posting new all-time highs and the Nasdaq 100 climbing to a 4-week high.  Stocks have rallied worldwide today after the Fed cut interest rates by an aggressive -50 bp on Wednesday.  The Fed’s -50 bp rate cut and projections for another -50 bp of rate cuts this year have bolstered speculation the Fed will engineer a soft landing and sparked risk-on sentiment for asset markets. Stocks maintained their gains today despite an increase in bond yields after US weekly initial unemployment claims fell more than expected to a 4-month low, a hawkish factor for Fed policy.

US weekly initial unemployment claims fell -12,000 to a 4-month low of 219,000, showing a stronger labor market than expectations of 230,000.

The US Aug Philadelphia Fed business outlook survey index rose +8.7 to 1.7, stronger than expectations of 0.0.

US Aug existing home sales fell -2.5% m/m to a 10-month low of 3.86 million, weaker than expectations of 3.90 million.

US Aug leading economic indicators fell -0.2% m/m, a smaller decline than expectations of -0.3% m/m.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 41% for a -50 bp rate cut at that meeting.

Overseas stock markets today are higher.  The Euro Stoxx 50 climbed to a 2-week high and is up +1.85%.  China's Shanghai Composite rose to a 1-week high and closed up +0.69%.   Japan's Nikkei Stock 225 climbed to a 2-week high and closed up +2.13%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down -12 ticks.  The 10-year T-note yield is up +3.0 bp at 3.734%.  Dec T-notes today dropped to a 1-1/2 week low, and the 10-year T-note yield rose to a 2-week high of 3.766%.  T-notes are sliding on negative carryover from weakness in European government bonds.  Also, today’s sharp rally in stocks has reduced the safe-haven demand for T-notes. Losses in T-notes accelerated today after weekly US jobless claims fell more than expected to a 4-month low, a sign of labor market strength and a hawkish factor for Fed policy.  However, T-notes recovered from their worst levels after US Aug existing home sales fell more than expected to a 10-month low. 

European government bond yields today are moving higher.  The 10-year German bund yield rose to a 1-1/2 week high of 2.218% and is up +0.6 bp at 2.196%.  The 10-year UK gilt yield rose to a 1-1/2 week high of 3.908% and is up +4.0 bp at 3.887%.

Eurozone Aug new car registrations fell -18.3% y/y to 644,000 units, the biggest decline in 2-1/3 years.

ECB Executive Board member Schnabel said sticky services inflation is keeping headline inflation at an elevated level.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 26% for the October 17 meeting.

US Stock Movers

Strength in chip stocks is giving the overall market a boost.  Nvidia (NVDA), Advanced Micro Devices (AMD), ASML Holding NV (ASML), KLA Corp (KLAC), and Applied Materials (AMAT) are up more than +5%.  Also, Lam Research (LRCX), GlobalFoundries (GFS), Marvell Technology (MRVL), Analog Devices (ADI), and ON Semiconductor (ON) are up more than +4%.  In addition,  Qualcomm (QCOM), NXP Semiconductors (NXPI), Microchip Technology (MCHP), and Texas Instruments (TXN) are up more than +3%.

Megacap technology stocks are rallying today on economic optimism.  Tesla (TSLA) is up more than +5%.  Also, Apple (AAPL) and Meta Platforms (META) are up more than +3%.  In addition, Amazon.com (AMZN), Alphabet (GOOGL), and Netflix (NFLX) are up more than +2%. 

Home building stocks are climbing today after the Fed cut interest rates by -50 bp on Wednesday and projected another -50 bp of cuts this year, a supportive factor for housing demand. As a result, PulteGroup (PHM), DR Horton (DHI), Toll Brothers (TOL), and Lennar (LEN) are up more than +1%.

Utility stocks are under pressure today from higher bond yields.  As a result, American Electric Power (AEP), Consolidated Edison (ED), and Duke Energy (DUK) are down more than -1%.  Also, Exelon (EXC) is down -0.84%, and Xcel Energy (XEL) is down -0.48%.

FactSet Research Systems (FDS) is up more than +2% after reporting Q3 adjusted EPS of $3.74, stronger than the consensus of $3.62.

Mobileye (MBLY) is up more than +13% after Intel said it does not currently have any plans to divest a majority interest in the company.  

Darden Restaurants (DRI) is up more than +7% to lead gainers in the S&P 500 after it said sales trends have continued to improve following soft customer traffic in July and said it has partnered with Uber Technologies for food delivery, set to begin with Olive Garden later this year. 

DoorDash (DASH) is up more than +3% after BTIG upgraded the stock to buy from neutral with a price target of $155. 

Steelcase (SCS) is down more than -7% after reporting Q2 revenue of $855.8 million, weaker than the consensus of $864.3 million, and forecasting Q3 revenue of $785 million-$810 million, below the consensus of $812 million. 

Ventas (VTR) is down more than -2% to lead losers in the S&P 50 after it entered into a sale pact with ATM and said it may sell up to $2 billion in stock under the ATM sales agreement.

Five Below (FIVE) is down more than -3% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $95. 

Progyny (PGNY) is down more than -28% after saying a “significant client” opted to terminate its service agreement with the company effective Jan 1. 

Elanco Animal Health (ELAN) is down more than -5% after Morgan Stanley downgraded the stock to equal weight from overweight.

Casy’s General Stores (CASY) is down more than -2% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $337. 

Earnings Reports (9/19/2024)

Darden Restaurants Inc (DRI), FactSet Research Systems Inc (FDS), FedEx Corp (FDX), Lennar Corp (LEN).

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