Stocks Settle Mostly Lower on Chip Stock Weakness

The S&P 500 Index ($SPX) (SPY) Friday closed down by -0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down by -0.24%.

Stocks on Friday mainly settled lower, giving back some of Thursday’s sharp gains.  Weakness in chip stocks weighed on the overall market.  Stocks were also under pressure Friday from some negative corporate news.  FedEx closed down more than -15% after reporting Q1 adjusted EPS well below the consensus and cutting its 2025 adjusted EPS forecast.  Also, Lennar closed down more than -5% after reporting weaker-than-expected Q3 net new orders.  Stocks recovered from their worst levels on dovish comments from Fed Governor Waller, who said, "Inflation is running softer than I thought."

The Dow Jones Industrials Friday recovered from early losses and posted modest gains when Intel jumped more than +3% after the Wall Street Journal reported that Qualcomm approached the company about a potential takeover.  Also, Nike closed up more than +6% after announcing that Elliot Hill will return to the company as CEO and president effective October 14.

Dovish comments from Fed Governor Waller were supportive for stocks when he said he supported the Fed's 50 bp rate cut this week as "inflation is running softer than I thought," and he estimates the core PCE price index, the Fed's preferred inflation gauge, is rising at an annualized pace of +1.8% over the past three months, below the Fed's 2% target.

Market volatility Friday was higher than usual due to the quarterly episode known as “triple witching,” when derivatives contracts tied to stocks, index options, and futures expire, potentially amplifying market moves.  According to the analytical firm Asym 500, about $5.1 trillion of contracts expired on Friday.  The expiry Friday also coincides with the rebalancing of benchmark indexes.  The event has a reputation for causing sudden price moves as contracts disappear, and traders roll over their existing positions or start new ones. 

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 51% for a -50 bp rate cut at that meeting.

Overseas stock markets Friday settled mixed.  The Euro Stoxx 50 closed down -1.45%.  China's Shanghai Composite closed up +0.03%.   Japan's Nikkei Stock 225 rose to a 2-week high and closed up +1.53%.

Interest Rates

December 10-year T-notes (ZNZ24) Friday closed up +3.5 ticks.  The 10-year T-note yield rose +1.1 bp to 3.724%.  Dec T-notes Friday recovered from early losses as short covering emerged on dovish comments from Fed Governor Waller, who said, "Inflation is running softer than I thought."  T-notes Friday initially moved lower on negative carryover from weakness in European government bonds.  Also, supply pressures are weighing on T-notes as the Treasury will auction $183 billion T-notes next week, beginning with Tuesday’s $60 billion auction of 2-year T-notes. 

European government bond yields on Friday moved higher.  The 10-year German bund yield rose to a 1-1/2 week high of 2.226% and finished up +1.0 bp at 2.208%.  The 10-year UK gilt yield climbed to a 1-1/2 week high of 3.919% and finished up +1.1 bp at 3.903%.

The Eurozone Sep consumer confidence index rose +0.5 to a 2-1/2 year high of -12.9, stronger than expectations of -13.2.

German Aug PPI rose +0.2% m/m and fell -0.8% y/y, stronger than expectations of unchanged m/m and -1.0% y/y.

ECB Governing Council member Rehn said the ECB has "a clearly easing direction for its monetary policy, with the pace and scope dependent on fresh economic data and analysis."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 24% for the October 17 meeting.

US Stock Movers

FedEx (FDX) closed down more than -15% to lead losers in the S&P 500 after reporting Q1 adjusted EPS of $3.60, well below the consensus of $4.77, and cutting its 2025 adjusted EPS forecast to $20.00-$21.00 from a previous forecast of $20.00-$22.00, the midpoint weaker than the consensus of $20.53.  United Parcel Service (UPS) also closed down more than -2% on the news.

Semiconductor stocks are under pressure today to weigh on the overall market.  ON Semiconductor (ON) closed down more than -5%.  Also, GlobalFoundries (GFS), Qualcomm (QCOM), and ASML Holding NV (ASML) closed down more than -3%.  In addition, Microchip Technology (MCHP), Analog Devices (ADI), NXP Semiconductors (NXPI), Texas Instruments (TXN), Marvell Technology (MRVL), and Applied Materials (AMAT) closed down more than -2%. 

Intel (INTC) closed up more than +3% after the Wall Street Journal reported that Qualcomm approached the company about a potential takeover. 

Apellis Pharmaceuticals (APLS) closed down more than -12% after the European Medicines Agency upheld its negative opinion on the marketing authorization for the company’s Syfovre eye drug. 

Frontline Plc (FRO) closed down more than -6% after SEB Equities double-downgraded the stock to sell from buy with a price target of $19.05. 

Lennar (LEN) closed down more than -5% after reporting Q3 net new orders of 20,587, below the consensus of 20,827. 

PBF Energy (PBF) closed down more than -5% after Piper Sandler downgraded the stock to underweight from neutral with a price target of $25. 

Valero Energy (VLO) closed down more than -3% after Piper Sandler downgraded the stock to neutral from overweight. 

PepsiCo (PEP) closed down more than -2% after Morgan Stanley downgraded the stock to equal weight from overweight. 

Nike (NKE) closed up more than +6% to lead gainers in the Dow Jones Industrials after announcing that Elliot Hill will return to the company as CEO and president effective October 14, a move analysts said was positive as Hill is an industry and company veteran. 

Crowdstrike Holdings (CRWD) closed up more than +8% after analysts reported that customer attendance and feedback for the company’s Fal.Con conference was positive. 

Exelon (EXC) closed up more than +2% after Jeffries initiated coverage on the stock with a buy recommendation and a price target of $46. 

Assembly Biosciences (ASMB) closed up more than +3% after Jeffries upgraded the stock to buy from hold with a price target of $35.

Ameren Corp (AEE) closed up more than +2% after Jeffries initiated coverage on the stock with a buy recommendation and a price target of $97. 

Earnings Reports (9/23/2024)

AAR Corp (AIR), Aviat Networks Inc (AVNW), Dakota Gold Corp (DC).

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