Stocks Climb on Optimism Fed Can Achieve a Soft Landing

The S&P 500 Index ($SPX) (SPY) today is up by +0.21%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +0.28%.

Stocks are climbing today, with the Dow Jones Industrials posting a new all-time high.  Optimism that the Fed can achieve a soft landing for the economy is lifting stock prices today. Minneapolis Fed President Kashkari and Chicago Fed President Goolsbee said today that they support additional Fed rate cuts this year. 

Positive corporate news today is boosting stocks, with Intel up more than +2% after Bloomberg reported that Apollo Global Management offered to make a multibillion-dollar investment in the company.  Also, Tesla is up more than +4% after Barclays said they expect the company’s Q3 deliveries to top consensus estimates that could drive continued stock strength.  US economic news today was mixed for stocks.

The US Aug Chicago Fed national activity index rose +0.54 to 0.12, stronger than expectations of -0.20.

The US Sep S&P manufacturing PMI unexpectedly fell -0.9 to 47.0, weaker than expectations of 48.6 and the steepest pace of contraction in 15 months.

Minneapolis Fed President Kashkari said, "The balance of risks has shifted away from higher inflation and toward the risk of a further weakening of the labor market, warranting a lower federal funds rate, and he supports another 50 bp of rate cuts this year.

Chicago Fed President Goolsbee said interest rates need to be lowered "significantly" to protect the US labor market and support the economy.

The markets are awaiting Tuesday’s Conference Board US Sep consumer confidence index, which is expected to climb +0.7 to 104.0.  Also, inflation news on Friday is awaited when the US core PCE price index, the Fed’s preferred inflation gauge, is released.  The consensus is that the Aug core PCE price index rises +0.2% m/m and climbs +2.7% y/y from +2.6% y/y in July.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 49% for a -50 bp rate cut at that meeting.

The action by China to boost stimulus may help spur economic growth, which boosts global growth prospects and supports stocks. The PBOC on Sunday cut the 14-day reverse repo rate by -10 bp to 1.85% from 1.95%, and PBOC Governor Pan Gongsheng will hold a press conference Tuesday on financial support for economic development.

Overseas stock markets today are higher.  The Euro Stoxx 50 is up +0.17%.  China's Shanghai Composite climbed to a 2-week high and closed up +0.44%.   Japan's Nikkei Stock 225 did not trade with markets in Japan closed for the Autumnal Equinox Day holiday.

Interest Rates

December 10-year T-notes (ZNZ24) today are down -13 ticks.  The 10-year T-note yield is up +3.6 bp to 3.777%.  Dec T-notes today dropped to a 2-week low, and the 10-year T-note yield rose to a 2-1/2 week high of 3.793%.  An increase in inflation expectations is weighing on T-note prices after the 10-year breakeven inflation rate today rose to a 7-week high of 2.172%.  Also, supply pressures are undercutting T-notes as the Treasury will auction $183 billion T-notes this week, beginning with Tuesday’s $60 billion auction of 2-year T-notes.  Losses in T-notes are limited by dovish Fed comments today after Minneapolis Fed President Kashkari and Chicago Fed President Goolsbee said they support additional Fed interest rate cuts this year.

European government bond yields today are mixed.  The 10-year German bund yield is down -3.5 bp to 2.172%. The 10-year UK gilt yield rose to a 2-1/2 week high of 3.950% and is up +3.0 bp at 3.933%.

The Eurozone Sep S&P manufacturing PMI fell -1.0 to 44.8, weaker than expectations of 45.7 and the steepest pace of contraction in 9 months. 

The Eurozone Sep S&P composite PMI fell -2.1 to 48.9, weaker than expectations of 50.5 and the steepest pace of contraction in 8 months.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 41% for the October 17 meeting.

US Stock Movers

(TSLA) is up more than +4% to lead gainers in the S&P 500 and Nasdaq 100 after Barclays said they expected the company’s Q3 deliveries to top consensus estimates, which could drive continued stock strength. 

Intel (INTC) is up more than +2% to lead gainers in the Dow Jones Industrials after Bloomberg reported that Apollo Global Management offered to make a multibillion-dollar investment in the company. 

Today’s rally in WTI crude prices to a 2-1/2 week high supports gains in energy stocks.  Diamondback Energy (FANG) is up more than +2%.  Also, APA Corp (APA), Exxon Mobil (XOM), Haliburton (HAL), Hess Corp (HES), Occidental Petroleum (OXY), and Schlumberger (SLB) are up more than +1%. 

Ciena (CIEN) is up more than +3% after Citigroup double-upgraded the stock to buy from sell with a price target of $68. 

PayPal Holdings (PYPL) is up more than +2% after Deutsche Bank raised its price target on the stock to $94 from $74. 

Walmart (WMT) is up more than +1% to lead gainers in the Dow Jones Industrials after Melius Research LLC initiated  coverage on the stock with a recommendation of buy with a price target of $95. 

General Motors (GM) is down more than -3% to lead losers in the S&P 500 after Bernstein downgraded the stock to market perform from outperform. 

Ulta Beauty (ULTA) is down more than -3% after TD Cowen downgraded the stock to hold from buy. 

Nike (NKE) is down nearly -1% after JPMorgan Chase put the stock on negative catalyst watch ahead of Nike’s Q1 earnings report on October 1.

Analog Devices (ADI) and Microchip Technology (MCHP) are down -1% after Truist Securities downgraded the chipmakers to hold from buy.

Moody’s Corp (MCO) is down more than -2% after Raymond James downgraded the stock to underperform from market perform. 

Earnings Reports (9/23/2024)

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

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