Stocks Settle Higher on the Scope for Further Fed Easing

The S&P 500 Index ($SPX) (SPY) Monday closed up by +0.28%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.31%.

Stocks on Monday edged higher, with the Dow Jones Industrials climbing to 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 Monday boosted stocks, as Intel closed up more than +3% after Bloomberg reported that Apollo Global Management offered to make a multibillion-dollar investment in Intel.  Also, Tesla closed 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 on Monday was mixed for stocks.  The US Aug Chicago Fed national activity index rose +0.54 to 0.12, stronger than expectations of -0.20.  Also, 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 54% 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 on Monday settled higher.  The Euro Stoxx 50 closed up +0.29%.  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) Monday closed down -2.5 ticks.  The 10-year T-note yield rose +0.2 bp to 3.743%.  Dec T-notes Monday 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 weighed on T-note prices after the 10-year breakeven inflation rate Monday rose to a 7-week high of 2.174%.  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.  T-notes recovered most of their losses Monday as dovish Fed comments sparked short covering after Minneapolis Fed President Kashkari and Chicago Fed President Goolsbee said they support additional Fed interest rate cuts this year.

European government bond yields on Monday were mixed.  The 10-year German bund yield fell -5.1 bp to 2.156%.  The 10-year UK gilt yield rose to a 2-1/2 week high of 3.950% and finished up +2.0 bp at 3.923%.

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) closed 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) closed up more than +3% 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. 

Vistra Corp (VST) closed up more than +3% after Morgan Stanley raised its price target on the stock to $132 from $110. 

Ciena (CIEN) closed up more than +4% after Citigroup double-upgraded the stock to buy from sell with a price target of $68. 

Iron Mountain (IRM) closed up more than +2% after Stifel raised its price target on the stock to $140 from $117.

Walmart (WMT) closed up more than +1% after Melius Research LLC initiated coverage on the stock with a recommendation of buy with a price target of $95. 

Regeneron Pharmaceuticals (REGN) closed down more than -4% to lead losers in the S&P 500 and Nasdaq 100 after a federal judge in West Virginia denied the company’s motion for a temporary injunction against Amgen, which recently got FDA approval for the biosimilar eye drug Pavblu.

Moody’s Corp (MCO) closed down more than -3% after Raymond James downgraded the stock to underperform from market perform. 

General Motors (GM) closed down more than -2% after Bernstein downgraded the stock to market perform from outperform. 

Ulta Beauty (ULTA) closed down more than -2% after TD Cowen downgraded the stock to hold from buy. 

GoDaddy (GDDY) closed down more than -1% after Piper Sandler downgraded the stock to neutral from overweight.

Nike (NKE) closed down -0.75% after JPMorgan Chase put the stock on negative catalyst watch ahead of Nike’s Q1 earnings report on October 1.

Earnings Reports (9/24/2024)

AutoZone Inc (AZO), Critical Metals Corp (CRML), KB Home (KBH), Progress Software Corp (PRGS), Stitch Fix Inc (SFIX), Thor Industries Inc (THO), Worthington Enterprises Inc (WOR).

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