Stocks Settle Higher as Chinese Stimulus Boosts Economic Growth Prospects

The S&P 500 Index ($SPX) (SPY) Tuesday closed up by +0.25%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.47%.

Stocks on Tuesday settled higher, with the S&P 500 and Dow Jones Industrials posting new all-time highs and the Nasdaq 100 posting a 2-1/4 month high.  Global stocks rallied Tuesday on carryover support from a +4% surge in Chinese stocks after China announced additional stimulus measures to boost its economy, a supportive factor for global growth prospects.  Also, a +3% jump in Nvidia led chip stocks higher and supported gains in the broader market. 

Tuesday's risk sentiment improved for asset markets after the People’s Bank of China (PBOC) announced a broad package of stimulus measures. The PBOC cut the seven-day reverse repurchase rate by -20 bp to 1.50% from 1.70% and lowered the reserve requirement ratio for large banks by 50 bp to 9.50% from 10.00%, which will boost liquidity in the banking system by 1 trillion yuan ($142 billion).  The PBOC also reduced the minimum down payment ratio to 15% for second-home buyers from 25%.  In addition, the PBOC said it would provide at least 800 billion yuan ($113 billion) of liquidity support for stocks as it will set up a swap facility allowing securities, funds, and insurance companies to tap the PBOC to buy stocks.

Stocks fell back temporarily Tuesday after the Conference Board’s US Sep consumer confidence index unexpectedly declined and after the Sep Richmond Fed manufacturing survey unexpectedly fell to a 4-1/3 year low.

Hawkish comments Tuesday from Fed Governor Bowman, the only dissent on the Fed’s 50 bp rate cut last week, weighed on stocks when she said the Fed should lower interest rates at a "measured" pace as inflationary risks remain and that the labor market has not shown significant weakening.

The US Jul S&P CoreLogic composite-20 home price index eased to +5.92% y/y from +6.54% y/y in June, the smallest pace of increase in 8 months. 

The Conference Board US Sep consumer confidence index unexpectedly fell -6.9 to 98.7 versus expectations of an increase to 104.0.

The US Sep Richmond Fed manufacturing survey unexpectedly fell -2 to a 4-1/3 year low of -21, weaker than expectations of an increase to -12.

The markets await inflation news on Friday 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 62% for a -50 bp rate cut at that meeting.

Overseas stock markets Tuesday settled higher.  The Euro Stoxx 50 rose to a 3-week high and closed up +1.13%.  China's Shanghai Composite rallied to a 3-week high and closed up sharply by +4.15%.   Japan's Nikkei Stock 225 climbed to a 3-week high and closed up +0.57%.

Interest Rates

December 10-year T-notes (ZNZ24) Tuesday closed up +2.5 ticks.  The 10-year T-note yield fell -1.5 bp to 3.734%.  Dec T-notes today recovered from a 2-week low and posted modest gains, and the 10-year T-note yield fell back from a 2-1/2 week high of 3.808% and moved lower.  T-notes recovered from early losses Tuesday and moved higher on weaker-than-expected US economic news on Sep consumer confidence and the Sep Richmond Fed manufacturing outlook survey.

On Tuesday, T-notes initially moved lower after inflation expectations increased when the 10-year breakeven inflation rate rose to a 1-3/4 month high of 2.189%.  Also, tepid demand for the Treasury’s $60 billion auction of 2-year T-notes was bearish as the auction had a bid-to-cover ratio of 2.59, below the 10-auction average of 2.62. 

European government bond yields on Tuesday were mixed.  The 10-year German bund yield fell -0.9 bp to 2.148%.  The 10-year UK gilt yield rose to a 3-week high of 3.996% and finished up +1.8 bp to 3.941%.

The German Sep IFO business confidence index fell -1.2 to an 8-month low of 85.4, weaker than expectations of 86.0.

ECB Governing Council member Muller said ECB policymakers may lack sufficient data to make a decision on interest rates in October, but "It will be easier to decide in December because then we'll have a full picture with an updated outlook." 

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 59% for the October 17 meeting.

US Stock Movers

Chip stocks rallied Tuesday, led by a +3% jump in Nvidia (NVDA) after Barron’s reported that CEO Huang is finished selling his shares.  Also, Applied Materials (AMAT), KLA Corp (KLAC), ASML Holding NV (ASML), Broadcom (AVGO), Lam Research (LRCX), ON Semiconductor (ON), and Intel (INTC) closed up more than +1%. 

Stocks exposed to China are moving higher today after the PBOC announced a slew of stimulus measures to boost the Chinese economy, housing sector, and stock market.  PDD Holdings (PDD) closed up more than +11% to lead gainers in the Nasdaq 100.  Also, JD.com (JD) closed up more than +13%.  In addition, NetEase (NTES) rose +8%, Alibaba Group Holding Ltd (BABA) rose +7%, and Yum China (YUMC) closed up more than +6%.  Finally, Caterpillar (CAT) closed up more than +3% to lead gainers in the Dow Jones Industrials.

Mining and metals stocks moved higher Tuesday after copper prices jumped more than +3% to a 2-1/4 month high when China boosted stimulus measures.  As a result, Freeport McMoRan (FCX) closed up more than +7% to lead gainers in the S&P 500.  Also, Alcoa (AA) closed up more than +7%, and Southern Copper (SCCO) closed up more than +6%. 

Uber Technologies (UBER) closed up more than 3% after Raymond James initiated coverage on the stock with a recommendation of a strong buy with a price target of $90. 

Salesforce (CRM) closed up more than +2% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $325. 

Lowe’s (LOW) closed up more than +1% after Oppenheimer & Co. upgraded the stock to outperform from market perform with a price target of $305. 

Global Payments (GPN) closed down more than -6% to lead losers in the S&P 500 after management hosted its 2024 investor conference and failed to provide new guidance for 2024.

McKesson Corp (MCK) closed down more than -4% after Baird downgraded the stock to neutral from outperform. 

Regeneron Pharmaceuticals (REGN) closed down more than -4% to lead losers in the Nasdaq 100 after Leerink Partners downgraded the stock to market perform from outperform. 

Visa (V) closed down more than -5% to lead losers in the Dow Jones Industrials after the US Justice Department’s antitrust division sued the company for a range of anticompetitive conduct.   

Autozone (AZO) closed down more than -2% after reporting Q4 domestic comparable sales rose +0.2%, well below the consensus of +1.15%. 

Essex Property Trust (ESS) closed down more than -3% after Bank of America Global Research downgraded the stock to neutral from buy.

Triumph Group (TGI) closed down more than -4% after Bank of America Global Research downgraded the stock to underperform from buy with a price target of $12. 

Earnings Reports (9/25/2024)

Cintas Corp (CTAS), Concentrix Corp (CNXC), Jefferies Financial Group Inc (JEF), Micron Technology Inc (MU).

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