Stocks See Mild Support from AI Stocks

The S&P 500 Index ($SPX) (SPY) today is up by +0.05%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.22%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +0.24%.

Stocks today are mixed, with the S&P 500 posting a new record high. Strength in AI infrastructure stocks is lifting the technology sector and the overall market.  Also, some positive corporate news is boosting stocks, with Progressive Software up more than +11% after reporting Q3 adjusted EPS above consensus and raising its full-year adjusted EPS forecast.  Also, Flutter Entertainment Plc is up more than +7% after projecting annual revenue increases of +14% annually to reach $21 billion in 2027 and authorizing a $5 billion stock repurchase program.

However, higher T-note yields today have sparked some long liquidation pressures in equities.  Also, KB Home is down more than -6% after reporting weaker-than-expected Q3 EPS.  General Motors is down more than -5% after being downgraded to underweight at Morgan Stanley.

US MBA mortgage applications rose +11.0% in the week ended September 20, with the purchase mortgage sub-index up +1.4% and the refinancing mortgage sub-index up +20.3%.  The average 30-year fixed rate mortgage fell -2 bp to a 2-year low of 6.13% from 6.15% in the prior week.

The markets are awaiting inflation news on Friday when the Fed's preferred inflation gauge, the US core PCE price index, is released.  The consensus is for an Aug core PCE price report of +0.2% m/m and +2.7% y/y, with the year-on-year figure rising slightly 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 59% for a -50 bp rate cut at that meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down -0.36%.  China's Shanghai Composite rallied to a 2-month high and closed up by +1.16%.   Japan's Nikkei Stock 225 closed down -0.19%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down -4 ticks.  The 10-year T-note yield is up +3.4 bp at 3.762%.  T-note prices are under pressure today on negative carryover from lower European government bond prices.  Also, supply pressures are undercutting T-notes as the Treasury will auction $70 billion of 5-year T-notes and $28 billion of 2-year floating-rate notes later today as part of this week’s $202 billion auction package of T-notes and floating-rate notes. 

European government bond yields today are moving higher.  The 10-year German bund yield is up +3.6 bp at 2.183%.  The 10-year UK gilt yield is up +2.6 bp at 3.967%.

ECB Governing Council member Knot said, "I don't expect interest rates to return to the extremely low levels we saw before the pandemic," and he expects gradual interest-rate cuts "in the near future" and in the first half of next year.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 61% for the October 17 meeting.

US Stock Movers

AI infrastructure stocks are climbing today to lead technology stocks higher.  ARM Holdings Plc (ARM) is up more than +2% to lead gainers in the Nasdaq 100.  Also, Nvidia (NVDA) is up more than +2%, and Super Micro Computer (SMCI) is up more than +1%.

HP Enterprise (HPE) is up more than +6% to lead gainers in the S&P 500 after Barclays upgraded the stock to overweight from equal weight with a price target of $24. 

Progressive Software (PRGS) is up more than +11% after reporting Q3 adjusted EPS of $1.26, stronger than the consensus of $1.14, and raising its full-year adjusted EPS forecast to $4.75-$4.85 from a previous estimate of $4.70-$4.80, better than the consensus of $4.75. 

DoorDash (DASH) is up more than +1% after KeyBanc Capital Markets upgraded the stock to overweight from sector weight with a price target of $177. 

AutoNation (AN) is up more than +1% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $200.

Flutter Entertainment Plc (FLUT) is up more than +7% after projecting annual revenue increases of +14% annually to reach $21 billion in 2027 and authorizing a $5 billion stock repurchase program.

General Motors (GM) is down more than -5% to lead losers in the S&P 500 after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $42.

Global Payments (GPN) is down more than -4% after William Blair downgraded the stock to market perform from outperform and described the company’s situation as being “stuck in the mud.”

Ford Motor (F) is down more than -4% after Morgan Stanley downgraded the stock to equal weight from overweight. 

Tyson Foods (TSN) is down more than -3% after Piper Sandler downgraded the stock to underweight from neutral with a price target of $50. 

KB Home (KBH) is down more than -6% after reporting Q3 EPS of $2.04, below the consensus of $2.06, and reporting Q3 net orders of 3,085, below the consensus of 3,345. 

ServiceNow (NOW) is down more than -3%, and Okta (OKTA) is down more than -1% after Piper Sandler noted the companies have the highest portion of federal contract dollars sourced through Carahsoft, the company in the middle of a US Department of Justice probe.

Expedia Group (EXPE) is down more than -2% after TD Cowen downgraded the stock to hold from buy. 

Earnings Reports (9/25/2024)

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

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