Stocks Rally on Chip Stock Strength and Chinese Stimulus

The S&P 500 Index ($SPX) (SPY) today is up by +0.63%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.66%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +1.15%.

Stocks are climbing today, with the S&P 500 posting a new all-time high and the Nasdaq 100 posting a 2-1/4 month high.  Strength in chip stocks is leading the overall market higher, with Micron Technology, the largest US maker of computer memory chips, up more than +15% after giving surprisingly strong sales and profit forecasts, helped by demand for artificial intelligence gear.  Stocks maintained their gains on signs of resilience in the US labor market after weekly initial unemployment claims unexpectedly fell to a 4-month low. 

US weekly initial unemployment claims unexpectedly fell -4,000 to a 4-month low of 218,000, showing a stronger labor market than expectations of an increase to 223,000.

US Q2 GDP was left unrevised at +3.0% (q/q annualized), stronger than expectations of a downward revision to +2.9%.

US Aug capital goods new orders nondefense ex-aircraft and parts rose +0.1% m/m, right on expectations.

Global equity markets also have carryover support from today’s +3% surge in Chinese stocks after the government leaders pledged to support fiscal spending and revive economic growth.  China's Politburo pledged to support fiscal spending and stabilize the property sector.  Also, Reuters reported that China's Ministry of Finance plans to issue 2 trillion yuan ($284 billion) of special sovereign bonds to stimulate consumption and help local governments tackle debt problems.

The markets await 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 57% for a -50 bp rate cut at that meeting.

Overseas stock markets today are higher.  The Euro Stoxx 50 climbed to a 2-1/4 month high and is up +2.38%.  China's Shanghai Composite rallied to a 2-3/4 month high and closed up sharply by +3.61%.  Japan's Nikkei Stock 225 rose to a 3-week high and closed up +2.79%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down -2 ticks.  The 10-year T-note yield is up +0.6 bp at 3.791%.  T-note prices today gave up an early advance and turned lower after US weekly jobless claims unexpectedly fell to a 4-month low, a sign of labor market strength that is hawkish for Fed policy.  Also, supply pressures are weighing on T-notes as the Treasury will auction $44 billion of 7-year T-notes later this afternoon.

European government bond yields today are mixed.  The 10-year German bund yield fell to a 1-week low of 2.125% and is down -3.5 bp to 2.140%.  The 10-year UK gilt yield rose to a 3-week high of 4.010% and is up +0.2 bp at 3.992%.

Eurozone Aug M3 money supply rose +2.9% y/y, stronger than expectations of +2.5% y/y and the largest increase in 19 months.

The German Oct GfK consumer confidence index unexpectedly rose +0.7 to -21.2, stronger than expectations of a decline to -22.5.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 65% for the October 17 meeting.

US Stock Movers

Chip stocks are rallying today, led by a +15% surge in Micron Technology (MU) after forecasting Q1 revenue of $8.70 billion, stronger than the consensus of $8.32 billion.  Also, Applied Materials (AMAT) and Lam Research (LRCX) are up more than +5%, and KLA Corp (KLAC) and ASML Holding NV (ASML) are up more than +4%.  Nvidia (NVDA), Advanced Micro Devices (AMD), ON Semiconductors (ON), Marvell Technology (MRVL), and Microchip Technology (MCHP) are up more than +3%.

Accenture Plc (ACN) is up more than +7% after reporting Q4 revenue of $16.41 billion, better than the consensus of $16.39 billion, and forecasting Q1 revenue of $16.85 billion-$17.45 billion, the midpoint above the consensus of $16.96 billion. 

Southwest Airlines (LUV) is up more than +9% after authorizing a new $2.5 billion stock buyback program.

Aramark (ARMK) is up more than +3% after Bloomberg reported that Sodexo is exploring a potential acquisition of the company. 

NRG Energy (NRG) is up more than +2% after boosting its full-year adjusted Ebitda estimate to $3.53 billion-$3.68 billion from a previous estimate of $3.30 billion-$3.55 billion, stronger than the consensus of $3.45 billion. 

Starbucks (SBUX) is up more than +2% after Bernstein upgraded the stock to outperform from market perform with a price target of $115. 

Alaska Air Group (ALK) is up more than +2% after Baptista Research LLP initiated coverage on the stock with a buy recommendation and a price target of $52.

Energy producers are falling today, with the price of WTI crude sliding more than -3% to a 2-week low.  As a result, Diamondback Energy is down more than -3% to lead losers in the S&P 500 and Nasdaq 100.  Also, Baker Hughes (BKR), ConocoPhillips (COP), Marathon Oil (MRO), Haliburton (HAL), Schlumberger (SLB), and Exxon Mobil (XOM) are down more than -2%.  In addition, Chevron (CVX) is down more than -1% to lead losers in the Dow Jones Industrials, and Devon Energy (DVN) and Occidental Petroleum (OXY) are down more than -1%.  

Sonos (SONO) is down more than -3% after Morgan Stanley double-downgraded the stock to underweight from overweight with a price target of $11.

GE Healthcare Technologies (GEHC) is down more than -3% after UBS downgraded the stock to sell from neutral with a price target of $74. 

Northern Trust (NTRS) is down more than -2% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $82.

Hershey (HSY) is down nearly -1% after Jeffries downgraded the stock to underperform from hold with a price target of $163.

Earnings Reports (9/26/2024)

Accenture PLC (ACN), CarMax Inc (KMX), Costco Wholesale Corp (COST), Jabil Inc (JBL), TD SYNNEX Corp (SNX), Vail Resorts Inc (MTN).

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