Stocks Close Higher on Chip Stock Strength and China Stimulus

The S&P 500 Index ($SPX) (SPY) Thursday closed up by +0.40%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.62%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.72%.

Stocks rallied Thursday, 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 led the overall market higher. Micron Technology, the largest US maker of computer memory chips, closed up more than +14% 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. 

Stock indexes fell back from their best levels as T-note yields rose on the better-than-expected US Q2 GDP and weekly jobless claims reports, which were hawkish factors for Fed policy.  Also, energy stocks were under pressure Thursday after WTI crude oil fell more than -2% to a 2-week 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.

US Aug pending home sales rose +0.6% m/m, weaker than expectations of +1.0% m/m.

Global equity markets also had carryover support from Thursday’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 51% for a -50 bp rate cut at that meeting.

Overseas stock markets Thursday settled sharply higher. The Euro Stoxx 50 climbed to a 2-1/4 month high and closed up +2.35%.  China's Shanghai Composite rallied to a 2-3/4 month high and closed up 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) Thursday closed down -4.5 ticks.  The 10-year T-note yield rose +0.8 bp to 3.793%.  T-note prices Thursday gave up an early advance and fell to a 3-week low, and the 10-year T-note yield rose to a 3-week high of 3.819%.  T-notes 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, Thursday’s rally in the S&P 500 to a new record high curbed safe-haven demand for T-notes.  T-notes recovered from their worst levels on strong demand for the Treasury’s $44 billion auction of 7-year T-notes that had a bid-to-cover ratio of 2.63, well above the 10-auction average of 2.53.

European government bond yields Thursday moved higher.  The 10-year German bund yield rebounded from a 1-week low of 2.125% and finished up +0.8 bp to 2.183%.  The 10-year UK gilt yield rose to a 3-week high of 4.019% and finished up +2.0 bp to 4.010%.

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 60% for the October 17 meeting.

US Stock Movers

Chip stocks rallied Thursday, led by a +14% 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) closed up more than +6%, and Microchip Technology (MCHP) and ON Semiconductors (ON) closed up more than +5%.  In addition, ASML Holding NV (ASML) and KLA Corp (KLAC) closed up more than +4%, and GlobalFoundries (GFS), Marvell Technology (MRVL), Advanced Micro Devices (AMD), and NXP Semiconductors NV (NXPI) closed up more than +3%.

Jabil (JBL) closed up more than +11% after reporting Q4 adjusted core EPS of $2.30, above the consensus of $2.22, and forecasting Q1 adjusted core EPS of $$1.65-$2.05, the midpoint above the consensus of $1.83.

Southwest Airlines (LUV) closed up more than +5% after authorizing a new $2.5 billion stock buyback program and detailed major policy changes as part of a plan to revitalize its operations.

Accenture Plc (ACN) closed up more than +5% 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. 

Alaska Air Group (ALK) closed up more than +4% after Baptista Research LLP initiated coverage on the stock with a buy recommendation and a price target of $52.

Aramark (ARMK) closed up more than +2% after Bloomberg reported that Sodexo is exploring a potential acquisition of the company. 

NRG Energy (NRG) closed up more than +1% 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) closed up more than +1% after Bernstein upgraded the stock to outperform from market perform with a price target of $115. 

Energy producers moved lower Thursday after the price of WTI crude oil slid more than -2% to a 2-week low.  As a result, Diamondback Energy closed down more than -6%, and Devon Energy (DVN) closed down more than -4%.  Also, Baker Hughes (BKR), ConocoPhillips (COP), Marathon Oil (MRO), and Haliburton (HAL) closed down more than -3%.  In addition, Occidental Petroleum (OXY) closed down more than -2%, and Schlumberger (SLB), Exxon Mobil (XOM), and Chevron (CVX) closed down more than -1%. 

Super Micro Computer (SMCI) closed down more than -12% to lead losers in the S&P 500 and Nasdaq 100 after the Wall Street Journal reported the US Justice Department is investigating the company.

Sonos (SONO) closed down more than -4% after Morgan Stanley double-downgraded the stock to underweight from overweight with a price target of $11.

Regency Centers (REG) closed down more than -2% after Deutsche Bank downgraded the stock to hold from buy.

CrowdStrike (CRWD) closed down more than -1% on signs of insider selling after an SEC filing showed CEO and president Kurtz sold $16.4 million of shares on Tuesday.

Northern Trust (NTRS) closed down nearly -1% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $82.

Earnings Reports (9/27/2024)

NANO Nuclear Energy Inc (NNE) and Spire Global Inc (SPIR).

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