Stocks Settle Lower on Weakness in Chip Stocks

The S&P 500 Index ($SPX) (SPY) Friday closed down by -0.13%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.33%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down by -0.53%.

Stocks on Friday settled mixed, with the Dow Jones Industrials climbing to a new record high but with the S&P 500 index and the Nasdaq 100 index closing lower.  Friday’s US personal spending and income reports were weaker-than-expected and Fed-friendly.  Also, the Aug core PCE price index, the Fed’s preferred inflation gauge, came in right on expectations, knocking T-note yields lower and supporting stocks. An upward revision to the University of Michigan US Sep consumer sentiment index to a 5-month high supported stocks.  However, chip stocks turned lower Friday, weighing on the Nasdaq 100 and the broader market.

US Aug personal spending rose +0.2% m/m, slightly weaker than expectations of +0.3% m/m.  Aug personal income rose +0.2% m/m, weaker than expectations of +0.4% m/m.

The US Aug core PCE price index rose +2.7% y/y, which was right on expectations.

The University of Michigan’s Sep US consumer sentiment index was revised upward by +1.1 to a 5-month high of 70.1, stronger than expectations of 69.4.

Global equity markets saw carryover support from Friday’s +2% rally in Chinese stocks to a 3-1/2 month high.  China's Shanghai Composite has rallied more than +12% this week after government leaders boosted stimulus measures and pledged to support fiscal spending and revive economic growth.

Hawkish Fed comments on Friday suggest that the Fed may ease monetary policy gradually and may not cut rates by 50 bp at future FOMC meetings.  Fed Governor Bowman, who dissented on last week’s 50 bp rate cut, said the current US unemployment rate of 4.2% is well below her estimate of full employment, and anecdotal evidence from companies backs her view the labor market is strong.  Also, St. Louis Fed President Musalem said he prefers the Fed lowering interest rates "gradually" following the large -50 bp rate cut last week.

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.

Overseas stock markets Friday settled higher.  The Euro Stoxx 50 rallied to a 3-1/2 month high and closed up +0.69%.  China's Shanghai Composite climbed to a 3-1/2 month high and closed up by +2.88%.   Japan's Nikkei Stock 225 rose to a 2-month high and closed up +2.32%.

Interest Rates

December 10-year T-notes (ZNZ24) Friday closed up +10.5 ticks.  The 10-year T-note yield fell -4.9 bp to 3.747%.  T-note prices rose on positive carryover from Friday’s rally in 10-year German bunds to a 1-1/2 week high.  Also, Friday’s weaker-than-expected US Aug personal spending and income reports were bullish for T-notes.  In addition, the US Aug core PCE price index came in right on expectations, a dovish factor for Fed policy.  T-note prices fell back from their best levels Friday after the University of Michigan’s Sep US consumer sentiment index was revised upward to a 5-month high.

European government bond yields Friday moved lower.  The 10-year German bund yield fell to a 1-1/2 week low of 2.109% and finished down -5.0 bp at 2.133%.  The 10-year UK gilt yield fell -3.3 bp to 3.977%.

The Eurozone Sep economic confidence indicator fell -0.3 to 96.2, weaker than expectations of 96.5.

The ECB's Eurozone Aug 1-year inflation expectations eased to a 3-year low of +2.7% from +2.8% in July, right on expectations.  The Aug 3-year inflation expectations eased to +2.3% from +2.4% in July, right on expectations.

The French Sep CPI (EU harmonized) eased to +1.5% y/y from +2.2% y/y in Aug, better than expectations of +1.9% and the smallest increase in 3 years. 

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 82% for the October 17 meeting.

US Stock Movers

Chip stocks gave up early gains Friday and turned lower, weighing on the Nasdaq 100.  Marvell Technology (MRVL) closed down more than -3% to lead losers in the Nasdaq 100.  Also, Nvidia (NVDA), Broadcom (AVGO), KLA Corp (KLAC), Lam Research (LRCX), and Applied Materials (AMAT) closed down more than -2%.  In addition, Micron Technology (MU), Advanced Micro Devices (AMD), Qualcomm (QCOM), and ASML Holding NV (ASML) closed down more than -1%.   

Wynn Resorts (WYNN) closed up more than +7% to lead gainers in the S&P 500 after Mogan Stanley upgraded the stock to overweight from equal weight with a price target of $104.   

TransMedics Group (TMDX) closed up more than +11% after S&P Dow Jones Indices said the company would replace Ensign Group in the S&P SmallCap 600 before the opening of trading on October 1.

Biomea Fusion (BMEA) closed up more than +3% after Truist Securities upgraded the stock to buy from hold with a price target of $54. 

Establishment Labs Holdings (ESTA) closed up more than +13% after it received FDA approval for its Motiva breast implants. 

Generac Holdings (GNRC) closed up more than +1% after Hurricane Helene knocked out power to more than 4 million people in the southeastern US, likely boosting the company’s generator sales.

Bristol Myers Squibb (BMY) closed up more than +1% after gaining FDA approval for its Cobenfy drug to treat patients with schizophrenia. 

Amgen (AMGN) closed up more than +1% after Cantor Fitzgerald initiated coverage on the stock with a recommendation of overweight with a price target of $405.

Globe Life (GL) closed down more than -4% after the company said the Equal Employment Opportunity Commission had notified that it conducted an investigation of charges filed against it for possible discrimination. 

HP Inc (HPQ) closed down more than -3% after Bank of America downgraded the stock to neutral from buy. 

Cassava Sciences (SAVA) closed down more than -9% after the company said two of its former executives agreed to pay more than $40 million to settle SEC charges that they made misleading statements about the results of an Alzheimer’s drug trial. 

Intuit (INTU) closed down more than -2% after forecasting full-year adjusted EPS of $19.16-$19.36, with a mid-point below the consensus of $19.34.

Costco Wholesale (COST) closed down more than -1% after reporting Q4 net sales of $78.19 billion, below the consensus of $78.59 billion. 

Summit Therapeutics (SMMT) closed down more than -8% after Citigroup downgraded the stock to neutral from buy. 

Earnings Reports (9/30/2024)

Carnival Corp (CCL) and ReposiTrak Inc (TRAK).

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