Stocks Hang Onto Healthy September Gains as Powell Speaks on Rates

The S&P 500 Index ($SPX) (SPY) today is down by -0.06%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.37%, and the Nasdaq-100 Index ($IUXX) (QQQ) is down by -0.20%. Stocks today are slightly lower, but little changed overall after robust September gains for the major equity benchmarks. 

Fed Chair Jerome Powell, addressing the National Association for Business Economics conference this afternoon, said that “Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance. But we are not on any preset course. The risks are two-sided, and we will continue to make our decisions meeting by meeting. As we consider additional policy adjustments, we will carefully assess incoming data, the evolving outlook, and the balance of risks. Overall, the economy is in solid shape; we intend to use our tools to keep it there.”

Earlier, hawkish comments from Fed Governor Bowman pushed T-note yields higher and weighed on stocks when she said core inflation remains "uncomfortably" above the Fed's 2% target, supporting the case for a "measured" approach to lowering interest rates. 

Today’s better-than-expected US economic news supports the prospects of a soft landing and is bullish for stocks.  The Sep MNI Chicago PMI unexpectedly rose +0.5 to 46.6, stronger than expectations of -0.1 to 46.0.  Also, the Sep Dallas Fed manufacturing outlook survey unexpectedly rose +0.7 to a 20-month high of -9.0, stronger than expectations of a decline to -10.8.

Corporate news today is mixed for stocks.  Automakers are under pressure today, led by a -13% plunge in Stellantis NV (STLA) after it cut guidance on its full-year adjusted operating income margin forecast. Conversely, Apple (AAPL) is up more than +1% after JPMorgan Chase said that lead times for the latest iPhone suggest that slower initial demand for Pro models was “starting to correct.” 

Global equity markets saw carryover support from today’s +8% surge in Chinese stocks to a 16-month high. Chinese stocks soared, adding to last week’s +12% rally after government leaders boosted stimulus measures and pledged to support fiscal spending and revive economic growth.  Investors rushed in to buy Chinese stocks today as financial markets will be closed in China for the next week for the week-long National Day holidays.

Also, Friday's monthly US payroll report will gain market attention.  Sep nonfarm payrolls are expected to climb +146,000, and the Sep unemployment rate is expected to remain unchanged at 4.2%.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 42% for a -50 bp rate cut at that meeting.

Overseas stock markets today are mixed higher.  The Euro Stoxx 50 is down by -1.02%.  China's Shanghai Composite rallied to a 16-month high and closed up sharply by +8.06%.   Japan's Nikkei Stock 225 fell to a 1-week low and closed sharply lower by -4.80%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down -6 ticks.  The 10-year T-note yield is up +1.5 bp at 3.766%.  T-note prices are under pressure today on hawkish comments from Fed Governor Bowman weighed on T-notes when she said core inflation remains "uncomfortably" above the Fed's 2% target.  Also, today’s better-than-expected US economic reports on Sep MNI Chicago PMI and the Sep Dallas Fed manufacturing outlook survey weighed on T-notes.  In addition, supply pressures are undercutting T-notes as around $20 billion or new corporate debt is expected to be priced today, which will likely result in some short hedging in T-note futures.  T-notes recovered from their worst levels today after 10-year German bunds recovered from early losses and moved higher on dovish comments from ECB President Lagarde that bolstered speculation of an ECB interest rate cut in October.

European government bond yields today are mixed.  The 10-year German bund yield is down -0.6 bp at 2.127%. The 10-year UK gilt yield rose to a 3-1/2 week high of 4.021% and is up +2.6 bp at 4.003%.

German Sep CPI (EU harmonized) eased to +1.8% y/y from +2.0% y/y in Aug, right on expectations and the smallest increase in 3-1/2 years.

Italy’s Sep CPI eased to +0.8% y/y from +1.2% y/y in Aug, right on expectations and the smallest increase in 4 months.

ECB President Lagarde said ECB policymakers are becoming more optimistic that they will be able to get inflation under control, and “we will take that into account in our next monetary policy meeting in October.” 

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 91% for the October 17 meeting.

US Stock Movers

Higher T-note yields are weighing on chip stocks today.  Micron Technology (MU) is down more than -3%.  Also, NXP Semiconductors NV (NXPI) and ON Semiconductor Corp (ON) are down more than -2%.  In addition, Nvidia (NVDA), GlobalFoundries (GFS), Intel (INTC), Lam Research (LRCX), Applied Materials  (AMAT), Texas Instruments (TXN), and Analog Devices (ADI) are down more than -1%.

Cruise line operators are under pressure today after Carnival forecasted Q4 Ebitda of about $1.14 billion, below the consensus of $1.15 billion. As a result, Carnival (CCL), Royal Caribbean Cruises Ltd (RCL), and Norwegian Cruise Line Holdings (NCLH) are down more than -2%.

Baxter International (BAX) is down more than -2% after it said its North Cove factory in Marion, North Carolina, the company’s biggest, is currently closed due to flooding from Hurricane Helene.

Automakers are under pressure today, led by a -13% plunge in Stellantis NV (STLA) after it cut guidance on its full-year adjusted operating income margin to 5.5% to 7% from a prior forecast of 9.77%.   General Motors (GM) is down more than -3%, and Ford Motor (F) is down more than -2% on the news.

Boeing (BA) is down more than -2% to lead losers in the Dow Jones Industrials after the machinists union said talks to resolve the strike with the company have broken down and no further talks are scheduled. 

Freeport-McMoRan (FCX) is down more than -2% after Scotiabank downgraded the stock to sector perform from sector outperform.

Apple (AAPL) is up more than +1% to lead gainers in the Dow Jones Industrials after JPMorgan Chase said that lead times for the latest iPhone suggest that slower initial demand for Pro models was “starting to correct.” 

CVS Health Corp. (CVS) is up more than +3% to lead gainers in the S&P 500 after the Wall Street Journal reported the company will meet with Glenview Capital Management to propose ways to improve CVS’s operations. 

Brown-Forman (BF/B) is up more than +1% after Barclays upgraded the stock to overweight from equal weight with a price target of $53. 

US-listed Chinese stocks are climbing today after the Shanghai Stock Index soared more than +8% to a 16-month high.  As a result, Yum China Holdings (YUMC) is up more than +3%.  Also, PDD Holdings (PDD) and Alibaba Group Holding (BABA) are up more than +2%, and NetEase (NTES) is up more than +1%. 

Permian Resources (PR) is up nearly +1% after Goldman Sachs initiated coverage on the stock with a recommendation of buy and a price target of $19. 

Earnings Reports (9/30/2024)

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

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