Stocks Recover Early Losses as US Soft-Landing Prospects Improve

The S&P 500 Index ($SPX) (SPY) Monday closed up by +0.42%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.26%.

Stocks on Monday shook off early losses and settled higher. Monday’s better-than-expected US economic news supports the prospects of a soft landing and was 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.

For most of Monday, the broader market was under pressure on hawkish comments from Fed Chair Powell and Fed Governor Bowman that pushed T-note yields higher and weighed on stocks.  Powell said the FOMC was in no hurry to raise interest rates, and Bowman said core inflation remains "uncomfortably" above the Fed's 2% target.  The hawkish comments dampened speculation the FOMC will cut interest rates by 50 bp at the November FOMC meeting. 

Corporate news on Monday was mixed for stocks.  Automakers were under pressure Monday, led by a -12% plunge in Stellantis NV after it cut guidance on its full-year adjusted operating income margin forecast.   Conversely, Apple rose more than +2% after JPMorgan Chase said that lead times for the latest iPhone suggest that slower initial demand for Pro models was “starting to correct.” 

Fed Chair Powell signaled the Fed is in no hurry to cut interest rates, saying the overall economy remains on solid footing and the Fed will lower interest rates "over time."  He added that the FOMC "is not a committee that feels like it's in a hurry to cut interest rates quickly."

Global equity markets saw carryover support from Monday’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 Monday as financial markets will be closed in China for the next week for the week-long National Day holidays.

The markets are looking ahead to Friday's monthly US payroll report for market direction.  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 35% for a -50 bp rate cut at that meeting.

Overseas stock markets Monday settled mixed.  The Euro Stoxx 50 closed down by -1.32%.  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) Monday closed down -14.5 ticks.  The 10-year T-note yield rose +4.9 bp to 3.800%.  T-note prices were under pressure Monday on hawkish Fed comments.  Fed Governor Bowman said core inflation remains "uncomfortably" above the Fed's 2% target.  Also, Fed Chair Powell said the FOMC is in no hurry to raise interest rates.  In addition, Monday’s better-than-expected US economic reports on Sep MNI Chicago PMI and the Sep Dallas Fed manufacturing outlook survey weighed on T-notes.  Finally, an increase in inflation expectations undercut T-notes after the 10-year breakeven inflation rate rose to a 2-month high of 2.190%. 

European government bond yields on Monday were mixed.  The 10-year German bund yield fell -1.0 bp to 2.123%.  The 10-year UK gilt yield rose to a 3-1/2 week high of 4.021% and finished 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

Apple (AAPL) closed up more than +2% 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) closed up more than +2% after the Wall Street Journal reported the company will meet with Glenview Capital Management to propose ways to improve CVS’s operations. 

Generac Holdings (GNRC) closed up more than +2%, adding to the 5% rally over the last two sessions after Hurricane Helene knocked out power to more than 4 million people in the southeastern US, likely boosting the company’s generator sales.

FedEx (FDX) closed up more than +2%, and United Parcel Service (UPS) closed up more than +1% after Stifel said the companies are the “most obvious beneficiaries” of prolonged disruption from a looming port workers strike. 

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

Permian Resources (PR) closed up +0.71% after Goldman Sachs initiated coverage on the stock with a buy recommendation and a price target of $19. 

Higher T-note yields on Monday weighed on chip stocks.  Micron Technology (MU) closed down more than -3%.  Also, NXP Semiconductors NV (NXPI) and ON Semiconductor Corp (ON) closed down more than -2%.  In addition, KLA Corp (KLAC), GlobalFoundries (GFS), Intel (INTC), Lam Research (LRCX), Applied Materials  (AMAT), and Texas Instruments (TXN) closed down more than -1%.

Baxter International (BAX) closed 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 were under pressure Monday, led by a -12% 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) closed down more than -3%, and Ford Motor (F) closed down more than -2% on the news.

Boeing (BA) closed 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) closed down more than -2% after Scotiabank downgraded the stock to sector perform from sector outperform.

Earnings Reports (10/1/2024)

Acuity Brands Inc (AYI), Lamb Weston Holdings Inc (LW), McCormick & Co Inc/MD (MKC), NIKE Inc (NKE), Paychex Inc (PAYX).