Stocks Post Modest Gains on Chip Stock Strength

The S&P 500 Index ($SPX) (SPY) Wednesday closed up by +0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.15%.

Stocks recovered from early losses on Wednesday and finished slightly higher.  Strength in chip stocks sparked short-covering in the overall market as stock indexes erased early losses and moved higher. 

Stocks initially opened lower, with the S&P 500 falling to a 3-week low due to flaring tensions in the Middle East.  The markets are awaiting Israel’s response to Tuesday’s missile barrage from Iran after Israeli Prime Minister Netanyahu vowed to retaliate, saying Iran “made a big mistake” and “will pay.” His comments sent crude prices up to a 1-week high and threatened to escalate hostilities even further in the region.  Stocks also were pressured after the Sep ADP employment showed US employers added more jobs than expected, which pushed bond yields higher and is hawkish for Fed policy. 

US MBA mortgage applications fell -1.3% in the week ended September 27, with the purchase mortgage sub-index up +0.7% and the refinancing sub-index down -2.9%.  The average 30-year fixed rate mortgage rose +1 bp to 6.14% from 6.13% in the prior week. 

The US Sep ADP employment change rose +143,000, showing a stronger labor market than expectations of +125,000.

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 38% for a -50 bp rate cut at that meeting.

Overseas stock markets Wednesday settled mixed.  The Euro Stoxx 50 closed up +0.16%.  China's Shanghai Composite is closed for the week-long National Day holiday.   Japan's Nikkei Stock 225 fell to a 1-1/2 week low and closed down by -2.18%.

Interest Rates

December 10-year T-notes (ZNZ24) Wednesday closed down by -8.5 ticks.  The 10-year T-note yield rose +5.1 bp to 3.783%. Dec T-notes Wednesday moved lower after the Sep ADM employment report showed US companies added more jobs than expected, a hawkish factor for Fed policy.  T-notes were also under pressure from an increase in inflation expectations after the 10-year breakeven inflation rate rose to a 2-month high Wednesday of 2.221%.  Losses in T-notes were limited as heightened geopolitical risks in the Middle East still support safe-haven demand for T-notes.

European government bond yields on Wednesday moved higher.  The 10-year German bund yield rose +5.5 bp to 2.092%.  The 10-year UK gilt yield rose to a 1-month high of 4.049% and finished up +8.5 bp at 4.025%.

ECB Vice President Guindos said the economic revival in the Eurozone is likely to gain momentum, though risks are still "tilted to the downside."

ECB Governing Council member Kazaks said, "Recent data clearly point in the direction of an interest rate cut as the risks to the Eurozone economy have become more pronounced and the risks of still sticky inflation and too-weak growth are increasingly balanced with some tilt towards weak growth."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 96% for the October 17 meeting.

US Stock Movers

The strength in chip stocks Wednesday provided support for the broader market.  KLA Corp (KLAC), GlobalFoundries (GFS), and Marvell Technology (MRVL) closed up more than +3%.  Also, Lam Research (LRCX), Applied Materials (AMAT), Analog Devices (ADI), and NXP Semiconductors NV (NXPI) closed up more than +2%.  In addition, Nvidia (NVDA), Microchip Technology (MCHP), ON Semiconductors (ON), Qualcomm (QCOM), and Texas Instruments (TXN) closed up more than +1%.

Illumina (ILMN) closed up more than +7% to lead gainers in the Nasdaq 100 after the company unexpectedly announced an innovation event for next week, bolstering speculation it will announce a new product offering.

Caesars Entertainment (CZR) closed up more than +5% to lead gainers in the S&P 500 after announcing a $500 million stock buyback program.

Salesforce (CRM) closed up more than +3% to lead gainers in the Dow Jones Industrials after Northland Securities upgraded the stock to outperform from market perform with a price target of $400.

Lamb Weston Holdings (LW) closed up more than +2% after forecasting full-year net sales of $6.60 billion-$6.80 billion, the midpoint above the consensus of $6.61 billion. 

Sphere Entertainment (SPHR) closed up more than +6% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $60. 

MSCI Inc (MSCI) closed up more than +2% after Evercore ISI initiated coverage on the stock with an outperform rating and a price target of $599. 

Science Applications International (SAIC) closed up more than +1% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $170. 

Humana (HUM) closed down more than -11%, adding to Tuesday’s -11% plunge, on continued troubles for the health insurer’s Medicare Advantage plan that threatens to reduce revenue. 

Nike (NKE) closed down more than -6% to lead losers in the Dow Jones Industrials after reporting Q1 revenue of $11.59 billion, below the consensus of $11.65 billion, and withdrawing its full-year guidance. 

Conagra Brands (CAG) closed down more than -8% after reporting Q1 net sales of $2.79 billion, weaker than the consensus of $2.84 billion.

MercadoLibre (MELI) closed down more than -4% to lead losers in the Nasdaq 100 after JPMorgan Chase downgraded the stock to neutral from overweight.

Tesla (TSLA) closed down more than -3% after reporting Q3 deliveries of 462,890, below expectations of 463,897.

Harley-Davidson (HOG) closed down more than -4% after Baird downgraded the stock to neutral from outperform.

GE Vernova (GEV) closed down more than -1% after Raymond James downgraded the stock to market perform from outperform.

Earnings Reports (10/3/2024)

AngioDynamics Inc (ANGO), Constellation Brands Inc (STZ).

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