Stocks Pressured by Middle East Risks

The S&P 500 Index ($SPX) (SPY) today is down by -0.23%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.51%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.15%.

Stocks today are moderately lower, with the Dow Jones Industrials falling to a 2-week low.  The prospect of escalating conflict in the Middle East has dampened the appetite for risk assets and is weighing on stocks.  Tensions mounted after Israeli warplanes attacked Beirut when eight Israeli soldiers were killed in southern Lebanon in battles against Hezbollah.  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.”  Stocks remained lower after weekly US jobless claims rose more than expected last week.

US weekly initial unemployment claims rose +6,000 to 225,000, showing a slightly weaker labor market than expectations of 221,000.

The markets are looking ahead to Friday's monthly US payroll report for market direction.  Sep nonfarm payrolls are expected to climb +150,000, 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 36% for a -50 bp rate cut at that meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 fell to a 1-week low and is down by -0.76%. China's Shanghai Composite is closed for the week-long National Day holiday.   Japan's Nikkei Stock 225 closed up by +1.97%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down by -8 ticks.  The 10-year T-note yield is up +3.4 bp to 3.815%.  Dec T-notes today fell to a 1-month low, and the 10-year T-note yield rose to a 1-month high of 3.821%.  An increase in inflation expectations is weighing on T-notes after the 10-year breakeven inflation rate rose to a 2-month high today at 2.222%.  Also, some negative carryover from Wednesday’s stronger-than-expected US Sep ADP employment report reduced the chances of a 50 bp rate cut at the next FOMC meeting and is weighing on T-note prices.

Losses in T-notes were limited after US weekly initial unemployment claims rose more than expected, a dovish factor for Fed policy.  Also, heightened geopolitical risks in the Middle East still support safe-haven demand for T-notes.

European government bond yields today are mixed.  The 10-year German bund yield is up +5.4 bp to 2.145%. The 10-year UK gilt yield is down -1.3 bp to 4.013%.

The Eurozone Sep S&P composite PMI was revised upward by +0.7 to 49.6 from the previously reported 48.9.

Eurozone Aug PPI fell -2.3% y/y, right on expectations.

Bank of England (BOE) Governor Bailey said the BOE could become a "bit more aggressive" and "a bit more activist" in its approach to cutting interest rates if the news on inflation continued to be good.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 95% for the October 17 meeting.

US Stock Movers

Constellation Brands (STZ) is down more than -3% to lead losers in the S&P 500 after reporting Q2 comparable net sales of $2.92 billion, below the consensus of $2.93 billion.

Stellantis NV (STLA) is down more than -4% after Barclays downgraded the stock to equal weight from overweight. 

Levi Strauss (LEVI) is down more than -6% after reporting Q3 net revenue of $1.52 billion, below the consensus of $1.55 billion, and cut its full-year net revenue forecast to up +1% from a previous forecast of +1% to +3%. 

Automotive semiconductor makers are under pressure after Bloomberg Intelligence said automotive semiconductor makers could face bigger downgrades than the market anticipates as the electric vehicle sector may enter a deeper downturn.   As a result, STMicroelectronics NV (STM), ON Semiconductor Corp (ON), Analog Devices (ADI), and NXP Semiconductors NV (NXPI) are down nearly -1%. 

Tractor Supply (TSCO) is down more than -1% after Evercore ISI downgraded the stock to in-line from outperform. 

Hims & Hers Health (HIMS) is down more than -11% after the FDA said Eli Lilly’s weight-loss drugs are no longer considered to be in shortage in the US, which threatens to undercut sales at Hims who was selling compounded semaglutide to treat obesity.  

Wolfspeed (WOLF) is down more than -5% after Mizuho Securities downgraded the stock to underperform from neutral with a price target of $8. 

Nvidia (NVDA) is up more than +3% to lead gainers in the Nasdaq 100 after CEO Huang said demand for the company’s new Blackwell chips is “insane.”

Southwest Airlines (LUV) is up more than +2% to lead gainers in the S&P 500 after Citigroup raised its price target on the stock to $31.50 from $28.25.

Uranium and nuclear energy stocks are climbing today after Nikkei reported that Alphabet is considering using a carbon-free source for its power needs. As a result, Constellation Energy (CEG) and Vistra (VST) are up more than +3%.  

Accenture Plc (ACN) is up more than +1% after announcing a partnership with Nvidia to create a unit that helps clients use generative AI. 

Wolverine World Wide (WWW) is up more than +3% after BNP Paribas Exane upgraded the stock to outperform from neutral with a price target of $22. 

Avidity Biosciences (RNA) is up more than +1% after it said the FDA removed the partial clinical hold on the company’s delpacibart etedesiran, a treatment designed to address the root cause of myotonic dystrophy type 1.

Earnings Reports (10/3/2024)

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

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