Stocks Mostly Higher on US Economic Optimism

The S&P 500 Index ($SPX) (SPY) today is up by +0.37%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +0.53%.

Stocks today are mostly higher on upbeat comments from New York Fed President Williams who said the Fed is "well positioned" to pull off a soft landing for the US economy.  Also, today’s news showed the US Aug trade deficit fell to a 5-month low, a positive factor for US Q3 GDP. 

Higher T-note yields today are limiting stock gains as the 10-year T-note yield rose to a 2-1/4 month high on hawkish comments Monday evening from St. Louis Fed President Musalem, who warned of easing too quickly. Also, a -3% fall in crude oil prices today is undercutting energy stocks.

Middle East tensions continue to be a negative factor for stocks.  In addition to Gaza, Israel is waging a ground and air offensive in Lebanon to combat Hezbollah.  The Israel Defense Force (IDF) said Monday that it deployed a third division of troops in southern Lebanon while maintaining airstrikes in Beirut’s southern suburbs.  The markets are also awaiting Israel’s response to last Tuesday’s missile barrage from Iran.  Israeli Defense Minister Gallant will meet in Washington with US Defense Secretary Austin on Wednesday to discuss “ongoing Middle East security developments” as well as Israel’s response to Iran.

The US Aug trade deficit fell to -$70.4 billion from -$78.9 billion in July, smaller than expectations of -$70.5 billion and the smallest deficit in 5 months.

Fed Governor Kugler said the Fed should keep its focus on bringing inflation back to its 2% target, though with a "balanced approach" that avoids an "undesirable" slowdown in employment growth and economic expansion.

Monday evening, St. Louis Fed President Musalem said, "Given where the economy is today, I view the costs of easing too much too soon as greater than the costs of easing too little too late."

The markets are awaiting US consumer price news on Thursday to see if the trend toward easing prices will continue.  The consensus is for Sep CPI to ease to +2.3% y/y from +2.5% y/y in Aug.  Sep CPI ex-food and energy is expected to remain unchanged from Aug at +3.2% y/y.  Also, Q3 earnings season begins on Friday as big US banks report results. 

The markets are discounting the chances at 88% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut at that meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down by -0.52%.  China's Shanghai Composite rallied to a 2-3/4 year high and closed up sharply by +4.59%.   Japan's Nikkei Stock 225 closed down by -1.00%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down by -4 ticks.  The 10-year T-note yield is up +2.2 bp at 4.047%.  Dec T-notes today slid to a 2-1/4 month low, and the 10-year T-note yield rose to a 2-1/4 month high of 4.053%.  T-notes are falling due to carryover pressure from a decline in European government bonds.  Also, hawkish comments Monday evening from St. Louis Fed President Musalem weighed on T-notes when he warned of easing too quickly.  In addition, supply pressures are undercutting T-notes as the Treasury will auction $58 billion of 3-year T-notes late today as part of this week’s slate of $119 billion of T-note and T-bond auctions. 

European government bond yields today are moving higher.  The 10-year German bund yield rose to a 1-month high of 2.264% and is up by +0.4 bp to 2.260%.  The 10-year UK gilt rose to a 3-month high of 4.221% and is up by +0.7 bp to 4.215%.

German Aug industrial production rose +2.9% m/m, stronger than expectations of +0.8% m/m and the largest increase in 2-3/4 years.

ECB Executive Board member Elderson said the Eurozone economy is weaker than expected, and "if our projections that inflation will converge toward our 2% target in the second half of 2025 continue to be confirmed, the ECB will continue to gradually ease its restrictive policy stance."

ECB Governing Council member and Bundesbank President Nagel said "he's open to considering the possibility" of an ECB interest rate cut at next week's ECB meeting.

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

US Stock Movers

Palo Alto Networks (PANW) is up more than +4% to lead gainers in the S&P 500 and Nasdaq 100 after BNP Paribas Exane initiated coverage on the stock with a recommendation of outperform and a price target of $410.

Humana (HUM) is up more than +3% after Bernstein upgraded the stock to outperform from market perform with a price target of $308.

Waters Corp (WAT) is up more than +3% after Jeffries upgraded the stock to buy from hold with a price target of $415.

DocuSign (DOCU) is up more than +7% after S&P 500 Dow Jones Indices said the company will join the S&P Midcap 400 Index before trading opens on October 11. 

Nvidia (NVDA) is up more than +2% after Hon Hai said it is building the world’s largest facility to produce Nvidia’s GB200 AI chips. 

Affirm Holdings (AFRM) is up more than +2% after BTIG LLC upgraded the stock to buy from neutral with a price target of $68. 

Honeywell (HON) is up more than +1% after it announced plans to spin off its Advanced Materials business into an independent US publicly traded company. 

UFP Industries (UFPI) is up more than +1% after Wedbush upgraded the stock to outperform from neutral with a price target of $155. 

Energy stocks are under pressure today with the price of WTI crude down more than -3%.  As a result, Marathon Petroleum (MPC) is down more than -7% to lead losers in the S&P 500.  Also, APA Corp (APA) and Valero Energy (VLO) are down more than -4%.  In addition, Devon Energy (DVN), Haliburton (HAL), Phillips 66 (PSX), Occidental Petroleum (OXY), Diamondback Energy (FANG), and ConocoPhillips (COP) are down more than -3%.

US-listed Chinese stocks are falling today after China’s National Development and Reform Commission, the country’s economic planning agency, failed to announce any new large stimulus measures following today’s meeting.  As a result, PDD Holdings (PDD) is down more than -8% to lead losses in the Nasdaq 100.  Also, JD.com (JD), NetEase (NTES), Alibaba Group Holdings (BABA), and Yum China Holdings (YUMC) are down more than -4%.   

Otis Worldwide (OTIS) is down more than -2% after Wolfe Research downgraded the stock to peer perform from outperform.

Mining stocks are under pressure today as copper prices (HGZ24) tumbled more than -2% to a 2-week low after China’s economic planning agency failed to announce any new major stimulus measures.  As a result, Freeport McMoran (FCX) and Southern Copper (SCCO) are down more than -4%. 

Qualcomm (QCOM) is down more than -1% after KeyBanc Capital Markets downgraded the stock to sector weight from overweight. 

American Express (AXP) is down more than -1% after BTIG LLC downgraded the stock to sell from neutral with a price target of $230. 

Constellation Brands (STZ) is down more than +1% after TD Cowen downgraded the stock to hold from buy.   

Earnings Reports (10/8/2024)

Accolade Inc (ACCD), Critical Metals Corp (CRML), IDT Corp (IDT), PepsiCo Inc (PEP).

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