Stocks Climb on Strength in Megacap Tech Stocks

The S&P 500 Index ($SPX) (SPY) today is up by +0.76%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.07%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +1.25%.

Stocks today are moderately higher, with the Nasdaq 100 posting a 1-week high on strength in megacap technology stocks.  Stocks are also climbing 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.  In addition, today’s news that the US Aug trade deficit fell to a 5-month low was a positive factor for US Q3 GDP. 

Higher T-note yields today are bearish for stocks 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 -4% 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 -0.47%.  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 -3 ticks.  The 10-year T-note yield is up +1.4 bp at 4.039%.  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 4.055%.  T-notes are under pressure due to today’s strength in stocks, which curbs safe-haven demand for Them.  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.  Losses in T-notes were limited as a rebound in European government bonds today supported T-note prices.  

European government bond yields today gave up an early advance and are moving lower.  The 10-year German bund yield fell back from a 1-month high of 2.264% and is down by -0.2 bp at 2.254%.  The 10-year UK gilt fell back from a 3-month high of 4.221% and is down by -0.6 bp at 4.203%.

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

Megacap technology stocks are moving higher today and are supporting the overall market.  Netflix (NFLX) and Tesla (TSLA) are up more than +2%.  Also, Apple (AAPL) is up more than +1% to lead gainers in the Dow Jones Industrials.  In addition, Amazon.com (AMZN), Meta Platforms (META), and Microsoft (MSFT) are up more than +1%.

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.

Travel stocks and cruise line operators are climbing today on a -3% drop in crude prices and upbeat comments from New York Fed President Wiliams, who said the US is well positioned for a soft landing.  As a result, Carnival (CCL), Norwegian Cruise Line Holdings (NCLH), United Airlines Holdings (UAL), and Delta Air Lines (DAL) are up more than +3%.  Also, Royal Caribbean Cruises (RCL), Expedia Group (EXPE), and Booking Holdings (BKNG) are up by more than +1%.

Nvidia (NVDA) is up more than +3% after Hon Hai said it is building the world’s largest facility to produce Nvidia’s GB200 AI chips. 

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 +2% after Jeffries upgraded the stock to buy from hold with a price target of $415.

DocuSign (DOCU) is up more than +8% after S&P 500 Dow Jones Indices said the company will join the S&P Midcap 400 Index before trading opens on October 11. 

Affirm Holdings (AFRM) is up more than +6% after BTIG LLC upgraded the stock to buy from neutral with a price target of $68. 

Energy stocks are under pressure today with the price of WTI crude down more than -4%.  As a result, Marathon Petroleum (MPC) is down more than -8% 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), Marathon Oil (MRO), 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), 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%. 

Albemarle (ALB) is down more than -2% after CFRA downgraded the stock to hold from buy with a price target of $99. 

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 nearly -1% after TD Cowen downgraded the stock to hold from buy.   

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