Stocks Little Changed after Positive Economic Comments from Fed Vice Chair Jefferson

The S&P 500 Index ($SPX) (SPY) today is up by +0.09%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.22%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.05%.

Stocks today are mixed.  Positive comments from Fed Vice Chair Jefferson are boosting stocks when he said the US economy is growing at a "solid pace." Weakness in chip stocks is weighing on the Nasdaq 100.  Also, Boeing is down more than -3% after negotiations to end an almost month-long workers’ strike collapsed.

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 Tuesday that it deployed a fourth 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.

US MBA mortgage applications fell -5.1% in the week ended Oct 4, with the purchase mortgage sub-index down -0.1% and the refinancing mortgage sub-index down -9.3%.  The average 30-year fixed rate mortgage rose +22 bp to 6.36% from 6.14% the prior week.

Tuesday evening, Fed Vice Chair Jefferson said the US economy is growing at a "solid pace" even as the labor market has slowed from an overheated state.  He added that inflation is much closer to the Fed's 2% target and should continue to cool toward it.

Today, Dallas Fed President Logan said, "Following last month's half-percentage point cut in the fed funds rate, a more gradual path back to a normal policy stance will likely be appropriate from here to best balance the risks to our dual-mandate goals."

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 up +0.03%.  China's Shanghai Composite closed down sharply by -6.62%.  Japan's Nikkei Stock 225 closed up by +0.87%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down -3 ticks.  The 10-year T-note yield is up +2.7 bp at 4.039%.  Dec T-notes are under pressure from an increase in the 10-year breakeven inflation expectations rate today to a 2-1/2 month high of 2.290%. Also, supply pressures are weighing on T-notes as the Treasury will auction $39 billion of 10-year T-notes later this afternoon.  Losses in T-notes are limited by dovish comments from Fed Vice Chair Jefferson, who said inflation is much closer to the Fed's 2% target and should continue to cool toward it. 

European government bond yields today are mixed.  The 10-year German bund yield is up by +0.4 bp at 2.247%. The 10-year UK gilt is down by -0.3 bp at 4.181%.

German trade news today was mixed.  Aug exports unexpectedly rose +1.3% m/m versus expectations of a decline of -1.0% m/m.  Conversely, Aug imports fell -3.4% m/m, weaker than expectations of -2.0% m/m.

ECB Governing Council member Villeroy de Galhau said an interest rate cut by the ECB next week "is very probable, and it won't be the last, but the following pace will simply depend on the evolution of the fight against inflation."

ECB Governing Council member Kazaks said interest rates must be lowered further due to the weakening economy in the Eurozone.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 94% for the Oct 17 meeting.

US Stock Movers

Weakness in chip stocks is a drag on the overall market.  Marvell Technology (MRVL), Broadcom (AVGO), Micron Technology (MU), Advanced Micro Devices (AMD), and Western Digital (WDC) are down more than -1%. 

Boeing (BA) is down more than -3% to lead losers in the S&P 500 and Dow Jones Industrials after negotiations to end an almost month-long workers’ strike collapsed. 

Norwegian Cruise Line Holdings (NCLH) is up more than +7% to lead gainers in the S&P 500 after Citigroup upgraded the stock to buy from neutral with a price target of $30.

Fortinet Inc (FTNT) is up more than +1% after TD Cowen raised its price target on the stock to $90 from $75.

Astera Labs (ALAB) is up more than +16% after the company announced a new portfolio of fabric switches purpose-built for artificial intelligence workloads.  Morgan Stanley viewed this as a reason to buy the stock with a price target of $74. 

Helen of Troy Ltd (HELE) is up more than +19% after reporting Q2 net sales of $474.2 million, better than the consensus of $458.8 million, and forecast 2025 net sales of $1.89 billion-$1.94 billion, the midpoint above the consensus of $1.91 billion.   

Gitlab (GTLB) is up more than +6% after Morgan Stanley initiated coverage on the stock with an overweight recommendation and a price target of $70. 

Southwest Airlines (LUV) is up more than +2% after Jeffries upgraded the stock to hold from underperform.

Royal Caribbean Cruises Ltd (RCL) is up more than +2% after Citigroup raised its price target on the stock to $253 from $204. 

Lowe’s (LOW) is up more than +1% after Loop Capital Markets upgraded the stock to buy from hold with a price target of $300.

FactSet Research Systems (FDS) is down more than -1% after Redburn downgraded the stock to sell from neutral with a price target of $380.

Expedia Group (EXPE) is down more than -1% after the company’s sales, as observed by Bloomberg Second Measure, fell -7.4% y/y in the fiscal quarter ending Sep 30.

Earnings Reports (10/9/2024)

Applied Digital Corp (APLD), AZZ Inc (AZZ), Byrna Technologies Inc (BYRN), E2open Parent Holdings Inc (ETWO), Helen of Troy Ltd (HELE), Richardson Electronics Ltd/Uni (RELL).

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