Stocks Move Lower as US CPI Report is Stronger Than Expected

The S&P 500 Index ($SPX) (SPY) today is down by -0.33%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.22%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.42%.

Stocks today are moderately lower after US Sep consumer prices rose more than expected.  Also, signs of a weakening labor market are weighing on stocks after US weekly initial unemployment claims rose more than expected to a 14-month high.  However, the jobless claims data may be skewed due to Hurricane Helene, which caused a surge in claims in North Carolina and Florida.

US Sep CPI eased to +2.4% y/y from +2.5% y/y in Aug, stronger than expectations of +2.3% y/y.  Also, Sep CPI ex-food and energy unexpectedly strengthened to +3.3% y/y from +3.2% y/y in Aug, stronger than expectations of no change at +3.2% y/y.

US weekly initial unemployment claims rose +33,000 to a 14-month high of 258,000, showing a weaker labor market than expectations of 230,000.

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.

The markets are awaiting Q3 earnings season that begins on Friday as big US banks report results. According to Bloomberg Intelligence, companies in the S&P 500 are expected to report an average +4.7% increase in quarterly earnings in Q3 from a year ago, down from +7.9% growth projected in July.

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 -0.16%.  China's Shanghai Composite closed up by +1.32%.   Japan's Nikkei Stock 225 rose to a 1-1/2 week high and closed up by +0.26%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up +2 ticks.  The 10-year T-note yield is down -0.6 bp to 4.066%.  Dec T-notes today whipsawed down to a 2-1/4 month low before rebounding and moving higher, and the 10-year T-note yield fell back from a 2-1/4 month high of 4.098%.  Short-covering emerged in T-notes today after US weekly jobless claims rose more than expected to a 14-month high, a dovish factor for Fed policy.  T-notes today initially moved lower after the US Sep CPI report was stronger than expected.  Also, rising inflation expectations are bearish for T-notes after the 10-year breakeven inflation rate rose to a 3-1/4 month high today at 2.326%. In addition, supply pressures are negative for T-notes as the Treasury will auction $22 billion of 30-year T-bonds this afternoon.

European government bond yields today are moving higher.  The 10-year German bund yield climbed to a 5-week high of 2.287% and is up by +1.3 bp to 2.270%.  The 10-year UK gilt rose to a 3-1/4 month high of 4.244% and is up by +4.0 bp to 4.221%.

German Aug retail sales rose 1.6% m/m, the largest increase in 5 months.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 93% for the Oct 17 meeting.

US Stock Movers

Weakness in chip stocks is weighing on the overall market.  ASML Holding NV (ASML), Qualcomm (QCOM), ON Semiconductor Corp (ON), and NXP Semiconductors NV (NXPI) are down more than -2%.  Also, Applied Materials (AMAT), Microchip Technology (MCHP), Marvell Technology (MRVL), KLA Corp (KLAC), Lam Research (LRCX), Analog Devices (ADI), and Texas Instruments (TXN) are down more than -1%. 

Airline stocks are under pressure today, led by a -2% fall in Delta Air Lines (DAL) after it reported Q3 adjusted EPS of $1.50, weaker than the consensus of $1.52.  and forecasted Q4 adjusted EPS of $1.60-$1.85, the midpoint weaker than the consensus of $1.78.  Also, United Airlines Holdings (UAL), American Airlines Group (AAL), and Alaska Air Group (ALK) are down more than -1%.  

Skyworks Solutions (SWKS) is down more than -2% after Barclays downgraded the stock to underweight from equal weight. 

Generac Holdings (GNRC) is down more than -3% after Hurricane Milton weakened to a Category 3 storm before making landfall in Florida, which may cause less damage than feared and reduce the need for generators. 

Cirrus Logic (CRUS) is down more than -2% after Barclays downgraded the stock to equal weight from overweight. 

Pfizer (PFE) is down more than -2% after its former executives Ian Reed and Frank D’Amelio decided “not to be involved” in Starboard Value’s campaign against the company. 

PayPal Holdings (PYPL) is down more than -3% after Bernstein downgraded the stock to market perform from outperform.

Insurance stocks that provide policies in Florida are climbing after Hurricane Milton weakened to a Category 3 storm before making landfall in Florida, potentially doing less damage than feared.  As a result, Heritage Insurance Holdings (HRTG) and American Coastal Insurance (ACIC) are up more than +6%.  Also, HCI Group (HCI) is up more than +4%, and Everest Group Ltd (EG) is up more than +1%.

GXO Logistics (GXO) is up more than +14% after Bloomberg reported the company is said to be exploring a potential sale. 

Mosaic (MOS) is up more than +4% to lead gainers in the S&P 500 after Hurricane Milton weakened to a Category 3 storm before making landfall in Florida, sparing widespread damage to the company’s phosphate-production hub in Tampa, Florida.

Celsius Holdings (CELH) is up more than +8% after Stifel said conversations with brand owners and retail owners at the National Association of Convenience Store trade show “were more upbeat” on the outlook for sales in 2025. 

CVS Health Corp (CVS) is up more than +1% after Barclays upgraded the stock to overweight from equal weight with a price target of $82. 

Earnings Reports (10/10/2024)

Aehr Test Systems (AEHR), Delta Air Lines Inc (DAL), Domino's Pizza Inc (DPZ), Neogen Corp (NEOG), NexPoint Diversified Real Estate Trust (NXDT), Oil-Dri Corp of America (ODC).

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