Stocks Fall on Sticky US Inflation Pressures

The S&P 500 Index ($SPX) (SPY) today is down by -0.32%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.36%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.37%.

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 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.

Strength in energy stocks today is supportive of the broader market. Also, dovish comments from New York Fed President Williams supported stocks when he said, "Looking ahead, based on my current forecast for the economy, I expect that it will be appropriate to continue the process of moving the stance of monetary policy to a more neutral setting over time."

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 increased by +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 91% 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 -0.28%.  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 down -5 ticks.  The 10-year T-note yield is up +2.6 bp to 4.098%.  Dec T-notes today dropped to a 2-1/4 month low, and the 10-year T-note yield climbed to a 2-1/4 month high of 4.108%.  T-notes retreated today after the US Sep CPI report was stronger than expected.  Also, rising inflation expectations are bearish for T-notes after the 10-year break-even inflation rate rose to a 4-month high today at 2.333%.  In addition, supply pressures are negative for T-notes as the Treasury will auction $22 billion of 30-year T-bonds this afternoon. Losses in T-notes were limited after US weekly jobless claims rose more than expected to a 14-month high, a dovish factor for Fed policy. 

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 +0.9 bp to 2.266%.  The 10-year UK gilt rose to a 3-1/4 month high of 4.244% and is up by +4.7 bp to 4.227%.

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 95% for the Oct 17 meeting.

US Stock Movers

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

PayPal Holdings (PYPL) is down more than -3% to lead losers in the Nasdaq 100 after Bernstein downgraded the stock to market perform from outperform.

Generac Holdings (GNRC) is down more than -2% 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 -1% after its former executives Ian Reed and Frank D’Amelio decided “not to be involved” in Starboard Value’s campaign against the company. 

Delta Air Lines (DAL) is down nearly -1% after reporting Q3 adjusted EPS of $1.50, weaker than the consensus of $1.52, and forecasting Q4 adjusted EPS of $1.60-$1.85, the midpoint weaker than the consensus of $1.78.  

Skyworks Solutions (SWKS) is down more than -1% after Barclays downgraded the stock to underweight from equal weight. 

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, HCI Group (HCI) is up more than +6%.  Also, Heritage Insurance Holdings (HRTG) is up more than +4%, and American Coastal Insurance (ACIC) is up more than +3%.  In addition, Everest Group Ltd (EG) is up more than +2%.

Energy stocks are moving higher with the price of WTI crude oil up more than +2%.  As a result, Valero Energy (VLO) is up more than +2%, and APA Corp (APA), Schlumberger (SLB), Haliburton (HAL), Occidental Petroleum (OXY), Devon Energy (DVN), ConocoPhillips (COP), and Marathon Oil (MRO) are 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 +11% 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 +2% 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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