Stocks Close Lower as US Price Pressures Persist

The S&P 500 Index ($SPX) (SPY) Thursday closed down by -0.21%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down by -0.14%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down by -0.13%.

Stocks on Thursday posted moderate losses after US Sep consumer prices rose more than expected.  Also, signs of a weakening labor market weighed 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 Thursday limited losses in 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."  However, Atlanta Fed President Bostic was a bit hawkish when he said he's "open to skipping an interest rate cut at the November FOMC meeting if the data suggests that's appropriate."

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 85% 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 Thursday settled mixed.  The Euro Stoxx 50 closed down by -0.25%.  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) Thursday closed down -4 ticks.  The 10-year T-note yield rose +1.9 bp to 4.092%.  Dec T-notes Thursday dropped to a 2-1/4 month low, and the 10-year T-note yield climbed to a 2-1/4 month high of 4.116%.  T-notes came under pressure Thursday from the stronger-than-expected US Sep CPI report.  Also, rising inflation expectations undercut T-note prices after the 10-year break-even inflation rate rose to a 4-month high Thursday at 2.339%. 

Losses in T-notes were limited Thursday after US weekly jobless claims rose more than expected to a 14-month high, a dovish factor for Fed policy. Also, strong demand for the Treasury’s $22 billion 30-year T-bond auction supported T-notes as the auction had a bid-to-cover ratio of 2.50, above the 10-auction average of 2.39.

European government bond yields on Thursday were mixed.  The 10-year German bund yield fell from a 5-week high of 2.287% and finished down by -0.1 bp to 2.256%.  The 10-year UK gilt rose to a 3-1/4 month high of 4.244% and finished up by +3.0 bp to 4.210%.

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

Thursday's weakness in chip stocks was a bearish factor for the overall market.  Advanced Micro Devices (AMD) closed down -4% to lead losers in the Nasdaq 100.  ASML Holding NV (ASML), Intel (INTC), Microchip Technology (MCHP), Qualcomm (QCOM), ON Semiconductor Corp (ON), NXP Semiconductors NV (NXPI), Applied Materials (AMAT), KLA Corp (KLAC), Analog Devices (ADI), and Texas Instruments (TXN) closed down more than -1%. 

Generac Holdings (GNRC) closed 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. 

Pfizer (PFE) closed 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) closed down more than -2% after Bernstein downgraded the stock to market perform from outperform.

Huntington Ingalls Industries (HII) closed down more than -2% after Wolfe Research downgraded the stock to peer perform from outperform.

Cirrus Logic (CRUS) closed down more than -1% after Barclays downgraded the stock to equal weight from overweight. 

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

Skyworks Solutions (SWKS) closed 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) closed up more than +13%.  Also, Heritage Insurance Holdings (HRTG) closed up more than +10%, and American Coastal Insurance (ACIC) closed up more than +8%.  In addition, Everest Group Ltd (EG) closed up more than +1%.

Energy stocks rallied Thursday after the price of WTI crude oil jumped more than +3%.  As a result, Valero Energy (VLO), APA Corp (APA), and Devon Energy (DVN) closed up more than +2%.  Also, Marathon Petroleum (MPC), Phillips 66 (PSX), Haliburton (HAL), and Occidental Petroleum (OXY) closed up more than +1%.

Cybersecurity stocks strengthened Thursday.  Zscaler (ZS) and Crowdstrike Holdings (CRWD) closed up more than +5%.  Also, SentinelOne (S) closed up more than +3%, and Fortinet (FTNT) closed up more than +2%  

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

Mosaic (MOS) closed up more than +4% 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) closed up more than +15% 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) closed up more than +1% after Barclays upgraded the stock to overweight from equal weight with a price target of $82. 

Earnings Reports (10/11/2024)

Bank of New York Mellon Corp/The (BK), Blackrock Inc (BLK), Fastenal Co (FAST), JPMorgan Chase & Co (JPM), Wells Fargo & Co (WFC).

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