Stocks Settle Mixed on Apple Weakness and Chipmaker Strength

The S&P 500 Index ($SPX) (SPY) on Thursday closed down -0.01%, the Dow Jones Industrial Average ($DOWI) (DIA) closed up +0.14%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.75%.  September E-mini S&P futures (ESU26) rose +0.01%, and September E-mini Nasdaq futures (NQU26) rose +0.80%. 

Stock indexes settled mixed on Thursday, with the S&P 500 falling to a 2-week low and the Dow Jones Industrials posting a new all-time high. The weakness in the Magnificent Seven technology stocks weighed on the broader market, led by a -6% plunge in Apple after it raised prices of Macs, iPads, home devices, and the Vision Pro to offset cost hikes driven by a shortage of memory chips and storage. Also, the weakness in software stocks on Thursday was a drag on the overall market.

Stocks initially moved higher on Thursday, amid strength in chipmakers after Micron Technology’s blowout forecast reaffirmed the bull case for the artificial intelligence trade. Micron rallied more than +15% after forecasting Q4 revenue of $50 billion, well above the consensus of $43.24 billion.  Also, Qualcomm rose by more than +3% after forecasting annual sales of more than $15 billion from artificial intelligence components for data centers by fiscal 2029.

Stocks also found support after Thursday’s US economic news showed signs of strength in the US economy.  Q1 GDP was revised higher, weekly jobless claims fell more than expected, May personal spending and income were stronger than expected, and May capital goods new orders rose more than expected.  Also, benign inflation news knocked bond yields lower and is supportive of stocks after the May core PCE price index, the Fed's preferred inflation gauge, rose as expected.  The 10-year T-note yield fell to a 6-week low of 4.36%.

WTI crude oil (CLQ26) rebounded from a 4-month low on Thursday, rising more than 2%, weighing on market sentiment.  Renewed tensions in the Persian Gulf pushed crude oil prices sharply higher on Thursday after the UK Maritime Trade Operations reported that a cargo vessel was hit by an unknown projectile off the coast of Oman in the Strait of Hormuz. The incident occurred after several freighters turned around while attempting to cross the Strait of Hormuz, with maritime intelligence companies reporting broadcasts purportedly from the Iranian navy instructing ships not to cross.

US weekly initial unemployment claims fell -12,000 to 215,000, showing a stronger labor market than expectations of 225,000.

US May personal spending rise +0.7% m/m, stronger than expectations of +0.6% m/m.  May personal income rose +0.7% m/m, stronger than expectations of +0.4% m/m and the biggest increase in 10 months.

The US May core PCE price index, the Fed's preferred inflation gauge, rose +3.4% y/y, right on expectations and the largest increase in 2.5 years.

US May capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +1.6% m/m, stronger than expectations of +0.6% m/m.

US Q1 GDP was revised upward to +2.1% (q/q annualized), stronger than expectations of no change at +1.6%.

The markets are discounting a 32% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.

Overseas stock markets settled higher on Thursday.  The Euro Stoxx 50 closed up +0.85%.  China's Shanghai Composite closed up +0.23%. Japan’s Nikkei-225 Stock Average closed up sharply by +4.61%.

Interest Rates

September 10-year T-notes (ZNU6) closed up by +3 ticks on Thursday, and the 10-year T-note yield fell -0.2 bp to 4.390%.  Sep T-note prices climbed to a 6-week high on Thursday, and the 10-year T-note yield fell to a 6-week low of 4.363%.  Thursday’s benign inflation news supported T-notes after the May core PCE price index, the Fed's preferred inflation gauge, rose as expected.  Also, Thursday’s initial decline in WTI crude oil to a 4-month low was bullish for T-notes. Solid demand for the Treasury’s $44 billion auction of 7-year T-note was positive for T-notes, as the auction had a bid-to-cover ratio of 2.50, above the 10-auction average of 2.47.

Thursday’s generally strong US economic news was bearish for T-note prices.  Also, the reversal of crude oil prices from lower to sharply higher boosted inflation expectations and was bearish for T-notes. 

European government bond yields were mixed on Thursday.  The 10-year German bund yield fell to a 3.5-month low of 2.845% and finished down -0.8 bp to 2.857%.  The 10-year UK gilt yield rose +1.6 bp to 4.699%.

The German July GfK consumer confidence index rose +0.5 to -29.2, weaker than expectations of -28.0.

Swaps are discounting a 6% chance of a +25 bp ECB rate hike at its next policy meeting on July 23.

US Stock Movers

The weakness in the Magnificent Seven technology stocks weighed on the broader market.  Apple (AAPL) closed down more than -6% to lead losers in the S&P 500 and Dow Jones Industrials after raising prices of Macs, iPads, home devices, and the Vision Pro to offset cost hikes caused by a shortage of memory chips and storage. Also, Amazon.com (AMZN) and Microsoft (MSFT) closed down more than -3%, and Meta Platforms (META) closed down more than -2%.  In addition, Nvidia (NVDA) closed down more than -1%, Alphabet (GOOGL) closed down -0.46%, and Tesla (TSLA) closed down -0.11%. 

Software stocks fell on Thursday, pressuring the overall market.  Atlassian Corp (TEAM) closed down more than -8%, and Palantir Technologies (PLTR) closed down more than -5%.  Also, ServiceNow (NOW) closed down more than -4%, and Workday (WDAY) closed down more than -3%.  In addition, Oracle (ORCL) and Intuit (INTU) closed down more than -2%, and Adobe Systems (ADBE) and Salesforce (CRM) closed down more than -1%.

Cryptocurrency-exposed stocks were under pressure on Thursday as Bitcoin (^BTCUSD) fell more than -2% to a 1.75-year low.   Strategy (MSTR) closed down more than -9% to lead losers in the Nasdaq 100, and Coinbase Global (COIN) closed down more than -5%.  Also, Galaxy Digital Holdings (GLXY) closed down more than -1%, and MARA Holdings (MARA) closed down -0.86%.

Chipmakers and AI infrastructure stocks rallied on Thursday, led by a +15% surge in Micron Technology (MU) after it forecasted Q4 revenue of $50 billion, well above the consensus of $43.24 billion.  Also, Sandisk (SNDK) closed up more than +21%, and Applied Materials (AMAT)  closed up more than +13%.  In addition, KLA Corp (KLAC) and Lam Research (LRCX) closed up more than +7%, and Western Digital (WDC) and ASML Holding NV (ASML) closed up more than +4%.  Finally, Qualcomm (QCOM) closed up more than +3% after forecasting annual sales of more than $15 billion from artificial intelligence components in data centers by fiscal 2029. 

Bio-Techne (TECH) closed up by more than +20% after Merck & Co agreed to buy the company for about $11.3 billion, or $73 per share. 

Xylem (XYL) closed up more than +4% after Jeffries upgraded the stock to buy from hold with a price target of $140.

Keurig Dr. Pepper (KDP) closed up more than +3% after Barclays upgraded the stock to overweight from equal weight with a price target of $36.

McCormick & Co (MKC) closed up more than +1% after reporting Q2 net sales of $1.94 billion, above the consensus of $1.91 billion.

Trip.com ADRs (TCOM) closed down more than -12% after reporting Q1 adjusted earnings per American depositary receipt of 5.73 yuan, weaker than the consensus of 6.09 yuan.

Jeffries Financial Group (JEF) closed down more than -9% after reporting Q2 EPS of $1.02, weaker than the consensus of $1.24.

Dell Technologies (DELL) closed down more than -5% after GF Securities downgraded the stock to hold from buy.

HB Fuller (FUL) closed down more than -4% after agreeing to buy Advance Medical Solutions Group for $868 million.

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