Stocks Settle Mixed in Choppy Trade

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -0.07%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.27%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.18%. 

Stocks on Wednesday waffled between modest gains and losses the entire day and finally settled mixed.  Stocks had support Wednesday on positive comments from Fed Chair Powell, who said the U.S. economy is in "strong shape" and "overall the U.S. economy is well-positioned to withstand tighter monetary policy."  Also, better-than-expected global inflation news knocked bond yields lower and boosted stocks after German consumer prices in June unexpectedly eased.  On the other hand, a negative for stocks was this morning’s data that showed U.S. Q1 GDP contracted more than expected.

U.S. stock indexes were weighed down Wednesday on negative carry-over from a -1.4% fall in China’s Shanghai Composite Stock Index after Chinese President Xi Jinping vowed to maintain his country’s strict Covid zero policy.  Also, hawkish comments overnight from Cleveland Fed President Mester weighed on stocks when she said she wants to see the fed funds rate reach 3.0% to 3.5% this year and "a little bit above 4% next year" to rein in price pressures even if that tips the economy into recession.

U.S. Q1 GDP was unexpectedly revised downward to -1.6% (q/q annualized), weaker than expectations of -1.5% and the steepest pace of contraction since Q2 of 2020.  Q1 personal consumption rose +1.8%, weaker than expectations of +3.1%.  Also, the Q1 core PCE deflator rose +5.2% q/q, higher than expectations of +5.1% q/q.

Cleveland Fed President Mester said central bankers must not be complacent about increases in long-term inflation expectations and should be "resolute and intentional" in taking actions to bring inflation down.  She added that she wants to see the fed funds rate reach 3.0% to 3.5% this year and "a little bit above 4% next year" to rein in price pressures even if that tips the economy into recession.

Today’s stock movers…

A decline in T-note yields Wednesday gave mega-cap technology stocks a boost.  Meta Platforms (META) closed up more than +2%.  Also, Amazon.com (AMZN), Apple (AAPL), and Microsoft (MSFT) closed up more than +1%. 

General Mills (GIS) closed up more than +5% Wednesday to lead gainers in the S&P 500 after reporting Q4 net sales of $4.90 billion, stronger than the consensus of $4.81 billion, and forecast 2023 organic net sales up +4% to +5%, above the consensus of +3.72%.   

McDonald’s (MCD) closed up more than +2% Wednesday to lead gainers in the Dow Jones Industrials after Atlantic Equities LLP raised its recommendation on the stock to overweight from neutral. 

Goldman Sachs (GS) closed up +1.27% Wednesday after Bank of America raised its recommendation on the stock to a buy with a price target of $380. 

Semiconductor stocks retreated Wednesday after Bank of America said a downturn in the industry may soon be ahead.  Advanced Micro Devices (AMD), Nvidia (NVDA), Applied Materials (AMAT), and Micron Technology (MU) closed down by more than -3%.  Also, Marvell Technology (MRVL), NXP Semiconductors NV (NXPI), Lam Research (LRCX), and  Microchip Technology (MCHP) closed down by more than -2%.  In addition, Intel (INTC), Qualcomm (QCOM), and Texas Instruments (TXN) closed down by more than -1%.

Carnival (CCL) closed down more than -14% Wednesday to lead losers in the S&P 500 after Morgan Stanley warned that the company could lose all of its value in the event of another demand shock.  Other cruise line operators also fell on the news, with Royal Caribbean Cruises (RCL) closing down by more than -10% and Norwegian Cruise Line Holdings (NCLH) closing down more than -9%.

Energy stocks and energy service providers fell Wednesday after crude prices dropped nearly -2%.  APA Corp (APA), Valero Energy (VLO), and Devon Energy (DVN) closed down by more than -6%.  Also, Marathon Oil (MRO) and Diamondback Energy (FANG) closed down by more than -5%.  In addition, Phillips 66 (PSX), Marathon Petroleum (MPC), and Occidental Petroleum (OXY) closed down by more than -4%.   

Across the markets…

Sep 10-year T-notes (ZNU22) on Wednesday closed up by +26 ticks, and the 10-year T-note yield fell -7.5 bp to 3.097%.  A fall in European government bond yields Wednesday supported T-note prices after German Jun CPI rose less than expected.  Lower inflation expectations were also bullish for T-note prices after the 10-year breakeven inflation rate dropped to a 5-month low Wednesday at 2.373%.  An unexpected downward revision to U.S. Q1 GDP gave T-note prices a boost along with calendar-driven buying by bond fund managers as they rebalance their bond portfolios into quarter and month-end on Thursday. 

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