Stocks Rally on Chinese Stimulus News

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed up +1.50%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.16%. 

Stock indexes Thursday rallied moderately, with the S&P 500 and Dow Jones Industrials posting 1-week highs and the Nasdaq 100 posting a 1-1/2 week high.  U.S. stock indexes opened higher Thursday on carry-over support from a rally in global equity markets on signs that China may boost stimulus measures, which is supportive of global growth.  China's Ministry of Finance said Thursday that it was considering allowing local governments to sell 1.5 trillion yuan ($220 billion) of special bonds this year to finance infrastructure spending.

Stock indexes extended their gains Thursday afternoon when St. Louis Fed President Bullard downplayed recession fears.

A rally in semiconductor stocks Thursday led to gains in technology stocks after Samsung Electronics reported a larger-than-expected increase in quarterly revenue.  Samsung’s revenue jump eased concern about weakening consumer demand and soaring material costs.  Also, a +4% surge in crude prices Thursday lifted energy stocks.

Thursday’s U.S. economic data was bearish for stocks.   U.S. weekly initial unemployment claims unexpectedly rose +4,000 to a 5-1/2 month high of 235,000, showing a weaker labor market than expectations of a decline to 230,000.  Also, the May trade deficit of -$85.5 billion was wider than expectations of -$84.7 billion, which has negative GDP implications.

St. Louis Fed President Bullard said recession predictions are not reliable and that some mistake slower growth for rising recession risks.  He added that raising rates by 75 bp at the July FOMC meeting "would make a lot of sense."

Fed Governor Waller said he supports a 75 bp Fed rate hike in July and a 50 bp rate hike in September.  He added that the Fed's job is to deliver price stability, no excuses, and there's "not a chance" that he would be OK with 3% inflation.

Today’s stock movers…

Semiconductor stocks rallied Thursday after Samsung Electronics posted a stronger-than-expected increase in quarterly revenue, easing consumer demand concerns. ON Semiconductor (ON) closed up more than +9% to lead gainers in the S&P 500.  Also, Lam Research (LRCX) and Marvell Technology (MRVL) closed up more than +6%.  In addition, Qualcomm (QCOM), Applied Materials (AMAT), Advanced Micro Devices (AMD), and ASML Holding NV (ASML) closed up more than +5%, and NXP Semiconductors NV (NXPI), Microchip Technology (MCHP), and  Nvidia (NVDA) closed up more than +4%. 

A jump of more than +4% in crude oil prices Thursday boosted energy stocks and energy service providers.   APA Corp (APA) closed up more than +7%. Also, Schlumberger (SLB), Diamondback Energy (FANG), Marathon Oil (MRO), Haliburton (HAL), and Devon Energy (DVN) closed up more than +5%.  In addition,  Occidental Petroleum (OXY) and Valero Energy (VLO) closed up more than +4%.

Freeport-McMoRan (FCX) closed up more than +6% Thursday after the price of copper soared more than +4% when China said it was considering a $220 infrastructure stimulus plan. 

Caterpillar (CAT) closed up more than +4% Thursday to lead gainers in the Dow Jones Industrials after China’s Ministry of Finance said it was mulling a $220 billion infrastructure plan. 

Otis Worldwide (OTIS) closed down more than -1% Thursday after JPMorgan Chase downgraded the company to neutral from overweight. 

Sealed Air Corp (SEE) closed down more than -1% Thursday after Bank of America Global Research downgraded the stock to neutral from buy, citing concerns over 2023 growth prospects.

Across the markets…

Sep 10-year T-notes (ZNU22) on Thursday closed down by -25 ticks, and the 10-year T-note yield rose +7.2 bp to 3.001%.  Sep T-notes retreated Thursday as a rally in global equity markets reduced safe-haven demand for government debt.  T-notes fell to their lows Thursday afternoon on hawkish comments from Fed Governor Waller and St. Louis Fed President Bullard who both said they support a 75 bp rate hike the July FOMC meeting.

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