Stocks See Some Support from Tempered Fed Comments

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed down -0.30%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.46%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.34%. 

U.S. stock indexes Thursday settled mixed, with the S&P 500 and Dow Jones Industrials dropping to 3-week lows.  A slump in bank stocks Thursday led the overall market lower after both JPMorgan Chase and Morgan Stanley reported weaker-than-expected Q2 earnings. Also, energy stocks retreated after crude prices fell to a 4-1/2 month low.  

Stock indexes recovered from their worst levels Thursday after St. Louis Fed President Bullard and Fed Governor Waller said they favored a 75 bp rate hike at the July FOMC meeting, dampening speculation that the Fed may favor raising rates 100 bp due to this week’s strong U.S. inflation data.  Also, a rally in semiconductor stocks Thursday lifted the Nasdaq 100 into positive territory after Taiwan Semiconductor Manufacturing raised its revenue forecast for the year.

U.S. stock indexes Thursday were pressured after U.S. weekly jobless claims unexpectedly rose to an 8-month high, and after U.S. June producer prices rose more than expected. The stronger-than-expected increase in producer prices pushed the 10-year T-note yield Thursday up +3.1 bp to 2.965%. 

U.S. weekly initial unemployment claims unexpectedly rose +9,000 to an 8-month high of 244,000, showing a weaker labor market than expectations of unchanged at 235,000.

The U.S. June final-demand PPI rose +1.1% m/m and +11.3% y/y, stronger than expectations of +0.8% m/m and +10.7% y/y.  Jun PPI ex-food & energy rose +8.2% y/y, right on expectations and easing from May’s +8.5% y/y increase.

St. Louis Fed President Bullard said he "would advocate a 75 bp rate hike later this month" rather than a bigger move because it brings the funds rate to roughly the neutral level as seen by policymakers.

Fed Governor Waller said, "with the U.S CPI data in hand, I support another 75 bp rate increase this month," but could vote for more aggressive action if coming economic reports point to further inflation risks.

Today’s stock movers…

Bank stocks fell Thursday after both JPMorgan Chase and Morgan Stanley reported weaker-than-expected Q2 earnings.  JPMorgan also said it was temporarily suspending its share buyback program. JPMorgan Chase (JPM) closed down more than -3%.  Also, Goldman Sachs (GS), Signature Bank New York (SBNY), Bank of America (BAC), M&T Bank (MTB), and Comerica (CMA) closed down by more than -2%. 

Mining stocks tumbled Thursday after gold dropped to an 11-month low and copper fell to a 20-month low. Newmont Corp (NEM) closed down more than -5%, and Freeport-McMoRan (FCX) closed down more than -4%. 

A slide in crude oil prices Thursday to a 4-1/2 month low undercut energy stocks and energy service providers.  Diamondback Energy (FANG) and Halliburton (HAL) closed down by more than -3%. Also, Schlumberger (SLB), Devon Energy (DVN), and Exxon Mobil (XOM) closed down by more than -2%.

Conagra Brands (CAG) closed down more than -7% Thursday to lead losers in the S&P 500 after it reported Q4 net sales of $2.91 billion, weaker than the consensus of $2.93 billion. 

Strength in semiconductor stocks pushed the Nasdaq 100 into positive territory on signs that demand for semiconductor chips is holding up after Taiwan Semiconductor Manufacturing raised its revenue forecast for the year.  Qualcomm (QCOM) closed up by more than +4% to lead gainers in the S&P 500 and Nasdaq 100.  Also, NXP Semiconductors (NXPI), Analog Devices (ADI), Microchip Technology (MCHP), Texas Instruments (TXN), and Applied Materials (AMAT) closed up by more than +2%. 

Costco Wholesale (COST) closed up more than +4% Thursday after Deutsche Bank raised its recommendation on the stock to buy from hold with a price target of $579.

Across the markets…

Sep 10-year T-notes (ZNU22) on Thursday closed down -13.5 ticks, and the 10-year T-note yield rose +3.1 bp to 2.965%.  T-note prices Thursday moved lower after U.S June producer prices rose more than expected, which may prompt the Fed to be even more aggressive in tightening monetary policy.  Fed fund futures have now priced in 150 bp of Fed rate hikes over the next two FOMC meetings on July 26-27 and September 20-21.  Citigroup today forecast a 100 bp rate hike by the Fed at this month’s FOMC meeting.

T-notes Thursday recovered from their worst levels after comments from St. Louis Fed President Bullard and Fed Governor Waller threw cold water on the prospect of a 100 bp Fed rate hike at the July FOMC meeting. Short-covering in T-notes emerged after both Fed officials said they favored a 75 bp rate hike at this month’s policy meeting.

• Is General Motors a Buy After Its Latest EV Announcement?
• Stocks Tumble on Weak Bank Earnings and Strong US PPI
• Big U.S. Tech Companies Boost Focus on Profitability
• Stocks Tumble on Weak Bank Earnings and Strong US PPI