Stocks Rally on Q2 Earnings Optimism and Lower T-Note Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed up +0.99%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.51%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.44%. 

U.S. stock indexes Thursday recovered from early losses and posted moderate gains, with the S&P 500, Nasdaq 100, and the Dow Jones Industrials climbing to 6-week highs. Strong earnings results from Tesla and Danaher fueled optimism for the corporate Q2 earnings season and boosted the overall market.  Also, chip stocks gained on strong demand from mobile phone shipments from China. Stocks also rallied as the 10-year T-note yield dropped -11.0 bp to 2.917%.

Stocks on Thursday initially moved lower on concern about the economic implications of Thursday’s U.S. weaker-than-expected economic data and the +50 bp rate hike by the European Central Bank (ECB).  Also, airline stocks tumbled after United Airlines Holdings said it is limiting flights for the rest of this year and curtailing growth plans in 2023 due to labor shortages and traffic control issues. 

U.S. weekly initial unemployment claims unexpectedly rose +7,000 to an 8-month high of 251,000, showing a weaker labor market than expectations of a decline to 240,000.

The U.S. July Philadelphia Fed business outlook survey unexpectedly fell -9.0 to -12.3, weaker than expectations of an increase to 0.8 and the steepest pace of contraction in 2 years.

U.S. June leading indicators fell -0.8% m/m, weaker than expectations of -0.6% m/m and the biggest decline in 2 years.

Today’s stock movers…

A rally in chip stocks Thursday was supportive for the overall market on signs of strong demand after data from mobile phone shipments from China showed a +9.2% jump in June. ASML Holding NV (ASML) closed up more than +5%.  Also, Align Technology (ALGN) closed up more than +3%.  In addition, Qualcomm (QCOM) and Lam Research (LRCX) closed up more than +2%. 

Tesla (TSLA) closed up more than +9% Thursday to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q2 adjusted EPS of $2.27, better than the consensus of $1.83. 

Boeing (BA) closed up nearly +2% to lead gainers in the Dow Jones Industrials after the company said it secured a deal for 25 of its 737 jets from Qatar Airways with the option for 25 more.  Also, a Dow Jones report said the company was set to increase the production of its 787 Dreamliner.

Danaher (DHR) closed up more than +9% Thursday after reporting Q2 sales of $7.75 billion, well above the consensus of $7.32 billion.

Las Vegas Sands (LVS) closed up more than +6% Thursday after reporting Q2 net revenue of $1.05 billion, better than the consensus of $970.6 million.

Carnival (CCL) closed down more than -11% Thursday to lead losers in the S&P 500 after launching a $1 billion share offering.  Other cruise line operators declined as well, with Royal Caribbean Cruises (RCL) closing down by more than -8% and Norwegian Cruise Line Holdings (NCLH) closing down more than -7%. 

Airline stocks fell sharply Thursday, with United Airlines Holdings (UAL) closing down more than -10% after it reported Q2 adjusted EPS of $1.43, well below the consensus of $1.88, and said it is limiting flights for the rest of this year and curtailing growth plans in 2023 due to labor shortages and traffic control issues.  Other airlines also sold off, with American Airlines Group (AAL) closing down more than -7% and Delta Air Lines (DAL) down more than -2%.

Mobile phone carriers moved lower Thursday, with AT&T (T) closing down more than -7% after it lowered its 2022 free cash flow forecast to $14 billion from $16 billion due to higher spending on phone promotions and network gear. Also, Verizon Communications (VZ) closed down more than -2% to lead losers in the Dow Jones Industrials, and T-Mobile (TMUS) closed down more than -3% to lead losers in the Nasdaq 100. 

Discover Financial Services (DFS) closed down more than -8% after it suspended share repurchases, saying it started an internal investigation into compliance practices at its student-loan servicing business. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Thursday closed up +1-4/32 points, and the 10-year T-note yield fell -11.0 bp to 2.917%.  Sep T-notes Thursday recovered from a 3-week low and rallied to a 2-week high.  The 10-year T-note yield fell back from a 1-1/2 week high of 3.079% and fell to a 2-week low of 2.869%.

T-notes recovered from early losses on signs the U.S. economy was losing momentum after weaker than expected U.S. economic data on weekly unemployment claims, Philadelphia Fed business outlook, and leading indicators. T-notes extended their gains after the 10-year breakeven inflation expectations rate dropped to a 1-week low Thursday of 2.295%.  Also, T-notes garnered some safe-haven demand after the White House announced that President Biden tested positive for Covid-19.

T-notes Thursday morning initially whipsawed lower to a 3-week low after 10-year German bunds dropped to a 2-1/2 week low when the ECB raised interest rates by a more than expected 50 bp and said, "further normalization of interest rates will be appropriate." 

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