Stocks Rally Before FOMC on Strong Mega-Cap Tech Stock Earnings

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +1.10%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.36%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +2.24%. 

U.S. stock indexes this morning are moderately higher.  Better-than-expected quarterly earnings results from mega-cap technology companies are boosting the overall market today.  Alphabet is up more than +5% after reporting stronger than expected Q2 advertising revenue.  Microsoft is up more than +4% after saying it expects double-digit sales growth for the fiscal year 2023.  Also, Texas Instruments is up more than +6% today after forecasting stronger than expected Q3 revenue.  Q2 corporate earnings results have been mostly bullish for stocks, with 78% of reporting companies in the S&P 500 exceeding estimates.   

The markets fully expect the Fed to raise its federal funds target range by 75 bp after today’s FOMC meeting.  The markets will then turn their attention to the post-FOMC meeting comments from Fed Chair Powell to see if the Fed will maintain its aggressive stance of monetary tightening.

Today’s U.S. economic data was mixed for stocks.  On the positive side, June capital goods new orders nondefense ex-aircraft, a proxy for capital spending, rose +0.5% m/m, stronger than expectations of +0.2% m/m.  Conversely, June pending home sales tumbled -8.6% m/m, weaker than expectations of -1.0% m/m and the biggest decline in more than 2 years.  Also, June wholesale inventories rose +1.9% m/m, higher than expectations of +1.5% m/m.

Today’s stock movers…

Strength in mega-cap technology stocks today is lifting the overall market.  Alphabet (GOOGL) is up more than +5% after reporting Q2 advertising revenue of $56.29 billion, above the consensus of $55.91 billion. In addition, Microsoft (MSFT) is up more than +4% to lead gainers in the Dow Jones Industrials after reporting Q4 commercial cloud revenue of $25.00 billion, better than the consensus of $24.99 billion, and saying it expects double-digit sales growth for the fiscal year 2023.  Also, Texas Instruments (TXN) is up more than +6% after reporting Q2 revenue of $5.21 billion, stronger than the consensus of $4.55 billion.  TXN forecast Q3 revenue of $4.90-$5.30 billion, with the midpoint above the consensus of $4.94 billion. 

Enphase Energy (ENPH) is up more than +15% today to lead gainers in the S&P 500 after reporting Q2 revenue of $530.2 million, above the consensus of $505.9 million, and forecasting Q3 revenue of $590-$630 million, stronger than the consensus of $551.2 million.

PayPal Holdings (PYPL) is up more than +7% today to lead gainers in the Nasdaq 100 after Bloomberg reported that Elliot Investment Management is building a stake in the company and will push PayPal to speed up its cost-reduction efforts.

Chipotle Mexican Grill (CMG) is up more than +13% today after reporting Q2 adjusted EPS of $9.30, better than the consensus of $9.09. 

Hilton Worldwide Holdings (HLT) is up more than +6% today after reporting Q2 adjusted EPS of $1.29, above the consensus of $1.05, and raising its full-year projections for adjusted EPS to between $4.21-$4.46 from previous guidance of $3.77-$4.02.   

Boeing (BA) is up more than +4% today after reporting Q2 operating cash flow of +$81.0 million, better than the consensus of negative -$342.7 million.

Sherwin-Williams (SHW) is down more than -11% today to lead losers in the S&P 500 after reporting Q2 adjusted EPS of $2.41, weaker than the consensus of $2.78 and cutting its full-year adjusted EPS forecast to $8.50-$8.80 from a prior view of $9.25-$9.65, well below the consensus of $9.42.

Kraft Heinz (KHC) is down more than -7% today to lead losers in the Nasdaq 100 after it reported it raised prices 12.4% across its portfolio in Q2 amid higher costs from transportation and commodities. However, Q2 sales volume fell -2.3%, signaling inflation is starting to undercut demand.

Across the markets…

Sep 10-year T-notes (ZNU22) this morning are up +8 ticks, and the 10-year T-note yield is down -4.8 bp at 2.759%.  Sep T-notes this morning are slightly higher on position squaring and short-covering ahead of the results of the FOMC meeting later today.   Gains are limited, however, as a rally in stocks today has reduced the safe-haven demand for T-notes. 

The dollar index (DXY00) this morning is down by -0.18%.  The dollar is moderately lower today as a rally in stocks has reduced the liquidity demand for the dollar.  Also, lower T-note yields today are weighing on the dollar. Losses in the dollar are limited after today’s U.S. economic data showed June core capital orders, a proxy for capital spending, rose more than expected. 

EUR/USD (^EURUSD) is up by +0.27% today.  Higher European government bond yields today are strengthening the euro’s interest rate differentials and are giving the euro a boost. Gains in EUR/USD were contained after today’s news that a gauge of German consumer confidence fell to a record low.  The euro was also undercut by concern that an energy crisis in Europe could spark a recession after European nat-gas prices surged to a 4-1/2 month high today on this week’s news that Russia’s Gazprom PJSC cut gas flows to Europe through the Nord Stream pipeline to only around 20% of normal capacity. 

Eurozone June M3 money supply rose +5.7% y/y, stronger than expectations of +5.4% y/y

German Aug GfK consumer confidence fell 2.9 to a record low of -30.6 (data from 2005), weaker than expectations of -28.9.

USD/JPY (^USDJPY) today is down -0.03%.  USD/JPY is slightly lower today as a decline in T-notes has strengthened the yen.  The upside in the yen is muted ahead of an expected 75 bp rate hike by the FOMC later today and comments from Fed Chair Powell regarding how aggressive the Fed plans to be in tightening monetary policy in the future.

August gold (GCQ22) this morning is down -2.3 (-0.13%), and September silver (SIU22) is down -0.015 (-0.08%.)  Precious metals this morning are slightly lower.  Expectations for the Fed to raise interest rates by +75 bp later today are weighing on metals prices.  Also, a rally in stocks today has reduced the safe-haven demand for precious metals.  Ongoing fund liquidation of long gold positions continues to bearish for gold prices as long gold positions in ETFs have dropped for 20 consecutive days to a 4-1/2 month low Tuesday.  Losses in gold prices today are limited by lower T-note yields and a weaker dollar.

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