Stocks Rally on Solid Economic Data and Quarterly Earnings Results

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +1.56%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.29%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.73%. 

U.S. stock indexes on Wednesday rallied moderately, with the S&P 500 climbing to an 8-week high and the Nasdaq 100 posting a 2-3/4 month high.  Stocks opened higher Wednesday as an easing of U.S.-China tensions gave the markets a boost after House Speaker Pelosi left Taiwan without incident. Stock gains accelerated Wednesday morning on better-than-expected U.S factory order and ISM reports.

Solid quarterly corporate earnings results are propelling stock prices higher.  With more than 70% of Q2 earnings reporting season completed, market sentiment has improved as the feared earnings Armageddon has so far failed to materialize.  On Wednesday, better-than-expected quarterly earnings results from CVS Health, Moderna, and PayPal supported gains in the broader market.

Stocks gained Wednesday despite hawkish Fed comments.  Richmond Fed President Barkin said, "there is a path to getting inflation under control, but a recession could happen in the process."  He added that he “expects inflation to come down but not immediately, not suddenly and not predictably."

St. Louis Fed President Bullard said, "we still have some ways to go here to get to restrictive monetary policy."  He said he favors a strategy of "front-loading" big interest rate hikes, and he wants the fed funds rate at 3.75% to 4.00% at the end of the year.

Minneapolis Fed President Kashkari said that the Fed is "laser-focused" on getting inflation down and that interest rate cuts in 2023 seem like a "very unlikely scenario."

San Francisco Fed President Daly said, "it will likely be appropriate for the Fed to raise interest rates by 50 bp at the September FOMC meeting if economic data comes in as forecast."

U.S. economic data Wednesday was better-than-expected and bullish for stocks.  U.S. June factory orders rose +2.0% m/m, stronger than expectations of +1.2% m/m and the biggest increase in 5 months.  Also, the U.S. July ISM services index unexpectedly rose +1.4 to 56.7, stronger than expectations of a decline to 53.5.

Today’s stock movers…

Moderna (MRNA) closed up more than +15% Wednesday to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q2 revenue of $4.75 billion, stronger than the consensus of $4.02 billion, and announcing a $3 billion stock buyback plan.

PayPal (PYPL) closed up than +9% Wednesday after reporting Q2 adjusted EPS of 93 cents, better than the consensus of 86 cents, and raised its full-year adjusted EPS of $3.87-$3.97 from a prior view of $3.81-$3.93, above the consensus of $3.83.

NortonLifeLock (NLOK) closed up more than +7% Wednesday after the UK’s Competition and Markets Authority provisionally cleared its purchase of Avast.

Shares of cybersecurity companies rallied Wednesday after private-equity firm Thoma Bravo agreed to buy Ping Identity.  Okta (OKTA) closed up more than +6%.  Also, Datadog (DDOG) and Atlassian Corp Plc (TEAM) closed up more than +5%.  In addition, Zscaler (ZS), Splunk (SPLK), and Fortinet (FTNT) closed up by more than +4%.   

CVS Health Corp (CVS) closed up more than +6% Wednesday after reporting that Q2 comparable sales rose +8.0%, much stronger than the consensus of +1.4%, and raised guidance on its full-year adjusted EPS estimate to $8.40-$8.60 from a prior view of $8.20-$8.40, above the consensus of $8.35. 

Gilead Sciences (GILD) closed up more than +4% Wednesday after reporting Q2 revenue of $6.26 billion, well above the consensus of $5.84 billion, and raised its full-year product sales estimate to $24.5 billion-$25.0 billion from a prior estimate of $23.8 billion-$24.3 billion, better than the consensus of $24.12 billion.

Regeneron Pharmaceuticals (REGN) closed up more than +5% Wednesday after reporting Q2 revenue of $2.86 billion, above the consensus of $2.80 billion.

SolarEdge Technologies (SEDG) closed down more than -19% Wednesday to lead losers in the S&P 500 after reporting Q2 revenue of $727.8 million, weaker than the consensus of $731.9 million, and reporting disappointing margin news.

Match Group (MTCH) closed down more than -17% Wednesday to lead losers in the Nasdaq 100 after reporting Q2 revenue of $794.5 million, below the consensus of $804.1 million.

Energy stocks and energy service providers tumbled Wednesday after crude prices fell nearly -3%. Devon Energy (DVN) and Occidental Petroleum (OXY) closed down by more than -6%.  Also, Diamondback Energy (FANG), Marathon Oil (MRO), and Valero Energy (VLO) closed down by more than -4%.  In addition, ConocoPhillips (COP) and Exxon Mobil (XOM) closed down by more than -3%. Finally, Chevron (CVX) closed down more than -2% to lead losers in the Dow Jones industrials. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Wednesday closed down -1 tick, and the 10-year T-note yield fell by -0.7 bp to 2.741%.  Sep T-notes Wednesday dropped to a 1-1/2 week low, and the 10-year T-note yield rose to a 1-1/2 week high of 2.847%.  T-note prices were under pressure Wednesday from stronger-than-expected U.S economic data and surging stock prices, which curbed safe-haven demand for T-notes.

T-notes Wednesday recovered most of their losses as hawkish Fed comments signaled the Fed is still making the taming of inflation its number one priority.  Also, comments from San Francisco Fed President Daly, who said she favors raising rates by only 50 bp at the next FOMC meeting in September, sparked some short-covering in T-notes. 

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