Stocks Settle Mixed as Recession Fears Ease on Strong U.S. Payroll Report

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed down -0.16%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.78%. 

U.S. stock indexes on Friday settled mixed.  Stock indexes were under pressure Friday as the stronger-than-expected U.S. July payroll report bolsters the outlook for the Fed to raise interest rates by another +75 bp at the September FOMC meeting.  In addition, higher T-note yields undercut stocks as the 10-year T-note yield jumped to a 2-week high of 2.867% on strength in U.S. payrolls and continued wage pressures.

Fresh tensions with China also weighed on U.S. stocks.  Friday, China escalated tensions with Taiwan as it continued its provocative military drills and sent warships and aircraft across the Taiwan Strait's median line. China also cut off defense talks with the U.S. in retaliation for House Speaker Pelosi's visit to Taiwan.

The stronger-than-expected U.S. payroll report eased recession fears and sparked a rally in bank stocks Friday that supported the overall market and kept the Dow Jones Industrials in positive territory.  Also, solar stocks jumped Friday after Barclays upgraded the sector, saying the sector “is as attractive as it’s ever been.”  In addition, strength in energy stocks Friday was a bullish factor for the overall market as crude prices rose more than +0.5%.

U.S. July nonfarm payrolls rose +528,000, stronger than expectations of +250,000 and the biggest increase in 5 months.  The July unemployment rate fell -0.1 to 3.5%, matching a five-decade low and showing a stronger labor market than expectations of no change at 3.6%.

U.S. July average hourly earnings rose +0.5% m/m and +5.2% y/y, stronger than expectations of +0.3% m/m and +4.9% y/y.

U.S. June consumer credit rose +$40.154 billion, stronger than expectations of +$27.000 billion.

Today’s stock movers…

Warner Bros Discovery (WBD) closed down more than -16% Friday to lead losers in the S&P 500 after reporting Q2 revenue of $9.83 billion, well below the consensus of $11.91 billion. 

A jump in the 10-year T-note yield Friday to a 2-week high weighed on technology stocks and the overall market.  Tesla (TSLA) closed down more than -6% to lead losers in the Nasdaq 100.  Also Micron Technology (MU) closed down more than -3%, and Lam Research (LRCX) and Meta Platforms (META) closed down by more than -2%.  In addition, Nvidia (NVDA), Amazon.com (AMZN), Microchip Technology (MCHP), and Advanced Micro Devices (AMD) closed down by more than -1%. 

Western Digital (WDC) closed down more than -5% Friday after reporting Q4 net revenue of $4.53 billion, weaker than the consensus of $4.57 billion, and forecast Q1 revenue of $3.6 billion-$3.8 billion, well below the consensus of $4.8 billion.

Monster Beverage (MNST) closed down more than -4% Friday after reporting adjusted Q2 EPS of 51 cents, well below the consensus of 70 cents.

U.S.-listed Chinese stocks were under pressure Friday after China ramped up its provocative military drills around Taiwan.  China also cut off defense talks with the U.S. in retaliation for House Speaker Pelosi's visit to Taiwan.  Alibaba Group Holding (BABA) closed down more than -4%, and JD.com (JD) closed down more than +2%.  Also,  Pinduoduo (PDD) and Baidu (BIDU) closed down by more than -1%. 

Solar stocks rallied Friday after Barclays started coverage of the solar power sector with a positive view, saying the sector “is as attractive as it’s ever been.”  Constellation Energy (CEG) closed up more than +10% to lead gainers in the S&P 500.  Also, Sunrun (RUN) closed up more than +4%, and Array Technologies (ARRY) and First Solar (FSLR) closed up more than +2%.  In addition, SolarEdge Technologies (SEDG) and Enphase Energy (ENPH) closed up more than +1%.

Atlassian Corp Plc (TEAM) closed up more than +16% Friday to lead gainers in the Nasdaq 100 after reporting Q4 revenue of $759.8 million, stronger than the consensus of $725.3 million, and forecasting Q1 revenue of $795 million-$810 million, above the consensus of $770.7 million. 

Bank stocks rallied Friday as the stronger-than-expected U.S. July payroll report eased fears that the U.S. economy was headed for recession.  JPMorgan Chase (JPM) closed up more than +3% to lead gainers in the Dow Jones Industrials.  Also, Wells Fargo (WFC) and Fifth Third Bancorp (FITB) closed up more than +2%.  In addition, Bank of America (BAC) and M&T Bank (MTB) closed up more than +1%.

Energy stocks and energy service providers are moving higher today, with crude prices up more than +0.5%.  Diamondback Energy (FANG) closed up more than +4%.  Also, Devon Energy (DVN) and ConocoPhillips (COP) closed up more than +3%.  In addition, Schlumberger (SLB) and Occidental Petroleum (OXY) closed up more than +2%.

Across the markets…

Sep 10-year T-notes (ZNU22) on Friday closed down -1-11.5/32 points, and the 10-year T-note yield rose by +14.6 bp to 2.834%.  Sep T-notes Friday sold off to a 2-week low, and the 10-year T-note yield jumped to a 2-week high of 2.867%.  T-notes tumbled Friday as the stronger-than-expected U.S. July payroll report will pressure the Fed to keep aggressively tightening monetary policy.  The stronger-than-expected data Friday on U.S. June consumer credit also weighed on T-note prices.

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