Stocks Post Modest Gains on Strength in Semiconductor and Energy Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed up +0.23%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.26%. 

Stocks on Thursday posted modest gains.  Stocks fluctuated on both sides of unchanged Thursday and settled slightly higher in thin summer trading, with volumes about 20% below their 30-day averages.  A more than +5% jump in Cisco Systems Thursday supported the overall market after it issued an upbeat sales forecast.  Also, semiconductors stocks rallied after Wolfspeed reported stronger-than-expected revenue.  In addition, a more than +2% rally in crude oil prices Thursday boosted energy stocks. Finally, a decline in T-note yields was supportive for stocks, as the 10-year T-note yield fell -2.0 bp Thursday to 2.877%.

Global economic concerns and uneven U.S. economic data Thursday were bearish factors for stocks.  Concerns that a slowdown in China’s economy will undercut global growth weighed on stocks after Nomura on Thursday joined Goldman Sachs in cutting its China 2022 GDP forecast.  In addition, U.S. economic data was mixed after July existing home sales fell more than expected to a 2-year low, while the Aug Philadelphia Fed business outlook survey rose more than expected to a 4-month high. 

U.S. weekly initial unemployment claims unexpectedly fell -2,000 to 250,000, showing a stronger labor market than expectations of an increase to 264,000.

The U.S Aug Philadelphia Fed business outlook survey rose +18.5 to a 4-month high of 6.2, stronger than expectations of -5.0.

U.S. July existing home sales fell -5.9% m/m to a 2-year low of 4.81 million, weaker than expectations of 4.86 million.

Hawkish Fed comments Thursday were negative for stocks.  St. Louis Fed President Bullard said he backed another 75 bp rate hike at the September FOMC meeting, saying, "we should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation."  Also, San Francisco Fed President Daly said the FOMC "might need to go above" a neutral rate of +3% to cool inflation that is too high and that either a 50 bp or 75 bp rate hike at the September FOMC meeting was reasonable. 

Today’s stock movers…

Semiconductor chip stocks climbed Thursday after Wolfspeed (WOLF) surged more than +31% after reporting Q4 net revenue of $228.5 million, better than the consensus of $207.9 million, and forecast Q1 revenue of $232.5 million-$247.5 million, above the consensus of $225.8 million.  Also, ON Semiconductor Corp (ON) closed up more than +7%, and Broadcom (AVGO) and Marvell Technology (MRVL) closed up more than +3%.  In addition, Nvidia (NVDA), Advanced Micro Devices (AMD), Micron Technology (MU), and Applied Materials (AMAT) closed up by more than +2%.

Energy stocks and energy service providers rallied Thursday as the price of WTI crude oil rose more than +2%.  APA Corp (APA) closed up more than +8% to lead gainers in the S&P 500.  Also, Devon Energy (DVN), Haliburton (HAL), and Marathon Oil (MRO) closed up more than +5%.  In addition, Schlumberger (SLB) closed up more than +4%, and ConocoPhillips (COP) and Occidental Petroleum (OXY) closed up more than +3%.

Cisco Systems (CSCO) closed up more than +5% Thursday to lead gainers in the Dow Jones Industrials and Nasdaq 100 after reporting Q4 revenue of $13.10 billion, above the consensus of $12.73 billion, and forecast 2023 revenue will increase +4% to +6%, stronger than the consensus of +3.3%. 

Keysight (KEYS) closed up more than +5% Thursday after reporting Q3 adjusted revenue of $1.41 billion, stronger than the consensus of $1.35 billion, and forecast Q4 revenue of $1.38 billion-$1.40 billion, above the consensus of $1.38 billion.

Walgreens Boots Alliance (WBA) closed down more than -6% Thursday to lead losers in the S&P 500, Dow Jones Industrials, and Nasdaq 100 after Walgreens, Walmart, and CVS Health Corp were ordered by a federal judge in Cleveland to pay $650 million over their failure to properly monitor opioid prescriptions in Ohio.  CVS Health Corp (CVS) closed down more than -1%, and Walmart (WMT) closed down -0.3%.  

U.S-listed Chinese stocks tumbled Thursday on economic concerns after Nomura cut its China 2022 GDP forecast to 2.8% from 3.3%, a day after Goldman Sachs cut its China 2022 GDP forecast to 3.0% from 3.3%.  NetEase (NTES) closed down by more than -5%. Also, Baidu (BIDU) closed down by more than -3%, and JD.com (JD) and Pinduoduo (PDD) closed down by more than -1%. 

United Rentals (URI) closed down more than -2% Thursday after Bernstein downgraded the stock to underperform from market perform. 

Verizon Communications (VZ) closed down more than -2% Thursday after MoffettNathanson cut its recommendation on the stock to underperform from market perform.

Across the markets…

Sep 10-year T-notes (ZNU22) on Thursday closed up +2.5 ticks, and the 10-year T-note yield fell -2.0 bp to 2.877%.  Sep T-notes Thursday posted modest gains on carry-over support from Wednesday afternoon’s minutes of the July 26-27 FOMC meeting, where Fed officials said, “it likely would become appropriate at some point to slow the pace of policy rate increases.”  T-notes fell back from their best levels Thursday on hawkish comments from St. Louis Fed President Bullard and San Francisco Fed President Daly.  Also, an increase in inflation expectations weighed on T-notes after the 10-year breakeven inflation rate rose to a 2-1/2 week high Thursday at 2.529%. 

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