Stocks Higher on Stronger-Than-Expected U.S. Economic Reports

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +0.29%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.28%. 

Stocks on Wednesday shook off early losses and posted modest gains on stronger-than-expected U.S. economic news.  The S&P 500 and Dow Jones Industrials recovered from 2-week lows and closed higher, and the Nasdaq 100 recovered from a 3-week low and closed higher. 

Higher T-note yields Wednesday limited the upside in stocks.  The 10-year T-note yield rose to an 8-week high of 3.124%. T-note yields are rising as the market braces for the possibility of hawkish comments from the Fed at Friday’s annual Fed symposium at Jackson Hole, Wyoming.  Recent Fed commentary signals the Fed will continue its aggressive rate-hike plan to tame inflation. 

Wednesday’s U.S. economic news was supportive of stocks.  July capital goods new orders nondefense ex-aircraft, a proxy for capital spending, rose +0.4% m/m, slightly stronger than expectations of +0.3% m/m. Also, July pending home sales fell -1.0% m/m, which was a smaller decline than expectations of -2.6% m/m.

Today’s stock movers…

Cruise stocks rallied Wednesday after Jeffries equity research said ticket prices for cruises were “stabilizing at higher levels,” suggesting the companies have pricing power. Norwegian Cruise Lines (NCLH) closed up more than +8% Wednesday to lead gainers in the S&P 500.  Also, Royal Caribbean Cruises (RCL) closed up more than +7%, and Carnival (CCL) closed up more than +5%.   

Fertilizer stocks rallied Wednesday on supply concerns after CF Industries’ UK unit halted ammonia production at its Billingham site, saying production was “uneconomical” due to current natural gas and carbon prices.  As a result, Intrepid Potash (IPI) closed up more than +7%.  Also, Mosaic (MOS) closed up more than +6%, and CF Industries Holdings (CF) closed up more than +3%.

Homebuilders moved higher after Wednesday’s report that U.S. July pending home sales July fell less than expected.  As a result, Lennar (LEN), DR Horton (DHI), and PulteGroup (PHM) closed up more than +2%.

Salesforce (CRM) closed up more than +2% Wednesday to lead gainers in the Dow Jones Industrials after reporting Q2 revenue of $7.72 billion, above the consensus of $7.69 billion, and announcing a $10 billion share buyback authorization. 

U.S.-listed Chinese stocks rose Wednesday on expectations for the Chinese government to boost stimulus measures.  State broadcaster CCTV reported today that China’s State Council had readied a 19-point policy package to help keep economic conditions within a reasonable range, citing a meeting chaired by Premier Li Keqiang.  Pinduoduo (PDD) closed up more than +5%.  Also,  JD.com (JD), Alibaba Group Holding (BABA), and Baidu (BIDU) closed up more than +3%.

Intuit (INTU) closed up more than +3% Wednesday after reporting Q4 net revenue of $2.41 billion, better than the consensus of $2.34 billion. 

Advanced Auto Parts (AAP) closed down more than -9% Wednesday to lead losers in the S&P 500 after it reported that Q2 comparable sales unexpectedly fell -0.6%, weaker than the consensus of a +2.4% increase.  The company also cut its full-year adjusted EPS estimate to $12.75-$13.25 from a prior estimate of $13.30-$13.85

Dow Inc (DOW) closed down more than -2% Wednesday to lead losers in the Dow Jones Industrials after it said it is idling 15% of plastic-feedstock capacity due to soaring energy costs. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Wednesday closed down -12 ticks, and the 10-year T-note yield rose +5.6 bp to 3.102%.  Sep T-notes Wednesday dropped to an 8-week low, and the 10-year T-note yield rose to an 8-week of 3.124%.  Stronger than expected U.S. economic reports Wednesday undercut T-note prices.   Also, T-note yields are rising as the market braces for the possibility of hawkish comments from the Fed at Friday’s annual Fed symposium at Jackson Hole, Wyoming.

Higher European government bond yields weighed on T-notes after the 10-year German bund yield Wednesday rose to a 7-week high of 1.388%.  The UK 10-year gilt yield climbed to a 2-1/4 month high of 2.707%.

Weak demand for the Treasury’s $45 billion 5-year T-note auction Wednesday undercut T-note prices. The auction had a bid-to-cover ratio of 2.30, weaker than the 10-auction average of 2.44.  Also, an increase in inflation expectations was bearish for T-note prices after the 10-year breakeven inflation expectations rate Wednesday rose to a 2-1/4 month high of 2.637%.

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