Stocks Rally on Lower T-Note Yields and Positive Economic News

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed up +1.41%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.98%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.75%. 

Stocks on Thursday moved sharply higher as falling T-note yields sparked a rally in technology stocks.  Stocks also received a boost from stronger-than-expected U.S. economic news.

Market sentiment also received a boost Thursday after China took new steps to bolster economic growth.  China stepped up its stimulus measures with 1 trillion yuan ($146 billion) of funding focused largely on infrastructure spending.

Thursday’s U.S. economic news was supportive of stocks.  Weekly initial unemployment claims unexpectedly fell -2,000 to 243,000, showing a stronger labor market than expectations of an increase to 252,000. Also, U.S. Q2 GDP was revised slightly higher to -0.6% (q/q annualized) from the previously reported -0.7%.

Stock prices and T-note yields were unfazed Thursday by hawkish Fed commentary as the market awaits Friday’s comments from Fed Chair Powell at Jackson Hole, Wyoming. St. Louis Fed President Bullard said he favors "front-loading" of interest rate hikes and wants to raise the fed funds rate to 3.75% to 4.00% this year.  Also, Philadelphia Fed President Harker said the Fed is in "no way done" raising rates and needs to raise interest rates to a restrictive stance to get inflation under control.  Kansas City Fed President George said the Fed has not yet raised interest rates to levels that are weighing on the economy and may have to take them above 4% for a time.  Finally, Atlanta Fed President Bostic said if U.S. economic data remains strong and inflation doesn't clearly soften, "then it may make a case for another 75 bp rate hike" at the September FOMC meeting.

Today’s stock movers…

Lower T-note yields Thursday gave technology stocks a boost.  Marvell Technology (MRVL) closed up more than +5%.  Advanced Micro Devices (AMD), Align Technology (ALGN), Crowdstrike Holdings (CRWD), Nvidia (NVDA), Datadog (DDOG), and Micron Technology (MU) closed up more than +4%.  Qualcomm (QCOM), Broadcom (AVGO), Meta Platforms (META), Intel (INTC), and Microchip Technology (MCHP) closed up more than +3%.

Cruise stocks Thursday moved higher for a second day after Jeffries equity research said Wednesday that ticket prices for cruises were “stabilizing at higher levels,” suggesting the companies have pricing power.  As a result, Carnival (CCL) and Royal Caribbean Cruises (RCL) closed up more than +4%, and Norwegian Cruise Lines (NCLH) closed up more than +3%. 

NetApp (NTAP) closed up more than +7% Thursday to lead gainers in the S&P 500 after reporting Q1 adjusted EPS of $1.20, stronger than the consensus of $1.10.  The company also forecasted Q2 adjusted EPS of $1.28-$1.38, with a midpoint above the consensus of $1.32.

Snowflake (SNOW) closed up more than +20% Thursday after reporting Q2 revenue of $497.2 million, above the consensus of $467.9 million, and raised its full-year product revenue estimate to $1.91 billion-$1.92 billion from a previous estimate of $1.89 billion-$1.90 billion. 

U.S.-listed Chinese stocks rallied Thursday after China stepped up its stimulus measures with 1 trillion yuan ($146 billion) of funding focused largely on infrastructure spending. Pinduoduo (PDD) closed up more than +12% to lead gainers in the Nasdaq 100.  Also, JD.com (JD) closed up by more than +9%, and Baidu (BIDU) closed up by more than +8%.  Alibaba Group Holding (BABA) closed up by more than +7%, and NetEase (NTES) closed up by more than +4%. 

Dollar Tree (DLTR) closed down more than -10% Thursday to lead losers in the S&P 500 after reporting Q2 net sales of $6.77 billion, below the consensus of $6.79 billion, and cutting its 2012 EPS forecast to $7.10-$7.40 from a prior estimate of $7.80-$8.20, well below the consensus of $8.17.

Splunk (SPLK) closed down -12% Thursday to lead losers in the Nasdaq 100 after reporting Q2 annual recurring revenue of $3.33 billion, weaker than the consensus of $3.42 billion.

Salesforce (CRM) closed down more than -3% Thursday to lead losers in the Dow Jones Industrials after cutting its 2023 revenue forecast to $30.9 billion-$31.0 billion from a prior forecast of $31.7 billion-$31.8 billion, weaker than the consensus of $31.74 billion.

Across the markets…

Sep 10-year T-notes (ZNU22) on Thursday closed up +17 ticks, and the 10-year T-note yield fell -7.6 bp to 3.028%.  Sep T-notes Thursday recovered from early losses and rallied moderately, and the 10-year T-note yield fell back from an 8-week high of 3.126%.  A rally in European government bond prices Thursday sparked short-covering in T-notes.  The 10-year German bund yield T-note yield fell back from an 8-week high of 1.388% and fell -5.4 bp at 1.317%.  Bund prices rallied after UBS said the Eurozone is already in a "shallow" recession. 

T-notes raced up to their highs Thursday afternoon on stellar demand for the Treasury’s $37 billion auction of 7-year T-notes.  The auction had a bid-to-cover ratio of 2.65, well above the 10-auction average of 2.42.

Sep T-note prices Thursday morning initially matched Wednesday’s 8-week low on the better-than-expected U.S. unemployment claims and GDP reports.  Also, an increase in inflation expectations weighed on T-note prices early after the 10-year breakeven inflation rate rose to a 2-1/4 month high Thursday of 2.668% before falling back.

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