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Rich Asplund

Stocks Climb on a Benign U.S. CPI Report

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.93%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.90%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.22%.

Stocks this morning are moderately higher, with the Dow Jones Industrials posting a 1-week high.  Today’s benign U.S. July CPI report bolstered the outlook for the Fed to pause its interest rate hike campaign and is fueling stock gains.  Also, a jump in U.S. weekly jobless claims to a 5-week high knocked T-note yields lower and is bullish for equities.  In addition, M&A activity supports equities after Tapestry agreed to acquire Capri Holdings for $8.5 billion.

U.S July CPI rose +3.2% y/y, weaker than expectations of +3.3% y/y.  Jul CPI ex-food and energy eased to +4.7% y/y from +4.8% y/y in Jun, right on expectations.

U.S. weekly initial unemployment claims rose +21,000 to a 5-week high of 248,000, showing a weaker labor market than expectations of 230,000.

The markets are discounting the odds at 10% for a +25 bp rate hike at the September 20 FOMC meeting and 28% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are mixed.  The 10-year T-note yield fell to a 1-week low of 3.942% and is down -1.7 bp at 3.992%.  The 10-year German bund yield is up +2.6 bp at 2.523%.  The 10-year UK gilt yield is down -1.1 bp at 4.354%.  

Overseas stock markets are higher.  The Euro Stoxx 50 is up +1.58%.  China’s Shanghai Composite Index today closed up +0.31%.  Japan’s Nikkei Stock Index closed up +0.84%.

Today’s stock movers…

Illumina (ILMN) is up more than +4% to lead gainers in the S&P 500 after reporting Q2 revenue of $1.18 billion, stronger than the consensus of $1.16 billion.

Global Payments (GPN) is up more than +4% after Jeffries upgraded the stock to buy from hold with a price target of $145. 

Wynn Resorts Ltd (WYNN) is up more than +3% after reporting Q2 operating revenue of $1.60 billion, stronger than the consensus of $1.53 billion. 

Cybersecurity stocks are climbing today after CyberArk Software reported an unexpected Q3 EPS profit of +3 cents, stronger than the consensus of a -13 cents EPS loss.  As a result, CyberArk Software Ltd (CYBR) is up more than +10%.  Also, Zscaler (ZS) is up more than +4%, and Crowdstrike Holdings (CRWD) and Fortinet (FTNT) are up more than +2%.

U.S.-listed Chinese technology companies are moving higher today after Alibaba Group Holding Ltd reported Q1 revenue of 234.16 billion yuan, stronger than expectations of 223.75 billion yuan.  As a result, Alibaba Group Holding Ltd (BABA) is up more than +6%.  Also, PDD Holdings (PDD) and JD.com (JD) are up more than +4%.  In addition, Baidu (BIDU) is up more than +3%, and NetEase (NTES) is up more than +1%. 

Walt Disney (DIS) is up more than +2% to lead gainers in the Dow Jones Industrials after it said it expects a better improvement in its direct-to-consumer losses in mid-fiscal 2024 and lowered its 2023 capital expenditures estimate from a prior forecast. 

Axon Enterprise (AXON) is up more than +3% to add to Wednesday’s +13% surge after reporting Q2 net sales of $374.6 million, stronger than the consensus of $350.7 million.

Capri Holdings Ltd (CPRI) is up more than +56% after Tapestry agreed to acquire the company for $8.5 billion. 

AppLovin (APP) is up more than +23% after reporting Q2 EPS of 22 cents, well above the consensus of 8.4 cents.

Tapestry (TPR) is down more than -12% to lead losers in the S&P 500 after acquiring Capri Holdings Ltd for $8.5 billion. 

Trade Desk (TTD) is down more than -2% to lead losers in the Nasdaq 100 even after reporting better-than-expected Q2 earnings as analysts said the earnings did not live up to lofty expectations, with the stock up more than 80% this year.

Wolverine World Wide (WWW) is down more than -18% after reporting Q2 adjusted EPS of 19 cents, weaker than the consensus of 20 cents, and cut its full-year adjusted EPS forecast to 45 cents-55 cents from a prior view of $1.40-$1.60, well below the consensus of $1.43.

Plug Power (PLUG) is down more than -11% after reporting Q2 gross margin of -30%, much weaker than the consensus of -9.2%.

Penn Entertainment (PENN) is down more than -5% after Truist Securities downgraded the stock to hold from buy. 

Ralph Lauren (RL) is down more than -1% after reporting Q1 total comparable sales ex-forex rose +2%, weaker than the consensus of +6.02%.

Across the markets…

September 10-year T-notes (ZNU23) today are up +3 ticks, and the 10-year T-note yield is down -1.7 bp at 3.992%.  Sep T-notes today climbed to a 2-week high, and the 10-year T-note yield fell to a 1-1/2 week low of 3.942%.  Today’s benign U.S. Jul CPI report was supportive of T-notes. Also, a fall in U.S. inflation expectations is bullish for T-notes after the 10-year breakeven inflation rate fell to a 3-week low today at 2.319%.  Gains in T-notes are limited by supply pressures as the Treasury later today will auction $23 billion of 30-year T-bonds to conclude this week’s $103 billion quarterly refunding operation.

The dollar index (DXY00) today is down by -0.33%.  Today’s benign U.S. Jul CPI report and jump in weekly jobless claims to a 5-week high is dovish for Fed policy, which pushed T-note yields lower and weighed on the dollar.  Also, a rally in stock today has reduced the liquidity demand for the dollar.

EUR/USD (^EURUSD) today is up by +0.50% at a 2-week high.  Today’s better-than-expected U.S. Jul CPI report is dovish for Fed policy and weighed on the dollar to the benefit of the euro.  Also, higher European government bond yields strengthen the euro’s interest rate differentials and support EUR/USD today.

USD/JPY (^USDJPY) is up by +0.29%.  The yen today is moving lower for the fourth consecutive session and fell to a 5-week low against the dollar.  An easing of Japanese producer price pressures is dovish for BOJ policy and weighed on the yen after Japan's Jul PPI rose +3.6% y/y, the slowest pace of increase in 2-1/4 years.  Lower T-note yields today are limiting losses in the yen.

Japan's Jul PPI eased to +3.6% y/y from +4.3% y/y in Jun, the slowest pace of increase in 2-1/4 years.

October gold (GCV3) today is up +5.4 (+0.28%), and Sep silver (SIU23) is up +0.269 (+1.18%). Precious metals prices this morning are moderately higher.  A weaker dollar today is bullish for metals prices.  Also, today’s weaker-than-expected U.S. Jul CPI report may prompt the Fed to pause its rate hike campaign and is bullish for precious metals.  On the negative side is today’s rally in stocks, which curbs safe-haven demand for precious metals.  Also, fund liquidation in gold continues after long gold holdings in ETFs fell to a 3-1/3 year low on Wednesday.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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