The S&P 500 Index ($SPX) (SPY) today is down -0.03%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.10%.
Stock indexes today recovered from early losses and are mixed after weaker-than-expected US economic reports knocked bond yields lower and reinforced speculation the Fed will be able to cut interest rates this year.
Stocks extended their gains on comments from Atlanta Fed President Bostic, who said, "The risks are becoming more balanced across the Fed's two mandates," and he expects one interest rate cut this year in the fourth quarter.
Stocks today initially opened lower on some negative corporate news. Micron Technology is down more than -5% to lead chip stocks lower after Citigroup expressed disappointment with the company’s guidance. Also, Walgreens Boots Alliance plunged -24% after reporting weaker-than-expected Q3 adjusted EPS and cutting its full-year adjusted EPS forecast. In addition, International Paper is down more than -7% after Suzano terminated its pursuit of the company.
The markets are awaiting Friday’s release of the US May core PCE deflator, the Fed’s preferred inflation gauge, to see if price pressures are abating, which could pave the way for the Fed to begin cutting interest rates. The consensus is that the May core PCE deflator eased to +2.6% y/y from +2.8% y/y in April.
US weekly initial unemployment claims fell -6,000 to 233,000, showing a stronger labor market than expectations of 235,000. However, weekly continuing claims unexpectedly rose +18,000 to a 2-1/2 year high of 1.839 million, showing a weaker labor market than expectations of no change at 1.828 million.
US May capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, unexpectedly fell -0.6% m/m versus expectations of a +0.1% m/m increase.
US Q1 GDP was revised upward to +1.4% (q/q annualized) from +1.3%, right on expectations. The Q1 core PCE price index was revised upward by 0.1 point to 3.7% from 3.6%.
US May pending home sales unexpectedly fell -2.1% m/m versus expectations of a +0.5% m/m increase.
The markets are discounting the chances for a -25 bp rate cut at 10% for the next FOMC meeting on July 30-31 and 61% for the following meeting on September 17-18.
Generally positive Q1 earnings results are supportive of stocks. Q1 earnings are expected to climb +7.1% y/y, well above the pre-earnings season estimate of +3.8%. According to data compiled by Bloomberg Intelligence, about 81% of reporting S&P 500 companies have beaten Q1 earnings estimates.
Overseas stock markets today are mixed. The Euro Stoxx 50 is up +0.20%. China's Shanghai Composite closed down -0.90%. Japan's Nikkei Stock 225 Index closed down -0.82%.
Interest Rates
September 10-year T-notes (ZNU24) today are up +7 ticks. The 10-year T-note yield is down -5.1 bp at 4.279%. Sep T-notes today recovered from a 2-week low and are mildly higher, and the 10-year T-note yield fell back from a 2-week high of 4.345%. T-notes erased overnight losses and turned higher after US economic news showed continuing unemployment claims unexpectedly rose to a 2-1/2 year high, and May capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, unexpectedly fell. T-notes extended their gains after US May pending home sales unexpectedly declined, and Atlanta Fed President Bostic said he expects the Fed to cut interest rates in Q4.
T-notes today initially opened lower on an increase in inflation expectations after the 10-year breakeven inflation rate climbed to a 2-week high of 2.278%. Supply pressures are also weighing on T-notes as the Treasury will auction $44 billion of 7-year T-notes later today to conclude this week’s $211 billion auction package of T-notes and floating-rate notes.
European government bond yields today are mixed. The 10-year German bund yield fell back from a 2-week high of 2.498% and is down -1.1 bp at 2.441%. The 10-year UK gilt yield fell back from a 2-week high of 4.172% and is down -1.4 bp at 4.117%.
The Eurozone June economic confidence index unexpectedly fell -0.2 to 95.9 versus expectations of an increase to 96.1.
Eurozone May M3 money supply rose +1.6% y/y, stronger than expectations of +1.5% y/y and the biggest increase in 14 months.
ECB Governing Council member Kazimir said, "I still see a significant risk of rising inflation, which may not fully align with our expectations, so I think we could expect only one more ECB interest rate cut this year."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 9% for the July 18 meeting and 67% for the September 12 meeting.
US Stock Movers
Micron Technology (MU) is down more than -5% despite forecasting stronger-than-expected Q4 sales as Citigroup said the guidance was disappointing and failed to meet lofty expectations. Other chip stocks weakened on the news, with Nvidia (NVDA), ON Semiconductor (ON), GlobalFoundries (GFS), and Microchip Technology (MCHP) down -1%.
Cybersecurity stocks are climbing today after Bloomberg Intelligence said it sees demand for cloud security expanding as more companies seek to train their own AI models. As a result, Palo Alto Networks (PANW) is up more than +5% to lead gainers in the Nasdaq 100. Also, Zscaler (ZS) is up more than +5%. In addition, Fortinet (FTNT) and Crowdstrike Holdings (CRWD) are up more than +2%.
Walgreens Boots Alliance (WBA) is down -24% to lead losers in the S&P 500 and Nasdaq 100 after reporting Q3 adjusted EPS of 63 cents, weaker than the consensus of 68 cents, and cutting its full-year adjusted EPS forecast to $2.80-$2.95 from a previous estimate of $3.20-$3.35, below the consensus of $3.20.
McCormick (MKC) is up more than +6% to lead gainers in the S&P 500 after reporting Q2 net sales of $1.64 billion, better than the consensus of $1.63 billion.
Arista Networks (ANET) is up more than +4% after Citigroup raised its price target on the stock to $385 from $330.
Boeing (BA) is up more than +2% after it said China’s safety regulator cleared it to resume delivering wide-body jets to China.
Viking Therapeutics (VKTX) is up more than +2% after Morgan Stanley initiated coverage of the stock with an overweight rating and a price target of $105.
Cargo Therapeutics (CRGX) is up more than +2% after Piper Sandler initiated coverage of the stock with an overweight rating and a price target of $37.
Cencora (COR) is down more than -4% after Walgreens, Cencora’s largest customer, said it is shutting down a significant share of its US stores.
International Paper (IP) is down more than -7% after Brazilian paper producer Suzano said it was terminating its pursuit of the company.
Levi Strauss (LEVI) is down more than -15% after reporting Q2 net revenue of $1.44 billion, below the consensus of $1.45 billion.
Visa (V) is down more than -1% after a US District Court in New York rejected a $30 billion settlement proposal between Visa, Mastercard, and retailers to cap credit card swipe fees.
Stellantis NV (STLA) is down more than -4% after HSBC cut its price target on the stock and said the first half of the year could be tougher than consensus expects.
Earnings Reports (6/27/2024)
Accolade Inc (ACCD), Acuity Brands Inc (AYI), Apogee Enterprises Inc (APOG), Lindsay Corp (LNN), McCormick & Co Inc/MD (MKC), NIKE Inc (NKE), Simply Good Foods Co/The (SMPL), SunPower Corp (SPWR), Walgreens Boots Alliance Inc (WBA).
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.
