Overall Market Pushes Higher on Strength in Chip Stocks

The S&P 500 Index ($SPX) (SPY) today is up +0.05%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.34%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.44%.

US stocks today are mixed.  The broader market is moving higher and extending last Friday’s gains on expectations for a Fed rate cut in September after the Jun personal consumption expenditures price index, the Fed’s preferred inflation gauge, eased as expected.  Today's strength in chip stocks also boosts the overall market.  In addition, lower T-note yields today support stocks as the 10-year T-note yield fell to a 1-1/2 week low of 4.149%.

Today’s US economic news was weaker-than-expected and negative for stocks after the Jul Dallas Fed manufacturing outlook level of general business activity survey unexpectedly fell -2.4 to -17.5, weaker than expectations of an increase to -14.2.

Major central banks are meeting this week to decide on monetary policy. The Bank of Japan (BOJ) is expected to release details of plans to cut monthly bond purchases after its two-day policy meeting on Wednesday and possibly signal it will begin raising interest rates at its September meeting.  The Federal Reserve is likely to signal its intention to cut interest rates in September after its two-day meeting on Wednesday.  On Thursday, the Bank of England (BOE) is expected to cut its bank rate by 25 bp to 5.00% from 5.25%. 

Stock investors will continue to focus on tech stocks, with key earnings reports on tap for this week.  Magnificent 7 companies reporting this week include Microsoft (MSFT) on Tuesday, Meta (META) on Wednesday, and Apple (AAPL) and Amazon (AMZN) on Thursday.  Nvidia (NVDA) is expected to report earnings on August 28.  Tesla (TSLA) and Alphabet (GOOG) were the first of the Magnificent 7 to report earnings, with their reports last Wednesday. 

The market consensus is that Q2 earnings for the S&P 500 companies will rise +9% y/y.  About one-third of the companies in the S&P 500 have reported thus far.  The majority of reporting companies have beaten their earnings consensus, but only 43% have beaten revenue expectations, the lowest percentage in five years, according to Bloomberg.

The price of Bitcoin (^BTCUSD) is up more than 1% at a 6-week high after US presidential candidate Trump said he’ll turn the US into the “crypto capital” of the world if he is elected president.

The markets are discounting the chances for a -25 bp rate cut at 4% for this week's FOMC meeting on Tue/Wed and 100% for the following meeting on September 17-18 if the FOMC does not cut rates next week.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down -0.93%.  China's Shanghai Composite closed up +0.03%.  Japan's Nikkei Stock 225 Index closed up sharply by +2.13%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +4 ticks.  The 10-year T-note yield is down by -1.2 bp to 4.182%. Sep T-notes today climbed to a 4-1/2 month nearest-futures high, and the 10-year T-note yield fell to a 1-1/2 week low of 4.149%.  Today, T-notes are moving higher on carryover support from rallies in European government bonds.  Also, T-notes have support from falling inflation expectations as the 10-year breakeven inflation expectations rate today fell to a 2-week low of 2.234%.  Strength in stocks today is limiting gains in T-notes.

European government bond yields today are moving lower.  The 10-year German bund yield dropped to a 6-week low of 2.344% and is down -4.1 bp at 2.366%.  The 10-year UK gilt yield fell to a 5-week low of 4.017% and is down -5.0 bp at 4.050%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 91% for the September 12 meeting.

US Stock Movers

Chip stocks are climbing today after ON Semiconductor reported Q2 adjusted EPS of 96 cents, better than the consensus of 92 cents. As a result, ON Semiconductor (ON) is up more than +13% to lead gainers in the S&P 500 and Nasdaq 100.  Also, NXP Semiconductors (NXPI), Microchip Technology (MCHP), and Lam Research (LRCX) are up more than +2%.  In addition, Nvidia (NVDA), Advanced Micro Devices (AMD), GlobalFoundries (GFS), Applied Materials (AMAT), and KLA Corp (KLAC) are up more than +1%.

Tesla (TSLA) is up more than +6% after Morgan Stanley named the company as its new top pick within the US auto sector.

McDonald’s (MCD) is up more than +3% to lead gainers in the Dow Jones Industrials after reporting a -0.7% decline in Q2 US comparable store sales, a smaller decline than expectations of low single-digit losses according to Citigroup. 

Alphabet (GOOGL) is up more than +1% after Phillip Securities upgraded the stock to buy from accumulate with a price target of $205.

Guardant Health (GH) is up more than +2% after its Shield blood test received FDA approval for colorectal cancer screening in adults 45 and older who are at average risk for the disease. 

Inspire Medical Systems (INSP) is up more than +4% after boosting its full-year revenue forecast to $788 million-$798 million from a previous estimate of $783 million-$793 million, stronger than the consensus of $788 million. 

Revvity (RVTY) is up more than +4% after reporting Q2 EPS from continuing operations of 59 cents, better than the consensus of 42 cents. 

Abbott Laboratories (ABT) is down more than -3% to lead losers in the S&P 500 after it was ordered by a jury to pay almost $500 million over allegations that it hid the risk that its premature-infant formula can cause a potentially fatal bowel disease.

ARM Holdings Plc (ARM) is down more than -3% to lead losers in the Nadaq 100 after HSBC downgraded the stock to reduce from hold. 

Stellantis NV (STLA) is down more than -4% after Deutsche Bank downgraded the stock to hold from buy, saying the company’s Ebit margin was lower than reported on first-half results.

Molson Coors Beverage (TAP) is down more than -1% after Deutsche Bank cut its price target on the stock to $56 from $62.

Charles Schwab (SCHW) is down more than -1% after Piper Sandler downgraded the stock to neutral from overweight.

Ford Motor (F) is down more than -1% after Morgan Stanley removed the stock from its top pick in the US auto sector.

Earnings Reports (7/29/2024)

McDonald's Corp (MCD), ON Semiconductor Corp (ON), Revvity Inc (RVTY), Loews Corp (L), Hologic Inc (HOLX), Equity Residential (EQR), F5 Inc (FFIV), SBA Communications Corp (SBAC), Welltower Inc (WELL).

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