Stocks Finish Sharply Higher as Aggressive Fed Rate Cuts Bolster Economic Optimism

The S&P 500 Index ($SPX) (SPY) Thursday closed up by +1.70%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +1.26%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +2.56%.

Stocks on Thursday rallied sharply, with the S&P 500 and Dow Jones Industrials posting new all-time highs and the Nasdaq 100 climbing to a 2-month.  Stocks rallied worldwide Thursday after the Fed cut interest rates by an aggressive -50 bp on Wednesday.  The Fed’s -50 bp rate cut and projections for another -50 bp of rate cuts this year have bolstered speculation the Fed will engineer a soft landing and sparked risk-on sentiment for asset markets.  Stocks maintained their gains Thursday despite an increase in bond yields after US weekly initial unemployment claims fell more than expected to a 4-month low, a hawkish factor for Fed policy.

US weekly initial unemployment claims fell -12,000 to a 4-month low of 219,000, showing a stronger labor market than expectations of 230,000.

The US Aug Philadelphia Fed business outlook survey index rose +8.7 to 1.7, stronger than expectations of 0.0.

US Aug existing home sales fell -2.5% m/m to a 10-month low of 3.86 million, weaker than expectations of 3.90 million.

US Aug leading economic indicators fell -0.2% m/m, a smaller decline than expectations of -0.3% m/m.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 44% for a -50 bp rate cut at that meeting.

Overseas stock markets Thursday settled higher.  The Euro Stoxx 50 climbed to a 2-week high and closed up +2.24%.  China's Shanghai Composite rose to a 1-week high and closed up +0.69%.   Japan's Nikkei Stock 225 climbed to a 2-week high and closed up +2.13%.

Interest Rates

December 10-year T-notes (ZNZ24) Thursday closed down -9 ticks.  The 10-year T-note yield rose +2.4 bp to 3.728%.  Dec T-notes Thursday fell to a 1-1/2 week low, and the 10-year T-note yield rose to a 2-week high of 3.766%.  T-notes were pressured Thursday on negative carryover from weakness in European government bonds.  Also, Thursday’s sharp rally in stocks reduced the safe-haven demand for T-notes.  Losses in T-notes accelerated Thursday after weekly US jobless claims fell more than expected to a 4-month low, a sign of labor market strength and a hawkish factor for Fed policy.  However, T-notes recovered from their worst levels after US Aug existing home sales fell more than expected to a 10-month low. 

European government bond yields on Thursday moved higher.  The 10-year German bund yield rose to a 1-1/2 week high of 2.218% and finished up +0.8 bp at 2.198%.  The 10-year UK gilt yield rose to a 1-1/2 week high of 3.908% and finished up +4.5 bp at 3.891%.

Eurozone Aug new car registrations fell -18.3% y/y to 644,000 units, the biggest decline in 2-1/3 years.

ECB Executive Board member Schnabel said sticky services inflation is keeping headline inflation at an elevated level.

The Bank of England (BOE) Thursday voted 8-1 to keep the benchmark interest rate steady at 5%, and BOE Governor Bailey said, “It’s vital that inflation stays low, so we need to be careful not to cut interest rates too fast or by too much.”

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 27% for the October 17 meeting.

US Stock Movers

Strength in chip stocks boosted the overall market.  Advanced Micro Devices (AMD), ASML Holding NV (ASML), KLA Corp (KLAC), and Applied Materials (AMAT) closed up more than +5%.  Also, Lam Research (LRCX), GlobalFoundries (GFS), Marvell Technology (MRVL), and Analog Devices (ADI) closed up more than +4%.  In addition, Nvidia (NVDA), ON Semiconductor (ON), Qualcomm (QCOM), NXP Semiconductors (NXPI), Microchip Technology (MCHP), and Texas Instruments (TXN) closed up more than +3%. 

Megacap technology stocks rallied Thursday on economic optimism. Tesla (TSLA) closed up more than +7% to lead gainers in the Nasdaq 100.  Also, Apple (AAPL) and Meta Platforms (META) closed up more than +3%.  In addition, Netflix (NFLX) closed up more than +2%, and Amazon.com (AMZN) and Alphabet (GOOGL) closed up more than +1%. 

Home building stocks moved higher Thursday after the Fed cut interest rates by -50 bp on Wednesday and projected another -50 bp of cuts this year, a supportive factor for housing demand.  As a result, PulteGroup (PHM) closed up more than +2%, and DR Horton (DHI), Toll Brothers (TOL), and Lennar (LEN) closed up more than +1%.

Darden Restaurants (DRI) closed up more than +8% to lead gainers in the S&P 500 after it said sales trends have continued to improve following soft customer traffic in July and said it has partnered with Uber Technologies for food delivery, set to begin with Olive Garden later this year. 

Utility stocks were under pressure Thursday from higher bond yields.  As a result, American Electric Power (AEP), Consolidated Edison (ED), and Duke Energy (DUK) closed down more than -1%.  Also, Exelon (EXC) closed down -0.85%, and Xcel Energy (XEL) closed down -0.78%. 

FactSet Research Systems (FDS) closed up more than +4% after reporting Q3 adjusted EPS of $3.74, stronger than the consensus of $3.62.

Mobileye (MBLY) closed up more than +14% after Intel said it does not currently have any plans to divest a majority interest in the company.  

DoorDash (DASH) closed up more than +3% after BTIG upgraded the stock to buy from neutral with a price target of $155. 

Steelcase (SCS) closed down more than -6% after reporting Q2 revenue of $855.8 million, weaker than the consensus of $864.3 million, and forecasting Q3 revenue of $785 million-$810 million, below the consensus of $812 million. 

Ventas (VTR) closed down more than -3% to lead losers in the S&P 50 after it entered into a sale pact with ATM and said it may sell up to $2 billion in stock under the ATM sales agreement.

Five Below (FIVE) closed down more than -2% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $95. 

Progyny (PGNY) closed down more than -32% after saying a “significant client” opted to terminate its service agreement with the company effective January 1. 

Casy’s General Stores (CASY) closed down more than -2% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $337. 

Earnings Reports (9/20/2024)

Golden Matrix Group Inc (GMGI).

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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.