Stocks Finish Higher on Solid US Economic News

The S&P 500 Index ($SPX) (SPY) Thursday closed up +1.61%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.39%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.46%.

US stocks Thursday finished sharply higher, with the S&P 500, Dow Jones Industrials, and Nasdaq 100 posting 2-week highs.  Signs of strength in the US economy boosted stocks Thursday after July retail sales posted their largest increase in 1-1/2 years, and weekly initial unemployment claims unexpectedly fell to a 5-week low.  The strong reports eased recession fears and bolstered the outlook for a soft economic landing. Also, Walmart, the largest US retailer and a barometer of consumer spending, closed up more than +6% after raising its full-year sales guidance.

Dovish Fed comments Thursday were also supportive of stocks.  Atlanta Fed President Bostic said he is "open" to an interest rate cut in September, and the Fed can't "afford to be late" to ease monetary policy amid signs of cooling in the labor market.  Also, St. Louis Fed President Musalem said that from his perspective, "the risk to both sides of the Fed's mandate seems more balanced. Accordingly, the time may be nearing when an adjustment to moderately restrictive policy may be appropriate as we approach future meetings."

On the negative side for stocks was the jump in T-note yields after Thursday’s US economic reports dampened speculation that the Fed will cut interest rates by 50 bp next month instead of 25 bp.

US weekly initial unemployment claims unexpectedly fell -7,000 to a 5-week low of 227,000, showing a stronger labor market than expectations of an increase to 235,000.

US July retail sales rose +1.0% m/m, stronger than expectations of +0.4% m/m and the biggest increase in 1-1/2 years.  Jul retail sales ex-autos rose +0.4% m/m, stronger than expectations of +0.1% m/m.

The US Aug Philadelphia Fed business outlook survey fell -20.9 to a 7-month low of -7.0, weaker than expectations of 5.2.

The US Aug Empire manufacturing survey general business conditions rose +1.9 to -4.7, stronger than expectations of -6.0.

US July manufacturing production fell -0.3% m/m, right on expectations.

The US Aug NAHB housing market index unexpectedly fell -2 to an 8-month low of 39, weaker than expectations of an increase to 43.

The market consensus is that Q2 earnings for the S&P 500 companies will rise +7.4% y/y.  More than 80% of the companies in the S&P 500 have reported thus far.  According to Bloomberg, most reporting companies have beaten their earnings consensus, but only 43% have beaten revenue expectations, the lowest percentage in five years.

The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 27% for a -50 bp rate cut at that meeting.

Overseas stock markets Thursday settled higher.  The Euro Stoxx 50 rose to a 2-week high and closed up +1.70%.  China's Shanghai Composite climbed to a 1-week high and closed up +0.94%.  Japan's Nikkei Stock 225 rose to a 1-week high and closed up +0.78%.

Interest Rates

September 10-year T-notes (ZNU24) Thursday closed down -26 ticks.  The 10-year T-note yield rose +8.4 bp to 3.919%.  Sep T-notes retreated Thursday after US weekly jobless claims unexpectedly fell to a 5-week low, and July retail sales rose by the most in 1-1/2 years, hawkish factors for Fed policy.  Thursday’s strong US economic reports reduced expectations for a 50 bp Fed rate cut at next month’s FOMC meeting to 28% from 75% last week.   Also, Thursday’s rally in the S&P 500 to a 2-week high reduced safe-haven demand for T-notes. 

European government bond yields on Thursday moved higher.  The 10-year German bund yield rose +8.2 bp to 2.263%.  The 10-year UK gilt yield rose +9.8 bp to 3.923%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 95% for the September 12 meeting.

US Stock Movers

Walmart (WMT) closed up more than +6% to lead gainers in the Dow Jones Industrials after reporting Q2 revenue of $169.34 billion, better than the consensus of $168.46 billion, and boosting its full-year net sales estimate to +3.75%-4.75% from a previous estimate of +4%.  Other retailers rallied on the news, with Dollar Tree (DLTR) up more than +5% and Target (TGT) closing up more than +4%.

Cisco Systems (CSCO) is up more than +8% to lead gainers in the Dow Jones Industrials and Nasdaq 100 after reporting Q4 revenue of $13.64 billion, better than the consensus of $13.53 billion, and forecasting Q1 revenue of $13.65 billion-$13.85 billion, the midpoint above the consensus $13.71 billion. 

Chip stocks moved higher and provided support to the overall market.  Marvell Technology (MRVL) closed up more than +8% to lead gainers in the Nasdaq 100, and Micron Technology (MU) and ON Semiconductor (ON) closed up more than +6%.  Also, Broadcom (AVGO), KLA Corp (KLAC), Lam Research (LRCX), and ASML Holding NV (ASML) closed up more than +5%.  In addition, Advanced Micro Devices (AMD), GlobalFoundries (GFS), NXP Semiconductors (NXPI), and Microchip Technology (MCHP) closed up more than +4%.

Telecommunication stocks were under pressure on Thursday. Verizon Communications (VZ) closed down more than -2% to lead losers in the Dow Jones Industrials.  Also, AT&T (T) closed down more than -2%, and SBA Communications (SBAC) closed down more than -1%.

Ulta Beauty (ULTA) closed up more than +11% to lead gainers in the S&P 500 after Berkshire Hathaway disclosed it took a new stake in the company.

Deere & Co (DE) closed up more than +6% after reporting Q3 net sales of $11.39 billion, stronger than the consensus of $10.84 billion. 

Nike (NKE) closed up more than +5% after Pershing Square Capital Management LP disclosed it added a new position of about 3 million shares of Nike at the end of Q2. 

Dell Technologies (DELL) closed up more than +7% after JPMorgan Chase added the stock to its Focus List, citing an “attractive entry point.” 

Tapestry (TPR) closed up more than +3% after reporting Q4 net sales of $1.59 billion, above the consensus of $1.57 billion. 

Spire Global (SPIR) closed down more than -33% after it notified the SEC that its 10-Q filing for the quarter ended June 30 will be late. 

Dillard’s (DDS) closed down more than -10% after reporting Q2 net sales of $1.49 billion, below the consensus of $1.53 billion.

Fair Isaac (FICO) closed down more than -4% to lead losers in the S&P 500 on signs of insider selling after an SEC filing showed Executive Vice President Bowers sold $5.15 million of shares on Monday.

Higher bond yields Thursday weighed on utility and real estate investment trust stocks.  As a result, Eversource Energy (ES) and American Tower (AMT) closed down more than -2%.  Also, Consolidated Edison (ED) and Welltower (WELL) closed down more than -1%.

T-Mobile US (TMUS) closed down nearly -1% on signs of insider selling after an SEC filing showed President and CEO Sievert sold $7.79 million worth of shares on Monday and Tuesday.

Earnings Reports (8/16/2024)

Flowers Foods Inc (FLO), Himalaya Shipping Ltd (HSHP), Madison Square Garden Entertainment Corp (MSGE).

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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.