Stocks Turn Higher as Weak US Labor News Bolsters Fed Rate Cut Optimism

The S&P 500 Index ($SPX) (SPY) today is up +0.31%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.48%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.40%.

Stocks today recovered from early losses and are trading mildly higher.  A decline in the 10-year T-note yield to a 2-week low today sparked some short covering in stocks after the US July JOLTS job openings fell more than expected to a 3-1/2 year low and boosted hopes for the Fed to cut interest rates by 50 bp at the Sep 17-18 FOMC meeting.

Stocks initially opened lower today on some negative corporate news, with the Nasdaq 100 posting a 3-week low.  Dollar Tree is down more than -18% after reporting weaker-than-expected Q2 adjusted EPS and forecasting full-year adjusted EPS below consensus.  Also, Zscaler is down more than -16% after forecasting 2025 adjusted EPS well below consensus.

US MBA mortgage applications rose +1.6% in the week ended Aug 30, with the purchase mortgage sub-index up +3.3% and the refinancing mortgage sub-index down -0.3%.  The average 30-year fixed rate mortgage fell -1 bp to a 16-month low of 6.43% from 6.44% in the prior week. 

The US July trade deficit widened to -$78.8 billion from -$73.0 billion in June, the largest deficit in 2 years and a negative factor for Q3 GDP.

The US Jul JOLTS job openings fell -237,000 to a 3-1/2 year low of 7.673 million, showing a weaker labor market than expectations of 8.100 million. 

US July factory orders rose +5.0% m/m, stronger than expectations of +4.9% m/m and the largest increase in four years.

The financial markets are awaiting fresh US economic news this week that will offer insight into the health of the US economy and help determine the path of the Fed’s interest rate policy.  On Thursday, the Aug ISM services index is expected to ease to 51.2 from 51.4 in July.  Also, Friday’s monthly payroll report is expected to show Aug nonfarm payrolls rose +165,000 from +114,000 in July, and the Aug unemployment rate is expected to ease to 4.2% from 4.3% in July.

The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 48% for a -50 bp rate cut at that meeting.

Overseas stock markets today are lower.  The Euro Stoxx 50 dropped to a 2-week low and is down -1.16%. China's Shanghai Composite fell to a 6-3/4 month low and closed down -0.67%.  Japan's Nikkei Stock 225 plunged to a 2-1/2 week low and closed down sharply by -4.24%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up +15 ticks.  The 10-year T-note yield is down -4.4 bp at 3.787%.  Dec T-notes today extended Tuesday’s rally and posted a 2-week high, and the 10-year T-note yield fell to a 2-week low of 3.768%.   T-notes rallied today, and yields fell after the US July JOLTS job opening fell more than expected to a 3-1/2 year low, a sign of labor market weakness that bolstered hopes the Fed may cut rates by 50 bp at the Sep 17-18 FOMC meeting.  Also, a decline in inflation expectations supported T-note prices after today's 10-year breakeven inflation rate fell to a 2-week low of 2.059%. Supply pressures limited the upside in T-notes, with as many as 14 companies expected to issue debt today after 29 companies issued $43 billion of corporate debt on Tuesday, the third-largest amount ever. 

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 1-1/2 week low of 2.202% and is down -6.1 bp at 2.216%.  The 10-year UK gilt yield dropped to a 1-1/2 week low of 3.927% and is down -5.3 bp at 3.937%.

The Eurozone Aug S&P composite PMI was revised down by -0.2 to 51.0 from the previously reported 51.2.

The Eurozone July PPI fell -2.1% y/y, the fifteenth consecutive month that producer prices have fallen year-over-year.

ECB Executive Board member Cipollone said the ECB shouldn't keep interest rates too high for too long as doing so could damage the economy.

ECB Governing Council member Kazaks said, "Interest rates have to go lower because the biggest part of the inflation problem has been solved. The discussion is only about how quickly and how strongly."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.

US Stock Movers

Today’s fall in the 10-year T-note yield to a 2-week low sparked short covering in chip stocks.  Advanced Micro Devices (AMD) is up more than +3%, and Qualcomm (QCOM) is up more than +2%.  Also, Nvidia (NVDA), Marvell Technology (MRVL), Analog Devices (ADI), Micron Technology (MU), NXP Semiconductors (NXPI), Broadcom (AVGO), and Texas Instruments (TXN) are up more than +1%.

Humana (HUM) is up more than +4% after CFO Diamond said hospital inpatient admission rates have stabilized at the levels the company was seeing since late May.

Dollar Tree (DLTR) is down more than -18% to lead losers in the S&P 500 and Nasdaq 100 after reporting Q2 adjusted EPS of 67 cents, weaker than the consensus of $1.05, and forecasting full-year adjusted EPS of $5.20-$5.60, well below the consensus of $6.57. 

Hormel Foods (HRL) is down more than -7% after reporting Q3 net sales of $2.90 billion, weaker than the consensus of $2.95 billion, and cutting its full-year net sales estimate to $11.8 billion-$12.1 billion from a previous view of $12.2 billion-$12.5 billion. 

Zscaler (ZS) is down more than -16% after forecasting 2025 adjusted EPS of $2.81-$2.87, well below the consensus of $3.36. 

Asana (ASAN) is down more than -6% after reporting a Q2 adjusted loss per share of -5 cents versus a loss of -4.0 cents y/y, and RBC Capital Markets said it was “a rough quarter,” as “billings missed consensus, and net retention rates contracted further.”

Super Micro Computer (SMCI) is down more than -3% after Barclays downgraded the stock to equal weight from overweight and cut its price target on the stock to $438 from $693

Also, ASML Holding NV (ASML) is down more than -2% after UBS downgraded the stock to neutral from buy. 

Amphenol (APH) is down more than -2% after Bank of America downgraded the stock to neutral from buy.

Gitlab (GTLB) is up more than +21% after reporting Q2 revenue of $182.6 million, above the consensus of $177.2 million, and raising its 2025 revenue forecast to $742 million-$744 million from a previous forecast of $733 million-$737 million, stronger than the consensus of $$735.7 million. 

Sweetgreen (SG) is up more than +6% after TD Cowen upgraded the stock to buy from hold with a price target of $43.

Nasdaq Inc (NDAQ) is up more than +3% after Bank of America Global Research double upgraded the stock to buy from underperform with a price target of $90.

Astera Labs (ALAB) is up more than +8% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $55. 

Boyd Gaming (BYD) is up more than +4% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $74.

Ball Corp (BALL) is up more than +1% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $78. 

American Tower (AMT) is up nearly +1% after S&P Global Ratings upgraded the company’s long-term debt rating to BBB from BBB-.

Earnings Reports (9/4/2024)

Casey's General Stores Inc (CASY), Ciena Corp (CIEN), Copart Inc (CPRT), Core & Main Inc (CNM), Dick's Sporting Goods Inc (DKS), Dollar Tree Inc (DLTR), Hewlett Packard Enterprise Co (HPE), Hormel Foods Corp (HRL).

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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.