Stocks Supported as Weak US Economic News Bolsters Hopes for Fed Rate Cuts

The S&P 500 Index ($SPX) (SPY) today is up +0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.21%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.36%.

Stock indexes today are mixed in this holiday-shortened session, with the Nasdaq 100 posting a new record high.  Stock indexes will end trading at 1 pm EST and close Thursday for the July 4 holiday.  T-note yields tumbled today and are supporting stocks after weaker-than-expected US economic news bolstered hopes the Fed will begin cutting interest rates this year.  Labor market news showed that the June ADP employment change rose less than expected, and weekly continuing unemployment claims rose to a 2-1/2 year high.  Also, activity in the US service sector contracted by the most in 4 years in June.  

Today's weakness in defensive healthcare stocks is weighing on the Dow Jones Industrials.  Another bearish factor for stocks was today’s news that showed the US May trade deficit widened to a 19-month high, a negative factor for Q2 GDP.

US MBA mortgage applications fell -2.6% in the week ended June 28, with the purchase mortgage sub-index falling -3.3% and the refinancing mortgage sub-index falling-1.5%.  The average 30-year fixed rate mortgage rose +10 bp to 7.03% from 6.93% in the prior week.

The US Jun ADP employment change rose +150,000, weaker than expectations of +165,000.

US weekly initial unemployment claims rose +4,000 to 238,000, showing a weaker labor market than expectations of 235,000.  Weekly continuing claims rose +26,000 to a 2-1/2 year high of 1.858 million, showing a weaker labor market than expectations of 1.840 million.

The US May trade deficit widened to a 19-month high of -$75.1 billion from -$74.5 billion in April.

US May factory orders unexpectedly fell -0.5% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 4 months.

The US Jun ISM services index fell -5.0 to 48.8, weaker than expectations of 52.7 and the steepest pace of contraction in 4 years.

The markets are discounting the chances for a -25 bp rate cut at 9% for the next FOMC meeting on July 30-31 and 74% for the following meeting on September 17-18.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +1.15%.  China's Shanghai Composite closed down -0.49%.  Japan's Nikkei Stock 225 Index climbed to a 3-month high and closed up +1.26%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +20 ticks.  The 10-year T-note yield is down -7.9 bp to 4.353%.  Sep T-notes rallied today on weaker-than-expected US labor market news, a dovish factor for Fed policy.  The June ADP employment change rose less than expected, and weekly continuing unemployment claims climbed to a 2-1/2 year high.  T-notes added to their gains and raced to their highs today after the Jun ISM services index fell to a 4-year low. 

European government bond yields today are lower.  The 10-year German bund yield fell back from a 3-week high of 2.642% and is down -2.5 bp at 2.578%.  The 10-year UK gilt yield is down -8.6 bp at 4.162%. 

Eurozone May PPI fell -0.2% m/m and -4.2% y/y, weaker than expectations of -0.1% m/m and -4.1% y/y.

The Eurozone Jun S&P composite PMI was revised upward by +0.1 to 50.9 from the previously reported 50.8.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 7% for the July 18 meeting and 65% for the September 12 meeting.

US Stock Movers

Paramount Global (PARA) is up more than +7% to lead gainers in the S&P 500 after Bloomberg News reported that Skydance Media had reached a preliminary agreement to buy National Amusements and merge with Paramount. 

Tesla (TSLA) is up more than +7% to lead gainers in the Nasdaq 100 after Bank of America Global Research raised its price target on the stock to $260 from $220.

Mining stocks are climbing today, with gold, silver, and copper prices rising sharply to 1-1/2 week highs.  As a result, Freeport McMoRan (FCX) is up more than +4%, and Newmont (NEM) is up more than +3%.

Today’s sharp decline in bond yields is boosting chip stocks. Broadcom (AVGO) is up more than +2%.  Also, Nvidia (NVDA), ASML Holding NV (ASML), ARM Holdings Plc (ARM), Microchip Technology (MCHP), and ON Semiconductor (ON) are up more than +1%.  

Casino stocks are moving higher today after BTIG LLC initiated coverage on MGM Resorts International with a buy rating and a price target of $52.  As a result, MGM Resorts International (MGM), Caesars Entertainment (CZR), and Wynn Resorts Ltd (WYNN) are up more than +2%.

Quest Diagnostics (DGX) is up more than +2% after agreeing to buy LifeLabs from Omers for about C$1.35 billion, including net debt. 

Permian Resources (PR) is up more than +2% after BMO Capital Markets upgraded the stock to outperform from market perform with a price target of $21. 

Defensive healthcare stocks are falling today.  Humana (HUM) is down more than -2% to lead losers in the S&P 500, and UnitedHealth Group (UNH) is down more than -2% to lead losers in the Dow Jones Industrials.  Also, Elevance Health (ELV), Cardinal Health (CAH), and Cigna Group (CIG) are down more than -1%.

Cryptocurrency-related stocks are under pressure today, with the price of Bitcoin (^BTCUSD) down more than -2% at a 1-week low.  As a result, Coinbase Global (COIN), Marathon Digital (MARA), MicroStrategy (MSTR), and Riot Platforms (RIOT) are down more than -1%. 

Simulations Plus (SLP) is down more than -11% after cutting its 2024 diluted EPS estimate to 46 cents-48 cents from a June estimate of 54 cents-56 cents and after the company’s Board of Directors said it is discontinuing its quarterly cash dividend.

Azek Co. (AZEK) is down more than -3% after D.A. Davidson downgraded the stock to neutral from buy.

Charter Communications (CHTR) is down more than -1% after Citigroup downgraded the stock to sell from neutral with a price target of $255.

Earnings Reports (7/3/2024)

Constellation Brands Inc (STZ), Dakota Gold Corp (DC), Lifecore Biomedical Inc (LFCR), Simulations Plus Inc (SLP).

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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.