Stocks End Moderately Lower Ahead of Powell’s Testimony to Congress

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.47%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.72%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.09%.

U.S. stocks fell back Tuesday on negative carryover from disappointment that China’s State Council didn’t mention specific economic support measures and that the Chinese central bank cut lending rates less than expected.  Also, U.S. housing news Tuesday was stronger-than-expected and hawkish for Fed policy.  The Nasdaq 100 recovered most of its losses after Tesla rallied more than +5%. 

Long liquidation pressures also undercut stock indexes ahead of Wednesday’s semi-annual report to Congress from Fed Chair Powell. Markets are concerned that Powell may take a hawkish tone after the FOMC last week warned of additional interest rate hikes this year.

U.S. May housing starts unexpectedly surged +21.7% m/m to a 13-month high of 1.631 million, stronger than expectations of a decline to 1.400 million.  May building permits, a proxy for future construction, rose +5.2% m/m to a 7-month high of 1.491 million, stronger than expectations of 1.425 million.

The U.S. Jun NAHB housing market index, released on Monday’s holiday, rose +5 to an 11-month high of 55, stronger than expectations of 51.

Market odds for the Fed to raise the fed funds target range by +25 bp at the July 25-26 FOMC meeting rose to 74% Tuesday from 69% last Friday. 

Global bond yields Tuesday moved lower.  The 10-year T-note yield fell -3.6 bp to 3.725%.  The 10-year German bund yield fell -11.2 bp to 2.405%, and the UK 10-year gilt yield fell to a 1-week low of 4.318% and finished down -15.5 bp at 4.337%.

On the bearish side for stocks, energy stocks and energy service providers moved lower after WTI crude fell more than -1%.  Also, Warner Bros Discovery closed down more than -4% after weekend box office receipts for the opening of “The Flash” were below expectations.  Nike closed down more than -3% after Morgan Stanley said inventory problems could weigh on the company’s margins in Q4. 

On the bullish side, Generac Holdings closed up more than +7% after a Barron’s article said the summer blackout season is good for generator stocks.  Also, Tesla closed up more than +5% after Rivian Automotive agreed to adopt Tesla’s charging standard.  PayPal Holdings closed up more than +3% after KKR& Co agreed to buy 40 billion euros of PayPal’s pay-later loans. 

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 closed down -0.44%.  China’s Shanghai Composite closed down -0.47%, and Japan’s Nikkei Stock Index closed up +0.06%. 

Today’s stock movers…

Energy stocks and energy service providers moved lower Tuesday, with WTI crude down more than -1%. As a result, Haliburton (HAL), Devon Energy (DVN), and Phillips 66 (PSX) closed down more than -3%.  Also, APA Corp (APA), Chevron (CVX), ConocoPhillips (COP), Exxon Mobil (XOM), Marathon Oil (MRO), Valero Energy (VLO), Baker Hughes (BKR), and Hess Corp (HES) closed down more than -2%.

Warner Bros Discovery (WBD) closed down more than -4% after weekend box office receipts for the opening of “The Flash” came in at $55.1 million, well below a Boxoffice Pro estimate of $69 million. 

Nike (NKE) closed down more than -3% to lead losers in the Dow Jones Industrials after Morgan Stanley said inventory problems could weigh on the company’s margins in Q4, even if it reports “mostly in-line” results. 

U.S.-listed Chinese stocks sold off Tuesday after China’s State Council failed to issue specific economic support measures and the PBOC cut lending rates less than expected.  As a result, PDD Holdings (PDD) closed down more than -7% to lead losers in the Nasdaq 100. Also, JD.com (JD) closed down more than -6%, and Alibaba Group Holding (BABA) closed down more than -4%.  In addition, NetEase (NTES) closed down more than -3%. 

Celanese (CE) and LyondellBasell Industries NV (LYB) closed down more than -3% on negative carryover from a slump in European chemical makers after Lanxess AG plunged -15% when it cut its profit outlook, citing weak demand.   

Arcellx (ACLX) closed down more than -7% after the FDA placed a clinical hold on the company’s drug for the treatment of patients with relapsed or refractory multiple myeloma. 

Generac Holdings (GNRC) closed up more than +7% to lead gainers in the S&P 500 after a Barron’s article touted the summer blackout season as good for generator stocks. 

Tesla (TSLA) closed up more than +5% to lead gainers in the Nasdaq 100 after Rivian Automotive agreed to adopt Tesla’s charging standard.

PayPal Holdings (PYPL) closed up more than +3% after KKR & Co agreed to buy 40 billion euros of PayPal’s pay-later loans. 

UnitedHealth Group (UNH) closed up more than +2% after it reported its Q2 occupancy rate was up +0.33% versus Q1.

Homebuilders rallied Tuesday after U.S May housing starts and building permits rose more than expected, and the June NAHB housing market index climbed to an 11-month high.  As a result, Toll Brothers (TOL) closed up more than +2%, and DR Horton (DHI), Lennar (LEN), and PulteGroup (PHM) closed up more than +1%. 

Avis Budget Group (CAR) closed up more than +9% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $230.

Dice Therapeutics (DICE) closed up more than +37% after Eli Lilly tendered an offer to buy the company for $2.4 billion. 

Across the markets…

September 10-year T-notes (ZNU23) on Tuesday closed up +8.5 ticks, and the 10-year T-note yield fell by -3.6 bp to 3.725%.  Sep T-notes Tuesday recovered from early losses and moved moderately higher as short-covering emerged after 10-year UK gilts rallied to a 1-week high.  An increase in safe-haven demand also boosted T-notes as stocks retreated.  T-notes on Tuesday initially moved lower on the stronger-than-expected U.S. May housing starts and building permits reports, which were hawkish for Fed policy. 

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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.