Stocks Finish Higher as Easing Inflation Bolsters Optimism for a Soft Landing

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.99%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.50%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.85%.

Stocks on Friday closed moderately higher.  Stocks rallied Friday after key measures of U.S. inflation cooled, bolstering optimism the economy can avoid a recession and that the Federal Reserve can achieve a soft landing.  The U.S. Q2 employment cost index rose at the slowest pace in 2 years, and the U.S. Jun PCE core deflator, the Fed's preferred inflation gauge, rose less than expected.  Also, strength in technology stocks boosted the overall market, as Intel jumped more than +6% after reporting better-than-expected Q2 revenue.

U.S. Jun personal spending rose +0.5% m/m, stronger than expectations of +0.4% m/m.  Jun personal income rose +0.3% m/m, weaker than expectations of +0.5% m/m.

The U.S. Jun PCE core deflator, the Fed's preferred gauge of inflation, eased to +4.1% y/y from +4.6% y/y in May, better than expectations of +4.2% y/y and the slowest pace of increase in 1-3/4 years.

The U.S. Q2 employment cost index rose +1.0% (q/q annualized), slower than expectations of +1.1% and the smallest pace of increase in 2 years.

The University of Michigan U.S. Jul consumer sentiment was revised lower to 71.6 from the initially reported 72.6.

The markets are discounting the odds at 22% for a +25 bp rate hike at the September 20 FOMC meeting. 

Global bond yields Friday were mixed.  The 10-year T-note yield fell from a 2-1/2 week high of 4.038% and finished down -3.3 bp at 3.965%.  The 10-year German bund yield rose to a 2-week high of 2.585% and finished up +1.8 bp at 2.492%.  The 10-year UK Gilt yield rose to a 1-1/2 week high of 4.389% and finished up +1.6 bp at 4.326%. 

Overseas stock markets Friday settled mixed.  The Euro Stoxx 50 closed up +0.43%.  China’s Shanghai Composite Index today closed up +1.84%.  Japan’s Nikkei Stock Index closed down -0.40%.

Today’s stock movers…

T Rowe Price Group (TROW) closed up more than +8% to lead gainers in the S&P 500 after reporting Q2 adjusted EPS of $2.02, well above the consensus of $1.73. 

Newell Brands (NWL) closed up more than +7% after reporting Q2 net sales of $2.20 billion, stronger than the consensus of $2.16 billion.

Cincinnati Financial (CINF) closed up more than +6% after reporting Q2 adjusted operating EPS of $1.21, stronger than the consensus of 70 cents. 

Digital Realty Trust (DLR) closed up more than +6% after reporting Q2 adjusted Ebitda of $697 million, above the consensus of $665.8 million. 

Intel (INTC) closed up more than +6% to lead gainers in the Dow Jones Industrials after reporting Q2 revenue of $12.90 billion, well above the consensus of $12.02 billion and forecast Q3 revenue of $12.9 billion-$13.9 billion, the midpoint above the consensus of $13.28 billion.

KLA Corp (KLAC) closed up more than 5% after reporting Q4 adjusted EPS of $5.40, stronger than the consensus of $4.85.

Reata Pharmaceuticals (RETA) closed up more than +53% after Biogen agreed to buy the company for about $7.3 billion. 

Franklin Resources (BEN) closed up more than +3% after reporting Q3 net outflows of $7.1 billion, less than the consensus of $8.67 billion.

Mondelez International (MDLZ) closed up more than +3% after reporting Q2 net revenue of $8.51 billion, above the consensus of $8.21 billion.

Live Nation Entertainment (LYV) closed down more than -7% to lead losers in the S&P 500 after Politico reported that the U.S. Justice Department could file an antitrust lawsuit against the company by the end of the year.

Juniper Networks (JNPR) closed down more than -6% after it said it is “currently facing some near-term order weakness from its Cloud and to a lesser degree its Service Provider customers.”

Mohawk Industries (MHK) closed down more than -6% after reporting Q2 free cash flow of $146.9 million, well below the consensus of $245.7 million. 

AON Plc (AON) closed down more than -5% after reporting Q2 adjusted EPS of $2.76, below the consensus of $2.82.

Centene (CNC) is down more than -5% after company executives said only 2.7% of its members are in its four-star Medicare plans and warned that number might drop to zero this year, which could eventually mean a drop in revenue from those plans.

Principal Financial Group (PFG) closed down more than -4% after reporting Q2 adjusted operating EPS of $1.53, weaker than the consensus of $1.65.

Ford Motor (F) closed down more than -3% after it said it now expects to see losses from electric vehicles hit $4.50 billion this year, above the consensus of a -$3.25 billion loss.

Colgate-Palmolive (CL) closed down more than -2% after forecasting full-year organic sales to climb +5% to +7%, the midpoint below the consensus of +6.38%. 

Across the markets…

September 10-year T-notes (ZNU23) Friday closed up +10.5 ticks, and the 10-year T-note yield fell -3.3 bp to 3.965%.  Sep T-notes Friday recovered from a 2-1/2 week low, and the 10-year T-note yield fell back from a 2-1/2 week high of 4.038% on signs of easing U.S. price pressures.  T-notes recovered and moved higher after Friday’s news showed the Q2 employment cost index and the Jun core PCE deflator rose less than expected.  T-notes early Friday initially dropped to a 2-1/2 week low on negative carryover from a jump in 10-year Japan JGB bond yields to a 9-year high after the BOJ adjusted its yield curve control program. 

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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.