Stocks Erase Early Gains on Weakness in Mega-Cap Tech Stocks

The S&P 500 Index ($SPX) (SPY) today is down -0.39%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.21%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.60%.

Stock indexes today gave up an early advance and turned lower due to weakness in mega-cap technology stocks. Stocks today initially opened higher, with the Dow Jones Industrials posting a new record high, on a rebound in chip stocks after Taiwan Semiconductor Manufacturing Co, provider of chips to Apple and Nvidia, reported better-than-expected Q2 results and lifted projections for 2024 revenue growth.

Today’s US economic news was mixed for stocks after weekly continuing unemployment claims rose to a 2-1/2 year high, and the July Philadelphia Fed business outlook survey rose more than expected.

Dovish comments today from Chicago Fed President Goolsbee supported stocks when he said the Fed may need to cut interest rates soon to avoid a sharp deterioration in the labor market, which has cooled in recent months.

US weekly initial unemployment claims rose +20,000 to 243,000, showing a weaker labor market than expectations of 229,000.  Also, weekly continuing claims rose +20,000 to a 2-1/2 year high of 1.867 million, showing a weaker labor market than expectations of 1.856 million.

The US July Philadelphia Fed business outlook survey rose +12.6 to 13.9, stronger than expectations of 2.9.

US June leading indicators fell -0.2% m/m, better than expectations of -0.3% m/m.

The markets are discounting the chances for a -25 bp rate cut at 5% for the next FOMC meeting on July 30-31 and 99% for the following meeting on September 17-18.

Overseas stock markets today are mixed.  The Euro Stoxx 50 recovered fell to a 2-week low and is down -0.09%.  China's Shanghai Composite recovered from a 1-week low and closed up +0.48%.  Japan's Nikkei Stock 225 Index fell to a 2-week low and closed down -2.36%.

Interest Rates

September 10-year T-notes (ZNU24) today are down -4 ticks.  The 10-year T-note yield is up +1.0 bp at 4.167%.  Sep T-notes today are modestly lower after the US Philadelphia Fed business outlook survey rose more than expected.  Also, upcoming supply pressures weighed on T-notes after the Treasury announced it will auction $213 billion of T-notes and floating-rate notes next week. 

Losses in T-notes are limited after US weekly unemployment claims rose more than expected, a sign of labor market weakness that is dovish for Fed policy.  Also, dovish comments from Chicago Fed President Goolsbee were bullish for T-notes when he said the Fed may need to lower borrowing costs soon to avoid a sharper deterioration in the labor market.  In addition, today’s rally in European government bonds provided carryover support to T-notes.  

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 3-week low of 2.401% and is down -1.8 bp at 2.403%.  The 10-year UK gilt yield fell to a 3-1/2 week low of 2.028% and is down -4.1 bp at 4.035%.

Eurozone June new car registrations rose +4.3% y/y to 1.090 million units.

Eurozone May construction output fell -0.9% m/m, the third straight monthly decline and the biggest drop in 14 months.

The ECB, as expected, kept its main refinancing rate unchanged at 4.25% and said borrowing costs will remain "sufficiently restrictive for as long as necessary" to ensure inflation returns to 2%.  The ECB also said it is "not pre-committing" to a particular rate path and that incoming data will determine the level and duration of policy restriction.

ECB President Lagarde said, "The risks to economic growth are tilted to the downside, and a weaker world economy or an escalation in trade tensions between major economies would weigh on Eurozone growth."  She added that "the question of September and what the ECB will do in September is wide open and will be determined on the basis of all the data that we will be receiving."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 81% for the September 12 meeting.

US Stock Movers

Weakness in mega-cap technology stocks weighed on the overall market, with Amazon.com (AMZN) down more than -2% to lead losses in the Dow Jones Industrials.  Also, Apple (AAPL) is down more than -2%, and Microsoft (MSFT) and Nvidia (NVDA) are down more than -1%.

Chip stocks are recovering some of this week’s sharp losses today after Taiwan Semiconductor Manufacturing, provider of chips to Apple and Nvidia, reported better-than-expected Q2 results and lifted projections for 2024 revenue growth.  As a result, Intel (INTC) is up more than +4% to lead gainers in the Dow Jones Industrials.  Also, GlobalFoundries (GFS), ON Semiconductor (ON), and NXP Semiconductors NV (NXPI) are up more than +1%.

Home builders are climbing today after DR Horton raised its full-year revenue forecast to $36.8 billion-$37.2 billion from a previous estimate of $36.7 billion-$37.7 billion.  As a result, DR Horton (DHI) is up more than +10% to lead gainers in the S&P 500.  Also, Lennar (LEN), PulteGroup (PHM), and Toll Brothers (TOL) are up more than +4%.

Cintas (CTAS) is up more than +5% to lead gainers in the Nasdaq 100 after reporting Q4 EPS of $3.99, above the consensus of $3.79.

Quanta Services (PWR) is up more than +5% after acquiring Cupertino Electric for about $1.54 billion.

Warner Bros Discovery (WBD) is up more than +4% after the Financial Times reported the company is considering splitting its streaming and studio business from legacy TV.

M&T Bank (MTB) is up more than +3% after reporting Q2 net interest income of $1,72 billion, above the consensus of $1.70 billion.

Discover Financial Services (DFS) is up more than +2% after reporting Q2 net interest income of $3.52 billion, above the consensus of $3.45 billion.

Domino’s Pizza (DPZ) is down more than -12% to lead losers in the S&P 500 after reporting Q2 total domestic comparable sales growth of +4.80%, weaker than the consensus of +4.92% and warned it would fall short of its international store growth target for the year.

Copper mining stocks are under pressure today, with COMEX copper (HGU24) dropping more than -2% at a 3-month low.  As a result, Freeport McMoRan (FCX) and Southern Copper (SCCO) are down more than -3%. 

Elevance Health (ELV) is down more than -3% after Bank of America Global Research downgraded the stock to neutral from buy.

CrowdStrike Holdings (CRWD) is down more than -2% after Redburn double-downgraded the stock to sell from buy with a price target of $275. 

Doximity (DOCS) is down more than -5% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $19. 

Foot Locker (FL) is down more than -3% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $18.

KeyCorp (KEY) is down more than -1% after reporting Q2 net interest income of $899 million, weaker than the consensus of $904.7 million. 

Earnings Reports (7/18/2024)

Abbott Laboratories (ABT), Blackstone Inc (BX), Cintas Corp (CTAS), Domino's Pizza Inc (DPZ), DR Horton Inc (DHI), Intuitive Surgical Inc (ISRG), KeyCorp (KEY), M&T Bank Corp (MTB), Marsh & McLennan Cos Inc (MMC), Netflix Inc (NFLX), PPG Industries Inc (PPG), Snap-on Inc (SNA), Textron Inc (TXT).

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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.