Stocks Finish Lower on Slump in Mega-Cap Tech Stocks and Banks

The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.78%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.29%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.48%.

Stock indexes Thursday gave up an early advance and retreated, with the S&P 500 posting a 2-week low and the Nasdaq 100 dropping to a 3-week low.  A slump in mega-cap technology stocks and money-center banks weighed on the overall market.  Stocks on Thursday 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.

Thursday’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 97% for the following meeting on September 17-18.

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 fell to a 2-week low and closed down -0.44%.  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) Thursday closed down -7 ticks.  The 10-year T-note yield rose +3.8 bp to 4.196%.  Sep T-notes Thursday fell moderately 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 would auction $213 billion of T-notes and floating-rate notes next week. 

Losses in T-notes were 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. 

European government bond yields Thursday were mixed.  The 10-year German bund yield rebounded from a 3-week low of 2.401% and finished up +1.1 bp at 2.432%.  The 10-year UK gilt yield fell to a 3-1/2 week low of 4.028% and finished down -1.2 bp at 4.064%.

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 85% for the September 12 meeting.

US Stock Movers

Weakness in mega-cap technology stocks and money-center banks weighed on the overall market, with JPMorgan Chase (JPM) closing down more than -3% to lead losers in the Dow Jones Industrials.  Also, Goldman Sachs (GS) closed down more than -3%, and Apple (AAPL), Morgan Stanley (MS), and Amazon.com (AMZN) closed down more than -2%.  In addition, Microsoft (MSFT) closed down -0.71%.

Chip stocks on Thursday recovered some of this week’s sharp losses after Taiwan Semiconductor Manufacturing, a provider of chips to Apple and Nvidia, reported better-than-expected Q2 results and lifted projections for 2024 revenue growth.  As a result, Broadcom (AVGO) and Nvidia (NVDA) closed up more than +2%.  Also, Intel (INTC) closed up more than +1% to lead gainers in the Dow Jones Industrials.  In addition, Analog Devices (ADI), GlobalFoundries (GFS), and NXP Semiconductors NV (NXPI) closed up more than +1%.

Domino’s Pizza (DPZ) fell more than -13% 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 sold off Thursday after the price of COMEX copper (HGU24) sank more than -3% to a 3-1/4 month low. As a result, Freeport McMoRan (FCX) and Southern Copper (SCCO) closed down more than -5%. 

Home builders rallied Thursday 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) closed up more than +10% to lead gainers in the S&P 500.  Also, Lennar (LEN), PulteGroup (PHM), and Toll Brothers (TOL) closed up more than +2%.

Cintas (CTAS) closed 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) closed up more than +8% after acquiring Cupertino Electric for about $1.54 billion.

Doximity (DOCS) closed down more than -4% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $19. 

Foot Locker (FL) closed down more than -4% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $18.

KeyCorp (KEY) closed down more than -4% after reporting Q2 net interest income of $899 million, weaker than the consensus of $904.7 million.

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

CrowdStrike Holdings (CRWD) closed down more than -3% after Redburn double-downgraded the stock to sell from buy with a price target of $275.

Warner Bros Discovery (WBD) closed up more than +2% after the Financial Times reported the company is considering splitting its streaming and studio business from legacy TV.

M&T Bank (MTB) closed up more than +1% after reporting Q2 net interest income of $1.72 billion, above the consensus of $1.70 billion.

Earnings Reports (7/19/2024)

Amer Sports Inc (AS), American Express Co (AXP), Comerica Inc (CMA), Euronet Worldwide Inc (EEFT), Fifth Third Bancorp (FITB), Halliburton Co (HAL), Huntington Bancshares Inc/OH (HBAN), Regions Financial Corp (RF), Schlumberger NV (SLB), Travelers Cos Inc/The (TRV).

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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.