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S&P 500 and Nasdaq 100 Post Record Highs on Strength in AI Hardware Stocks
The S&P 500 Index ($SPX) (SPY) Monday closed up +0.77%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.49%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.24%.
Stock indexes Monday settled moderately higher, with the S&P 500 and Nasdaq 100 posting new record highs. A rally in AI hardware stocks lifted the overall market Monday on speculation the demand for AI products will continue to grow. US stocks also had a positive carryover from gains in European equities Monday after French political risks eased when Marine Le Pen said she would work with French President Macron should she win the upcoming French elections.
On the positive side for US stocks, Citigroup today raised its outlook for US equities to overweight from neutral and cut its outlook for European stocks to neutral from overweight, citing “a substantially higher growth tilt in the US relative to Europe and heightened political risks” in Europe.
M&A activity supports stocks, with Autodesk closing more than +6% after the Wall Street Journal reported that Starboard Value has taken a $500 million stake in the company. Also, Aaron’s closed up more than +33% after IQVentures purchased the company in a deal valued at $504 million, or $10.10 per share.
Higher T-note yields on Monday were bearish for stocks. Also, weak economic reports from China signal that China’s economy continues to struggle, which is a negative factor for global growth prospects and stocks. China's new home prices fell by 0.71% m/m in May, the biggest decline in 9-1/2 years. Also, China's May industrial production rose +5.6% y/y, weaker than expectations of +6.2% y/y.
The US Jun Empire manufacturing survey general business conditions index rose +9.6 to a 4-month high of -6.0, stronger than expectations of -10.0.
Philadelphia Fed President Harker said that he views one interest rate cut by the Fed as appropriate for this year, adding he'd like to see "several" more months of improving inflation.
On Sunday, Minneapolis Fed President Kashkari said the Fed is in a good position to take its time and watch incoming data before starting to cut interest rates.
The markets are discounting the chances for a -25 bp rate cut at 8% for the next FOMC meeting on July 30-31 and 59% for the following meeting on September 17-18.
Generally positive Q1 earnings results are supportive of stocks. Q1 earnings are expected to climb +7.1% y/y, well above the pre-earnings season estimate of +3.8%. According to data compiled by Bloomberg Intelligence, about 81% of reporting S&P 500 companies have beaten Q1 earnings estimates.
Overseas stock markets Monday settled mixed. The Euro Stoxx 50 closed up +0.85%. China's Shanghai Composite closed down -0.55%. Japan's Nikkei Stock 225 Index fell to a 2-week low and closed down -1.83%.
Interest Rates
September 10-year T-notes (ZNU24) Monday closed down -14 ticks. The 10-year T-note yield rose +5.4 bp to 4.275%. Negative carryover from a slide in European government bonds Monday weighed on T-note prices. Also, a heavy slate of corporate issuance has prompted bond dealers to short T-notes as a hedge against the oncoming supply, with as many as 13 companies issuing as much as $30 billion of debt this week. T-notes were also undercut on the stronger-than-expected Jun Empire manufacturing survey general business conditions index. Finally, hawkish comments from Philadelphia Fed President Harker and Minneapolis Fed President Kashkari pushed bond yields higher when they said the Fed could wait before cutting interest rates.
European government bond yields on Monday moved higher. The 10-year German bund yield rose +5.3 bp to 2.414%. The 10-year UK gilt yield rose +5.9 bp to 4.115%.
Eurozone Q1 labor costs were revised upward to 5.1% y/y from the previously reported 4.9% y/y.
ECB Governing Council member Vujcic said an interest rate cut in September would require an improvement in the ECB's inflation outlook.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 11% for the July 18 meeting and 59% for the September 12 meeting.
US Stock Movers
Autodesk (ADSK) closed up more than +6% to lead gainers in the S&P 500 and Nasdaq 100 after the Wall Street Journal reported that Starboard Value has taken a $500 million stake in the company.
AI hardware stocks rallied Monday on optimism that demand will strengthen for their artificial intelligence products. As a result, Super Micro Computer (SMCI) and Broadcom (AVGO) closed up more than +5%. Also, Arista Networks (ANET), Lam Research (LRCX), and Qualcomm (QCOM) closed up more than +3%.
Tesla (TSLA) closed up more than +5% after Bloomberg reported the company had been approved to test its advanced driver-assistance system on some streets in China.
Corning (GLW) is up more than +3% after Fox Advisors upgraded the stock to outperform from equal weight with a price target of $45.
Aaron’s (AAN) closed up more than +33% after IQVentures purchased the company in a deal valued at $504 million, or $10.10 per share.
Ollie’s Bargain Outlet Holdings (OLLI) closed up more than +9% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $105.
Best Buy (BBY) closed up more than +4% after UBS upgraded the stock to buy from neutral with a price target of $106.
Micron Technology (MU) closed up more than +4% after Susquehanna Financial raised its price target on the stock to $185 from $143.
Louisiana-Pacific (LPX) closed down more than -3% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $81.
Utility stocks were under pressure Monday from an increase in T-note yields. As a result, Vistra Corp (VST) closed down more than -4%. Also, AES Corp (AES), PG&E (PCG), Edison International (EIX), and Eversource Energy (ES) closed down more than -2%.
Copper mining stocks moved lower as the price of COMEX copper fell more than -1% to a 2-month low. As a result, Southern Copper (SCCO) and Freeport McMoRan (FCX) closed down 1% or more.
Moderna (MRNA) closed down more than -1% on signs of insider selling after an SEC filing showed director Afeyan sold $2.21 million of shares last Wednesday.
Earnings Reports (6/18/2024)
America's Car-Mart Inc/TX (CRMT), KB Home (KBH), Patterson Cos Inc (PDCO).
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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.
