S&P 500 and Nasdaq 100 Fall from Record Highs as Chip Stocks Retreat

The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.25%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.77%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.79%.

Stock indexes settled mixed on Thursday, with the Dow Jones Industrials posting a 4-week high.  Stocks on Thursday initially moved higher, with the S&P 500 and Nasdaq 100 posting new record highs on strength in chip stocks.  However, a -5% plunge in Qualcomm sparked long liquidation pressure in chip stocks, which weighed on the broader market. 

Chipmakers initially rallied on Thursday after the CEO of Dell Technologies tweeted that his company is building an AI factory with Nvidia to power Elon Musk’s xAI’s Grok supercomputer.  Also, Dell and Sumer Micro Computer initially rose after Elon Musk said the companies would provide server racks for his xAI Grok supercomputer. 

Stocks found support after Thursday’s weaker-than-expected US economic reports bolstered the outlook for the Fed to begin cutting interest rates later this year.

Higher T-note yields Thursday were a bearish factor for stocks.  Minneapolis Fed President Kashkari said it will likely take a year or two for the US to get back to 2% inflation, suggesting he favors keeping interest rates higher for longer.

US weekly initial unemployment claims fell -5,000 to 238,000, signaling a weaker labor market than expectations of 235,000. 

US May housing starts unexpectedly fell -5.5% m/m to a 4-year low of 1.277 million, weaker than expectations of an increase to 1.370 million.  May building permits, a proxy for future construction, unexpectedly fell -3.8% m/m to a nearly 4-year low of 1.386 million, weaker than expectations of an increase to 1.450 million.

The US June Philadelphia Fed business outlook survey unexpectedly fell -3.2 to a 5-month low of 1.5, weaker than expectations of an increase to 5.0.

The markets are discounting the chances for a -25 bp rate cut at 10% for the next FOMC meeting on July 30-31 and 60% 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 Thursday settled mixed.  The Euro Stoxx 50 closed up +1.27%.  China's Shanghai Composite fell to a 2-month low and closed down -0.42%.  Japan's Nikkei Stock 225 Index closed up +0.16%.

Interest Rates

September 10-year T-notes (ZNU24) Thursday closed down -8 ticks.  The 10-year T-note yield rose +2.7 bp to 4.250%.  Hawkish comments Thursday from Minneapolis Fed President Kashkari undercut T-notes when he said it is likely to take a year or two for the US to get back to 2% inflation.  Also, an increase in inflation expectations weighed on T-notes after the 10-year breakeven inflation rate rose to a 1-week high Thursday of 2.259%. T-note prices recovered from their worst levels Thursday on weaker-than-expected US economic news that was dovish for Fed policy. 

European government bond yields on Thursday were mixed.  The 10-year German bund yield rose +2.7 bp to 2.431%.  The 10-year UK gilt yield fell -1.0 bp to 4.057%.

Eurozone May new car registrations fell -3.0% y/y to 912,000.

German May PPI was unchanged m/m and fell -2.2% y/y, weaker than expectations of +0.1% m/m and -2.0% y/y.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 6% for the July 18 meeting and 61% for the September 12 meeting.

As expected, the BOE on Thursday kept the bank rate unchanged at 5.25%, with seven officials voting to keep rates on hold and two voting for a rate cut.  The BOE said the decision not to cut rates was "finely balanced," suggesting policymakers may be open to a rate cut in the coming months.

US Stock Movers

Jabil (JBL) closed down more than -11% to lead losers in the S&P 500 after cutting its full-year revenue estimate to $28.5 billion from a previous estimate of $30.6 billion. 

Chip stocks relinquished early gains Thursday and turned lower on the heels of a -5% decline in Qualcomm (QCOM) after the Wall Street Journal reported that Samsung’s new AI laptops had operational issues with Windows 11 and the Qualcomm processor.  As a result, Micron Technology (MU) closed down more than -6% to lead losers in the Nasdaq 100.  Also, Microchip Technology (MCHP), Western Digital (WDC), and ON Semiconductor (ON) closed down more than -4%.  In addition, Nvidia (NVDA), Applied Materials (AMAT), and KLA Corp (KLAC) closed down more than -3%. 

Trump Media & Technology Group (DJT) closed down more than -14% after the SEC late Tuesday declared effective a regulatory filing that could dilute shareholders. 

Jazz Pharmaceuticals (JAZZ) closed down more than -4% after saying its experimental therapy suvecaltamide to treat essential tremors didn’t achieve statistical significance in a mid-stage trial.

Winnebago Industries (WGO) closed down more than -3% after reporting Q3 net revenue of $786 million, weaker than the consensus of $805.3 million.

Kroger (KR) closed down more than -3% after forecasting 2025 adjusted EPS of $4.30-$4.50, the midpoint below the consensus of $4.43.

AutoNation (AN) closed down more than -3% after a cyberattack at CDK Global, the software provider to thousands of auto dealers, shut down most of its systems.

Gilead Sciences (GILD) closed up more than +8% to lead gainers in the S&P 500 and Nasdaq 100 after announcing a Phase 3 Purpose 1 trial of its lenacapavir drug showed 100% efficacy in the prevention of HIV in cisgender women. 

Accenture (ACN) closed up more than +7% after reporting Q3 bookings of $21.10 billion, well above the consensus of $17.69 billion. UBS raised its price target for the stock to $170 from $130. 

Westrock (WRK) closed up more than +5% after S&P Dow Jones Indices said that Smurfit Westrock, the new company formed via the merger of Smurfit and Westrock, will be included in its indexes as of the opening of trading on July 9. 

Advanced Micro Devices (AMD) closed up more than +4% after Piper Sandler made the stock its top large-cap stock pick with a price target of $175.

Corpay (CPAY) closed up more than +3% after acquiring cross-border payments company GPS Capital Markets for about $725 million.

Energy stocks and energy service providers gained Thursday after WTI crude rallied to a 7-week high.  Baker Hughes (BKR), Chevron (CVX), Exxon Mobil (XOM), Diamondback Energy (FANG), and Schlumberger (SLB) closed up more than +2%.  Also, Marathon Oil (MRO), Phillips 66 (CPAY), Occidental Petroleum (OXY), ConocoPhillips (COP), and Valero Energy (VLO) closed up more than +1%.

Darden Restaurants (DRI) closed up more than +1% after reporting Q4 sales of $3.0 billion, above the consensus of $2.97 billion.

Earnings Reports (6/21/2024)

3D Systems Corp (DDD), Avid Bioservices Inc (CDMO), CarMax Inc (KMX), DZS Inc (DZSI), FactSet Research Systems Inc (FDS), Methode Electronics Inc (MEI).

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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.