Stocks Climb as Strength in US Retail Sales Supports Soft Landing Scenario

The S&P 500 Index ($SPX) (SPY) today is up by +0.43%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.29%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +0.65%.

Stocks today are moderately higher, with the S&P 500 climbing to a 2-month high, the Dow Jones Industrials posting a new record high, and the Nasdaq 100 rising to a 2-week high. Positive corporate and economic news today is pushing stocks higher.  Intel is up more than +2% after the chipmaker won new business from Amazon.com.  Also, Microsoft is up more than +1% after it raised its quarterly dividend by 10% and announced a new $60 billion stock repurchase program.  Stocks maintained moderate gains after strength in today’s US retail sales and manufacturing production reports support the outlook for a soft landing. 

Aug retail sales unexpectedly rose +0.1% m/m, stronger than expectations of a -0.2% m/m decline. However, Aug retail sales ex-autos rose only +0.1% m/m, slightly weaker than expectations of +0.2% m/m.

US Aug manufacturing production rose +0.9% m/m, stronger than expectations of +0.2% m/m and the largest increase in 6 months. 

The markets will look to the 2-day FOMC meeting that begins today to see whether policymakers will decide that a -25 bp cut in the fed funds target range would be adequate for a US economy that has shown signs of losing momentum or whether they will decide on a larger -50 bp rate cut instead.  Post-meeting comments from Fed Chair Powell on Wednesday will also be scrutinized regarding the Fed’s future policy intentions. 

The markets are discounting the chances at 100% for a -25 bp rate cut for the Tue/Wed FOMC meeting and at 69% for a -50 bp rate cut at that meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 climbed to a 1-1/2 week high and is up +0.85%.  China's Shanghai Composite was closed for the Mid-Autumn Festival holiday.  Japan's Nikkei Stock 225 closed down -1.03%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down -5 ticks.  The 10-year T-note yield is up +1.7 bp at 3.634%.  Dec T-notes today gave up early gains and are slightly lower, and the 10-year T-note yield rebounded from a 15-month low of 3.595% and is moderately higher.  The stronger-than-expected US retail sales and manufacturing production reports weighed on T-note prices.  Also, strength in stocks today has reduced safe-haven demand for T-notes. 

T-notes today initially moved higher on heightened speculation the Fed will cut interest rates by -50 bp at this week’s 2-day FOMC meeting.  Swap markets showed the chances of a -50 bp rate cut rose to 69% today from 52% last Friday. 

European government bond yields today are mixed.  The 10-year German bund yield is up +0.5 bp at 2.127%. The 10-year UK gilt yield rebounded from a 7-1/2 month low of 3.729% and is up +0.3 bp at 3.761%.

The German Sep ZEW survey expectations of economic growth index fell -15.6 to an 11-month low of 3.6, weaker than expectations of 17.0.

ECB Governing Council member Simkus said the likelihood of an October interest rate cut by the ECB is "very small."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 32% for the October 17 meeting.

US Stock Movers

Intel (INTC) is up more than +2% to lead gainers in the Dow Jones Industrials after the chipmaker landed Amazon.com’s AWS as a customer for its chip manufacturing business. 

HP Enterprise (HPE) is up more than +4% to lead gainers in the S&P 500 after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $24. 

GE Vernova (GEV) is up more than +3% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $300. 

Dell Technologies (DELL) is up more than +2% after Mizuho Securities initiated coverage on the stock with a recommendation of outperform and a price target of $135. 

Microsoft (MSFT) is up more than +1% after it raised its quarterly dividend by 10% and announced a new $60 billion stock repurchase program. 

AppLovin (APP) is up more than +1% after UBS upgraded the stock to buy from neutral with a price target of $145.

Atlassian (TEAM) is down more than -2% to lead losers in the Nasdaq 100 on signs of insider selling after an SEC filing showed CEO Cannon-Brookes sold $1.31 million shares last Friday.

Defense companies are under pressure today on a Bloomberg report that said some of Ukraine’s allies are contemplating how to negotiate a cease-fire between Russia and Ukraine.  As a result, L3Harris Technologies (LHX), Lockheed Martin (LMT), Northrop Grumman (NOC), General Dynamics (GD), and RTX Corp (RTX) are down more than -1%. 

Viasat Inc (VSAT) is down more than -5% after JPMorgan Chase downgraded the stock to neutral from overweight. 

Nucor Corp (NUE) is down more than -1% after it said it sees Q3 adjusted EPS $1.30 t $1.40, weaker than the consensus of $1.89. 

Acushnet Holdings (GOLF) is down more than -1% after Jeffries downgraded the stock to hold from buy. 

Earnings Reports (9/17/2024)

Ferguson Enterprises Inc (FERG).

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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.