S&P 500 and Nasdaq 100 Post Record Highs as US Inflation Cools

The S&P 500 Index ($SPX) (SPY) today is up +1.13%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.50%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.33%.

Stock indexes today are trading higher, with the S&P 500 and Nasdaq 100 posting new record highs and the Dow Jones Industrials climbing to a 2-1/2 week high.  Stocks rose as bond yields fell on signs that inflation is cooling.  The US May CPI report rose less than expected, bolstering expectations that the Fed will be able to cut interest rates later this year. 

US May CPI unexpectedly eased to +3.3% y/y from +3.4% y/y in Apr versus expectations of no change at +3.4% y/y.  Meanwhile, May CPI ex-food and energy eased to a 3-year low of +3.4% y/y, weaker than expectations of +3.5% y/y.

Weekly US MBA mortgage applications rose +15.6% in the week ended June 7.  The purchase mortgage sub-index rose +8.6%, and the refinancing mortgage sub-index rose +28.4%.  The average 30-year fixed rate mortgage fell -5 bp to 7.02% from 7.07% in the prior week.

Also, stock investors are awaiting the results of the 2-day FOMC meeting later this afternoon.  The consensus is that the Fed will keep the federal funds target rate unchanged at 5.25%-5.50%. The FOMC will also release new estimates for growth and inflation and dot-plot projections for the path of interest rates.  In addition, post-meeting comments from Fed Chair Powell will be scrutinized for when the Fed might cut interest rates. 

The markets are discounting the chances for a -25 bp rate cut at 1% for today’s FOMC meeting and 14% for the next meeting on July 30-31.

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 today are mixed.  The Euro Stoxx 50 is up +1.36%.  China's Shanghai Composite closed up +0.31%.  Japan's Nikkei Stock 225 Index closed down -0.66%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +30 ticks.  The 10-year T-note yield is down -13.9 bp at 4.267%. Sep T-note prices moved higher today and knocked the 10-year T-note yield down to a 2-1/4 month low of 4.260%. T-notes rallied after today’s US May CPI report rose less than expected, bolstering the outlook for Fed interest rate cuts.  Also, a plunge in inflation expectations boosted T-notes after the 10-year breakeven inflation rate today fell to a 4-month low of 2.251%. 

European government bond yields today are moving lower.  The 10-year German bund yield is down -8.4 bp at 2.538%.  The 10-year UK gilt yield fell to a 3-week low of 4.128% and is down -13.3 bp at 4.135%. 

ECB Executive Board member Schnabel said the Eurozone economy is recovering gradually, but the "last mile" of disinflation is proving bumpy.

ECB Governing Council member Patsalides said, "Further actions of the ECB on interest rates will depend on the data we will have." There is no specific direction to which the central bank is committed, and it retains its options.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 8% for the July 18 meeting and 49% for the September 12 meeting.

US Stock Movers

Oracle (ORCL) is up more than +10% at a record high to lead gainers in the S&P 500 after announcing a cloud infrastructure partnership with Google Cloud, as well as one with Microsoft and OpenAI. 

Homebuilding stocks and suppliers are climbing today after the 10-year T-note yield tumbled to a 2-1/4 month low.  As a result, Builders FirstSource (BLDR) is up more than +8%.  Also, DR Horton (DHI) and Toll Brothers (TOL) are up more than +6%.  In addition, PulteGroup (PHM) and Lennar (LEN) are up more than +4%.  Finally, Home Depot (HD) is up more than +3%.

Apple (AAPL) is up more than +4% at a record high to lead gainers in the Dow Jones Industrials, adding to Tuesday's +7% surge, after introducing its new AI features, which includes updates to its operating systems and a new AI platform called Apple Intelligence.

Invesco Ltd (IVZ) is up more than +4% after reporting total assets under management for May of $1.69 trillion versus $1.49 trillion y/y.

Casey’s General Stores (CASY) is up more than +17% after reporting Q4 EPS of $2.34, well above the consensus of $1.72. 

Ciena Corp (CIEN) is up more than +3% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $55.

Klaviyo (KVYO) is up more than +5% after Barclays upgraded the stock to overweight from equal weight with a price target of $29. 

Defensive consumer stocks and food companies are under pressure due to strength in the broader market.  As a result, Church & Dwight Co (CHD), General Mills (GIS), Kellanova (K), Campbell Soup (CPB), J M Smucker (SJM), Colgate-Palmolive (CL), Kroger (KR), and Kraft Heinz (KHC) are down more than -1%. 

Energy stocks and energy service providers are falling today with Marathon Petroleum (MPC) down more than -3% to lead losers in the S&P 500.  Also, Valero Energy (VLO) and Phillips 66 (PSX) are down more than -2%.  In addition, ConocoPhillips (COP) and Marathon Oil (MRO) are down more than -1%. 

Accenture Plc (ACN) is down more than -1% after Stifel cut its price target on the stock to $340 from $395. 

Earnings Reports (6/12/2024)

Broadcom Inc (AVGO), Dave & Buster's Entertainment (PLAY), Oxford Industries Inc (OXM), Torrid Holdings Inc (CURV), Vera Bradley Inc (VRA).

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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.