Stocks Slip on Carryover Weakness in European Stocks

The S&P 500 Index ($SPX) (SPY) today is down -0.11%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.07%.

Stock indexes today are mixed.  The broader market is under pressure today on negative carryover from a slide in European stocks.  European stocks fell today on hawkish comments from ECB President Lagarde, who said Monday night that the ECB doesn’t yet have sufficient evidence that inflation threats have passed, bolstering expectations that the ECB will delay further interest rate cuts.  European stocks also retreated as political uncertainty in France remains high ahead of the second round of parliamentary elections this Sunday.

Stocks found some support today as bond yields fell on comments from Fed Chair Powell, who said prices now show signs of resuming their disinflation trend and the Fed can "take its time" with interest rate cuts with a strong economy and a job market.  Also, a +6% jump in Tesla today keeps the Nasdaq 100 in positive territory after it reported stronger-than-expected Q2 vehicle deliveries.

The markets are discounting the chances for a -25 bp rate cut at 9% for the next FOMC meeting on July 30-31 and 66% for the following meeting on September 17-18.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down -0.79%.  China's Shanghai Composite rose to a 1-week high and closed up +0.08%.  Japan's Nikkei Stock 225 Index rose to a 2-3/4 month high and closed up +1.12%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +13 ticks.  The 10-year T-note yield is down -4.2 bp to 4.420%.  Sep T-notes today are moderately higher, as a slump in stocks had boosted the safe-haven demand for government debt. T-notes also have some positive carryover from today’s rally in European government bonds.  T-notes extended their gains after Fed Chair Powell said prices now show signs of resuming their disinflation trend.

European government bond yields today are moving lower.  The 10-year German bund yield fell back from a 2-1/2 week high of 2.615% and is down -3.3 bp at 2.575%.  The 10-year UK gilt yield is down -6.3 bp at 4.219%. 

The Eurozone Jun CPI eased to +2.5% y/y from +2.6% y/y in May, right on expectations.  However, Jun core CPI rose +2.9% y/y, unchanged from May and stronger than expectations of a decline to +2.8% y/y.

ECB Governing Council member Simkus said core inflation is the "most important" indicator that will sway the ECB into action and that the ECB isn't in a rush to lower borrowing costs and is looking to September and the months beyond for more potential interest rate cuts.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 6% for the July 18 meeting and 64% for the September 12 meeting.

US Stock Movers

Eli Lilly (LLY) is down more than -3% to lead losers in the S&P 500 after US President Biden demanded it cut its “unconscionably high prices” for its diabetes and weight loss drugs. 

CrowdStrike Holdings (CRWD) is down more than -2% to lead losers in the Nasdaq 100 after Piper Sandler downgraded the stock to neutral from overweight.

Homebuilders are falling today after Raymond James and Citigroup downgraded Lennar to hold-equivalent ratings, citing concerns around a softening Florida housing market.  As a result, Lennar (LEN), DR Horton (DHI), Toll Brothers (TOL), and PulteGroup (PHM) are down more than -1%.

Pure Storage (PSTG) is down more than -5% after UBS downgraded the stock to sell from neutral, saying the stock’s valuation is not justifies given the increased competition.   

Incyte (INCY) is down more than -2% after BMO Capital Markets downgraded the stock to underperform from market perform with a price target of $48. 

R1 RCM (RCM) is down more than -14% after New Mountain Capital and TCP-ASC failed to agree on a joint takeover of the company. 

Tesla (TSLA) is up more than +5% at a 5-1/2 month high to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q2 vehicle deliveries of 443,956, stronger than the consensus of 436,000.

Paramount Global (PARA) is up more than +3% after the New York Times reported that Barry Diller was considering making a bid for the company.

Atlassian (TEAM) is up more than +3% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $225.

PayPal Holdings (PYPL) is up more than +1% after Susquehanna upgraded the stock to positive from neutral with a price target of $71. 

Energy stocks and energy service providers are climbing today as the price of WTI crude oil climbs to a 2-1/2 month high.  As a result, Valero Energy (VLO), Marathon Petroleum (MPC), Diamondback Energy (FANG), Dominion Energy (D), and Devon Energy (DVN) are up more than +1%. 

Earnings Reports (7/2/2024)

Avid Bioservices Inc (CDMO), MSC Industrial Direct Co Inc (MSM), Radius Recycling Inc (RDUS), Simulations Plus Inc (SLP).

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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.