Stocks Close Higher on Big Tech Earnings Optimism

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.28%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.08%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.73%.

Stocks on Tuesday moved higher, with the S&P 500 posting a 15-1/2 month high and the Dow Jones Industrials posting a 17-1/2 month high. Earnings optimism on Tuesday underpinned stock prices, with mega-cap tech companies Microsoft and Alphabet due to report after Tuesday’s close.  Stocks also found support after Tuesday’s news showed U.S. July consumer confidence rose more than expected to a 2-year high, bolstering the outlook for a soft landing of the U.S. economy.

Global stock bourses had carryover support from Tuesday’s rally in China’s Shanghai Composite Stock Index by more than +2% as market sentiment improved after Chinese leaders at this week’s Politburo meeting laid out a pre-growth tone that was more dovish than markets expected. Also, Tuesday’s action by the IMF to boost its global growth outlook for this year supported equity markets. 

However, stock gains were tempered Tuesday after the 10-year T-note yield rose to a 1-1/2 week high.  Also, uncertainty over what the Fed might say regarding interest rates and the economy following the Tue/Wed FOMC meeting limited the upside in stocks. 

The U.S. May S&P CoreLogic composite-20 home price index fell -1.70% y/y, a smaller decline than expectations of -2.35% y/y.

The Conference Board U.S. Jul consumer confidence index rose +6.9 to a 2-year high of 117.0, stronger than expectations of 112.0.

The U.S. Jul Richmond Fed manufacturing survey fell -1 to -9, a smaller decline than expectations of -10.

In Tuesday’s World Economic Outlook, the International Monetary Fund (IMF) raised its global 2023 GDP forecast to 3.0% from an April estimate of 2.8%.

The markets are expecting the Fed and the ECB this week to both raise their respective interest rates by 25 bp and will look for guidance from the central banks to see if more rate hikes are likely.

The markets are discounting the odds at 97% for a +25 bp rate hike at the Tue/Wed FOMC meeting.  The markets are anticipating a peak funds rate of 5.42% by November, which is +34 bp higher than the current effective federal funds rate of 5.08%.

Global bond yields Tuesday moved mostly higher.  The 10-year T-note yield climbed to a 1-1/2 week high of 3.920% and finished up +2.9 bp at 3.902%.  The 10-year German bund yield was unchanged at 2.425%.  The 10-year UK Gilt yield rose +1.2 to 4.268%. 

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 closed up +0.19%.  China’s Shanghai Composite Index today closed up +2.13%.  Japan’s Nikkei Stock Index closed down -0.06%.

Today’s stock movers…

Packaging Corp (PKG) closed up more than +10% to lead gainers in the S&P 500 after reporting Q2 adjusted EPS of $2.31, above the consensus of $1.95. 

MSCI Inc (MSCI) closed up more than +9% after reporting Q2 adjusted EPS of $3.26, better than the consensus of $3.12.

PulteGroup (PHM) closed up more than +6% after reporting Q2 revenue of $4.19 billion, above the consensus of $4.00 billion.

General Electric (GE) closed up more than +6% after reporting Q2 adjusted revenue of $15.90 billion, better than the consensus of $14.73 billion, and raised its full-year adjusted free cash flow to $4.1 billion-$4.6 billion from a previous forecast of $3.6 billion-$4.2 billion.

3M Co (MMM) closed up more than +5% to lead gainers in the Dow Jones Industrials after reporting Q2 net sales of $8.33 billion, well above the consensus of $7.86 billion.

F5 Inc (FFIV) closed up more than +5% after reporting Q3 net revenue of $702.6 million, above the consensus of $699.3 million, and said it was “confident in our ability to achieve our target of double-digit non-GAAP earnings growth for fiscal year 2023.” 

U.S.-listed Chinese stocks rallied in pre-market trading after China’s pledge to support the economy bolstered speculation that fresh stimulus measures were on the way.  As a result, PDD Holdings (PDD) closed up more than +5% to lead gainers in the Nasdaq 100.  Also, Alibaba Group Holding (BABA), Baidu (BIDU), NetEase (NTES), and JD.com (JD) closed up more than +1%. 

NXP Semiconductors (NXPI) closed up more than +4% after reporting Q2 revenue of $3.30 billion, above the consensus of $3.21 billion, and forecast Q3 revenue of $3.30 billion-$3.50 billion, the midpoint well above the consensus of $3.31 billion.

Datadog (DDOG) closed up more than +3% in the Nasdaq 100 after Wolfe Research upgraded the stock to outperform from peer perform.

Raytheon Technologies (RTX) closed down more than -10% to lead losers in the S&P 500 after cutting its full-year free cash flow estimate to $4.3 billion from a previous estimate of $4.8 billion, below the consensus of $4.82 billion.

Airline stocks were on the defensive Tuesday after Alaska Air Group warned that declining airfares could hurt Q3 results and that demand for domestic travel has softened.  As a result, Alaska Air Group (ALK) closed down more than -9%.  Also, Southwest Airlines (LUV) closed down more than -4%, and United Airlines Holdings (UAL) closed down more than -3%.  In addition, Delta Air Lines (DAL) closed down more than -2%, and American Airlines Group (AAL) closed down more than -1%,

Invesco Ltd (IVZ) closed down more than -7% after reporting Q2 adjusted EPS of 31 cents, weaker than the consensus of 39 cents.

Dover Corp (DOV) closed down more than -3% after reporting Q2 adjusted EPS of $2.05, below the consensus of $2.20, and lowered eh upper end of its full-year adjusted EPS forecast to $8.85-$9.00 from a prior view of $8.85-$9.05.

Whirlpool (WHR) closed down more than -2% after reporting Q2 net sales of $4.79 billion, weaker than the consensus of $4.81 billion.

Avery Denison (AVY) closed down more than -1% after reporting Q2 net sales of $2.09 billion, below the consensus of $2.18 billion.

Across the markets…

September 10-year T-notes (ZNU23) Tuesday closed down -14.5 ticks, and the 10-year T-note yield rose +2.9 bp to 3.902%.  Sep T-notes Tuesday fell to a 1-1/2 week low, and the 10-year T-note yield rose to a 1-1/2 week high of 3.920%.  Stronger than expected U.S. economic news today on May S&P CoreLogic composite-20 home prices and the Conference Board Jul consumer confidence index weighed on T-note prices.  Also, expectations for the Fed to raise the fed funds target range by 25 bp on Wednesday undercut T-note prices. 

T-note prices recovered from their worst levels Tuesday on strong demand for the Treasury’s $43 billion auction of 5-year T-notes with a bid-to-cover ratio of 2.60, well above the 10-auction average of 2.48.  Also, speculation that the Fed may pause its interest rate hike campaign following the Tue/Wed FOMC meeting supported T-notes.

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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.