Stocks Finish Lower as Chip and Energy Stocks Decline

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.20%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.24%.

US stocks Tuesday gave up an early advance and posted modest losses. Weakness in chip stocks weighed on the overall market.  Also, energy producers fell after crude prices dropped to a 1-1/2 week low.  In addition, diabetes device makers retreated, with Insulet and Dexcom closing down more than -6%, on the news that Eli Lilly’s weight-loss drug Zepbound helped cut the risk of diabetes by 94% in obese and pre-diabetic patients.  Finally, Boeing closed down more than -4% after it said it paused test flights of its 777X jetliner while it inspects cracks in a crucial structural component, marking the latest setback to certify its largest jetliner. 

Stocks Tuesday initially moved higher, with the S&P 500 climbing to a 1-month high and the Nasdaq 100 posting a 4-week high.  Positive corporate news was supportive of stocks.  Palo Alto Networks closed up more than +7% after reporting Q4 revenue above consensus and forecasting stronger-than-expected 2025 revenue.  Also, Eli Lilly closed up more than +3% after it said a study of patients taking its Zepbound weight-loss drug were 94% less likely to develop diabetes in a three-year study. 

A decline in T-note yields Tuesday was bullish for stocks.  T-note yields fell on dovish comments from Fed Governor Bowman, who said, "Should the incoming data continue to show that inflation is moving sustainably toward our 2% goal, it will become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive."

The markets are awaiting the minutes of the July 30-31 FOMC meeting on Wednesday for clues as to how close the Fed is to cutting interest rates.  Also, the markets are waiting for the opening comments from Fed Chair Powell on Friday at the Fed’s annual symposium in Jackson Hole, Wyoming, for any fresh insights on the future course of Fed policy. 

The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 33% for a -50 bp rate cut at that meeting.

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 fell back from a 2-1/2 week high and closed down -0.28%.  China's Shanghai Composite closed down -0.93%.  Japan's Nikkei Stock 225 climbed to a 2-1/2 week high and closed up by +1.80%.

Interest Rates

September 10-year T-notes (ZNU24) Tuesday closed up +11 ticks.  The 10-year T-note yield fell -5.1 bp to 3.820%.  Sep T-notes Tuesday posted moderate gains. Dovish ECB comments knocked 10-year German bund yields lower Tuesday and provided carryover support to T-notes.  Also, a benign Canadian July CPI report today sparked a rally in 10-year Canadian bonds that underpinned T-note prices.  Gains in T-notes accelerated Tuesday when Fed Governor Bowman said she supports Fed rate cuts if inflation keeps falling.  Corporate supply pressures limited gains in T-notes, with as much as $20 billion of corporate debt expected to be sold this week, prompting bond dealers to short T-notes as a hedge against the incoming supply. 

European government bond yields on Tuesday moved lower.  The 10-year German bund yield fell -3.1 bp to 2.215%.  The 10-year UK gilt yield fell back from a 1-week high of 3.948% and finished down -0.7 bp at 3.915%.

Eurozone June construction output rose +1.7% m/m, the largest increase in 17 months.

Germany’s July PPI fell -0.8% y/y, the thirteenth consecutive month prices have fallen year-over-year.

ECB Governing Council member Rehn said, "In my view, the recent increase in negative growth risks in the Eurozone has reinforced the case for a rate cut at the next ECB monetary meeting in September, provided that disinflation is indeed on track."

The Bundesbank said in its monthly report that "the high level of willingness to strike until recently and the still widespread labor shortage suggest that comparatively high wage increases will continue in the future."  This will probably keep underlying inflation "at an elevated level."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.

US Stock Movers

Diabetes device makers were under pressure Tuesday on the news that Eli Lilly’s weight-loss drug Zepbound helped cut the risk of diabetes by 94% in obese and pre-diabetic patients in a three-year study, suggesting reduced rates of diabetes and a reduced need for diabetes monitoring devices in the future.  As a result, Insulet (PODD) closed down more than -6% to lead losers in the S&P 500.  Also, Dexcom (DXCM) closed down more than -6% to lead losers in the Nasdaq 100.

Chip stocks moved lower and weighed on the broader market. Nvidia (NVDA), ARM Holdings Plc (ARM), Microchip Technology (MCHP), Applied Materials (AMAT), Lam Research (LRCX), Marvell Technology (MRVL), and Intel (INTC) closed down more than -2%.  Also, KLA Corp (KLAC), NXP Semiconductors NV (NXPI), GlobalFoundries (GFS), and Analog Devices (ADI) closed down more than -1%. 

Tuesday’s decline in WTI crude prices to a 1-1/2 week low pressured energy stocks.  Phillips 66 (PSX), Valero Energy (VLO), and Marathon Petroleum (DXCM) closed down more than -4%.  Also, Diamondback Energy (FANG), APA Corp (APA), and Exxon Mobil (XOM) closed down more than -3%.  In addition, Devon Energy (DVN), Baker Hughes (BKR), Haliburton (HAL), and Schlumberger (SLB) closed down more than -2%.

Boeing (BA) closed down more than -4% to lead losers in the Dow Jones Industrials after it said it paused test flights of its 777X jetliner while it inspects cracks in a crucial structural component, marking the latest setback to certify its largest jetliner that is already about five years behind schedule. 

Dentsply Sirona (XRAY) closed down more than -5% after announcing that CFO Coleman will resign effective November 7.

Stride (LRN) closed down more than -4% after Citigroup downgraded the stock to neutral from buy, citing valuation. 

Estee Lauder (EL) closed down more than -3% after Morgan Stanley cut its price target on the stock to $100 from $140.

Bank of America (BAC) closed down more than -2% after an SEC filing showed Berkshire Hathaway sold $550.7 million of its Bank of America stock holdings between August 15-19.

Palo Alto Networks (PANW) closed up more than +7% to lead gainers in the S&P 500 and the Nasdaq 100 after reporting Q4 revenue of $2.20 billion, better than the consensus of $2.16 billion, and forecasting 2025 revenue of $9.10 billion-$9.15 billion, with the midpoint above the consensus of $9.11 billion. 

Darden Restaurants (DRI) closed up more than +3% after Raymond James said the company’s endless pasta promotion for its Olive Garden chain will boost its comparable sales in the coming weeks. 

Eli Lilly (LLY) closed up more than +3% after it said a study of patients taking its Zepbound weight-loss drug was 94% less likely to develop diabetes in a three-year study.  

Fabrinet (FN) is up more than +16% after reporting Q4 adjusted EPS of $2.41.  better than the consensus of $2.25 and forecasting Q1 adjusted EPS of $.33-$2.40, stronger than the consensus of $2.25. 

Hawaiian Holdings (HA) closed up more than +11% after Alaska Air Group said the waiting period for the antitrust review by the US Justice Department of its takeover of Hawaiian Holdings has expired, bringing the $1.9 billion merger one step closer to being finalized.

Amer Sports (AS) closed up more than +10% after reporting Q2 adjusted EPS of 5 cents, better than the consensus of a -6 cent loss, and raising its full-year adjusted EPS estimate to 40 cents-44 cents from a previous estimate of 30 cents-40 cents. 

PayPal Holdings (PYPL) closed up more than +2% after Adyen NV said it will offer PayPal’s Fastlane guest-checkout product to its merchant customers in the US, with plans to do so globally in the future. 

Earnings Reports (8/21/2024)

Agilent Technologies Inc (A), Analog Devices Inc (ADI), Macy's Inc (M), Nordson Corp (NDSN), Snowflake Inc (SNOW), Synopsys Inc (SNPS), Target Corp (TGT), TJX Cos Inc/The (TJX), Wolfspeed Inc (WOLF), Zoom Video Communications Inc (ZM).

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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.