Stocks Climb as the Fed’s Favored Inflation Gauge Falls

The S&P 500 Index ($SPX) (SPY) today is up +0.32%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.33%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.35%.

Stock indexes today are moderately higher, with the S&P 500 and Nasdaq 100 posting 1-week highs as easing US price pressures knocked T-note yields lower and bolstered the chances of Fed interest rate cuts this year.  Today’s economic news showed the US May core PCE deflator, the Fed’s preferred inflation gauge, eased +2.6% y/y from +2.8% y/y in April, right on expectations and the slowest pace of increase in 3 years.

Stocks also have support on quarter-end window dressing as stock fund managers buy stocks that performed well this quarter to put into their portfolios with today the last trading day of Q2. 

Comments today from Richmond Fed President Barkin were slightly hawkish when he said, "Given the remarkable strength we are seeing in the economy," he is open to the idea that the longer run rate that keeps supply and demand in balance "has shifted up somewhat" and that policy may not be as restrictive as perceived.

US May personal spending rose +0.2% m/m, weaker than expectations of +0.3% m/m.  May personal income rose +0.5% m/m, stronger than expectations of +0.4% m/m.

The US May core PCE price index eased to +2.6% y/y form +2.8% y/y in Apr, right on expectations and the slowest pace of increase in 3 years.

The markets are discounting the chances for a -25 bp rate cut at 10% for the next FOMC meeting on July 30-31 and 60% for the following meeting on September 17-18.

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 down -0.20%.  China's Shanghai Composite closed up +0.73%.  Japan's Nikkei Stock 225 Index closed up +0.61%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +6 ticks.  The 10-year T-note yield is down -2.5 bp to 4.261%.  T-notes today recovered from overnight losses and moved higher on signs of cooling US price pressures after the May core PCE price index increased by the slowest pace in more than three years, bolstering the outlook for Fed rate cuts this year. 

T-notes today initially moved lower after inflation expectations rose when the 10-year breakeven inflation rate rose to a 2-week high today at 2.287%.  Also, hawkish comments today from Richmond Fed President Barkin undercut T-note prices when he said Fed policy may not be as restrictive as perceived.

European government bond yields today are moving lower.  The 10-year German bund yield is down -0.4 bp to 2.444%.  The 10-year UK gilt yield is down -1.5 bp at 4.116%.

The Eurozone's May ECB 1-year inflation expectations eased to 2.8% from 2.9% in Apr, the slowest pace of increase in 2-1/2 years.  The May 3-year inflation expectations eased to 2.3% from 2.4% in April, the slowest pace of increase in 2-1/4 years.

German Jun unemployment rose by +19,000, showing a weaker labor market than expectations of +15,000.  The Jun unemployment rate rose +0.1 to a 3-year high of 6.0%, showing a weaker labor market than expectations of no change at 5.9%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 9% for the July 18 meeting and 67% for the September 12 meeting.

US Stock Movers

United Rentals (URI) is up more than +4% to lead gainers in the S&P 500 after Raymond James initiated coverage on the stock with a recommendation of outperform and a price target of $750.

Healthcare stocks are climbing today and giving support to the overall market. Humana (HUM) is up more than +3%.  Also, UnitedHealth Group (UNH) is up more than +2% to lead gainers in the Dow Jones Industrials. 

Synchrony Financial (SYF) is up more than +3% after Baird initiated coverage on the stock with a recommendation of outperform and a price target of $56.

Tesla (TSLA) is up more than +2% after Bloomberg NEF reported Q1 global electric vehicles rose +24% y/y to 3.2 million units.

Trump Media & Technology (DJT) is up more than +4% after a CNN flash poll showed 67% of debate watchers believe Trump won Thursday night’s debate with President Biden. 

Infinera (INFN) is up more than +18% after Nokia Oyj agreed to buy the company in a deal valued at about $2.3 billion.

Digital Realty Trust (DLR) is up more than +1% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $175. 

Nike (NKE) is down more than -17% to lead losers in the S&P 500 and Dow Jones Industrials after reporting Q4 revenue of $12.61 billion, weaker than the consensus of $12.86 billion, and forecasting Q1 revenue to be down about 10%.  Other athletic apparel makers fell on the news with Lululemon Athletica (LULU) down more than -3% to lead losers in the Nasdaq 100.  Also, Foot Locker (FL), Dicks Sporting Goods (DKS), and Under Armour (UAA) are down more than -1%.

Estee Lauder (EL)  is down more than -5% on negative carryover from a fall in L’Oreal SA after L’Oreal said it expects slower growth for the overall beauty market this year due to weakness in Chinese sales.

Travelers Cos (TRV) is down more than -1% after Citigroup downgraded the stock to sell from neutral with a price target of $200.

Rocket Pharmaceuticals (RCKT) is down more than -9% after the FDA rejected the company’s drug application for gene therapy, Kresladi, to treat leukocyte adhesion deficiency-I. 

Kura Sushi USA (KRUS) is down -24% after forecasting 2024 sales between $235 million-$237 million, weaker than the consensus of $246 million.

Xerox Holdings (XRX) is down more than -3% after Citigroup initiated coverage of the stock with a recommendation of sell and a price target of $11.

Hartford Financial Services Group (HIG) is down more than -1% after Citigroup downgraded the stock to neutral from buy. 

Earnings Reports (6/28/2024)

DZS Inc (DZSI), Inhibrx Biosciences Inc (INBX), NET Lease Office Properties (NLOP).

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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.