Strength in Chip Stocks Pushes the S&P 500 to a New Record High

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.25%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.03%.

Stock indexes Tuesday posted modest gains, with the S&P 500 climbing to a new all-time high.  Strength in chipmakers Tuesday boosted the overall market, led by a +3% jump in Nvidia after Rosenblatt Securities raised its price target on the stock.  Also, a decline in T-note yields on Tuesday supported stocks.

Tuesday’s US economic news was mixed for stocks.  May retail sales rose less than expected and sparked concerns about consumer spending.  However, the stronger-than-expected report on May manufacturing production eased concerns about a slowdown in consumer spending.

US May retail sales rose +0.1% m/m, weaker than expectations of +0.3% m/m.  Also, Apr retail sales were revised downward to -0.2% m/m from the previously reported unchanged m/m.

US May manufacturing production rose +0.9% m/m, stronger than expectations of +0.3% m/m.

Fed comments Tuesday were mainly on the hawkish side as policymakers said they favored waiting before cutting interest rates. 

New York Fed President Williams said the US economy is "moving in the right direction" but needs more data before the Fed can cut interest rates.

Fed Governor Kugler said, "If the economy evolves as I am expecting, it will likely become appropriate to begin easing policy sometime later this year."

St. Louis Fed President Musalem said US interest rate cuts could be delayed for some time, and it's likely to take "quarters," not months, to see data support a reduction.

Dallas Fed President Logan said, "From a monetary policy perspective, we're in a good position; we're in a flexible position to watch the data and be patient.  We're going to need to see several months of that data to really have confidence in our outlook that we're headed to 2% on inflation." 

Boston Fed President Collins said, "It is too soon to determine whether inflation is durably on a path back to the 2% target, and this process may just take more time than previously thought." 

Richmond Fed President Barkin said recent US inflation figures are "very encouraging," but he'd like to see continued progress toward the Fed's 2% goal.

The markets are discounting the chances for a -25 bp rate cut at 10% for the next FOMC meeting on July 30-31 and 65% 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 Tuesday settled higher.  The Euro Stoxx 50 closed up +0.72%.  China's Shanghai Composite closed up +0.48%.  Japan's Nikkei Stock 225 Index closed up +1.00%.

Interest Rates

September 10-year T-notes (ZNU24) Tuesday closed up +12.5 ticks.  The 10-year T-note yield fell -6.4 bp to 4.217%.  T-notes recovered from early losses Tuesday and moved higher on the weaker-than-expected US May retail sales report, a dovish factor for Fed policy.  T-notes extended their gains Tuesday afternoon on strong demand for the Treasury’s $13 billion 20-year T-bond auction with a bid-to-cover ratio of 2.74, well above the 10-auction average of 2.61. 

European government bond yields on Tuesday moved lower.  The 10-year German bund yield fell -1.7 bp to 2.396%.  The 10-year UK gilt yield fell -6.7 bp to 4.048%.

The German Jun ZEW survey expectations of economic growth rose +0.4 to a 2-1/3 year high of 47.5, weaker than expectations of 50.0.

ECB Vice President Guindos said, "ECB forecasts are updated every three months, and the next one is in September.  The forecasts are an important indicator at the time of deciding how interest rates will evolve."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 6% for the July 18 meeting and 61% for the September 12 meeting.

US Stock Movers

Chip stocks rallied Tuesday to lead the broader market higher after Rosenblatt Securities raised its price target on Nvidia to $200 from $140.  As a result, Nvidia (NVDA) closed up more than +3%.  Also, Applied Materials (AMAT), Qualcomm (QCOM), and Microchip Technology (MCHP) closed up more than +2%.  In addition, KLA Corp (KLAC), Lam Research (LRCX), and Analog Devices (ADI) closed up more than +1%

Teradyne (TER) closed up more than +4% after UBS raised its price target on the stock to $170 from $130. 

Micron Technology (MU) closed up more than +3% after Bank of America added the stock to its US 1 list.

Constellation Energy (CEG) closed up more than +3% after UBS raised its price target on the stock to $249 from $227.

La-Z-Boy (LZB) closed up more than +19% after reporting Q4 sales of $553.5 million, stronger than the consensus of $520.5 million. 

Silk Road Medical (SILK) closed up more than +23% after Boston Scientific entered into a definitive agreement to buy the company for approximately $1.16 billion, or $27.50 a share. 

Kroger (KR) closed up more than +1% after BMO Capital Markets upgraded the stock to outperform from market perform with a price target of $60.

Ball Corp (BALL) closed down more than -6% to lead losers in the S&P 500 after the company said it was targeting 10%+ long-term EPS growth at its investor day conference, below projections from the 2023 investor day conference of EPS growth of 10% to 15%.

Homebuilders are sliding today after Lennar forecasted Q3 new orders of 20,500 to 21,000, below the consensus of 21,095.  As a result, Lennar (LEN) closed down more than -4%, and PulteGroup (PHM) closed down more than -3%.  Also, Toll Brothers (TOL) and DR Horton (DHI) closed down more than -2%.

Moderna (MRNA) closed down more than -3% to lead losers in the Nasdaq 100 on signs of insider selling after an SEC filing showed President Hoge sold $2.07 million of shares on Monday.

Tesla (TSLA) closed down more than -1% after CEO Musk said the company is working on offering stock-based compensation for top-performing employees.

Boeing (BA) closed down more than -1% to lead losers in the Dow Jones Industrials after a Boeing quality inspector alleged the company mishandled and lost track of as many as 400 faulty 737 Max aircraft parts, some of which may have been installed on new 737 Max planes.

Phillip Morris (PM) is down nearly -1% after stopping online sales of its flavored nicotine pouch brand Zyn in the US after affiliate Swedish Match North America received a subpoena from the DC Attorney General related to flavored nicotine products banned there. 

Earnings Reports (6/20/2024)

Accenture PLC (ACN), Darden Restaurants Inc (DRI), Jabil Inc (JBL), Kroger Co/The (KR).

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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.