Stocks Finish Higher on Strength in Mega-Cap Tech Stocks

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.27%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.13%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.66%.

Stock indexes on Monday posted moderate gains. Strength in mega-cap tech stocks boosted the broader market on Monday.  Higher bond yields on Monday limited gains in stocks as the 10-year T-note yield climbed to a 4-week high.  Also, concern that the economy is losing momentum is negative for stocks after Monday’s US economic news showed the Jun ISM manufacturing index and May construction spending unexpectedly declined.

US stocks also had some carryover support from a rally in European stocks as the Euro Stoxx 50 rose to a 2-week high Monday after French parliamentary elections Sunday showed Marine Le Pen’s far-right party faces a tougher-than-expected road to an absolute majority, signaling there’s a reduced chance of French policymakers being able to enact extreme policies that would rattle financial markets. 

The US Jun ISM manufacturing index unexpectedly fell 0.2 to a 4-month low of 48.5, weaker than expectations of an increase to 49.1.  The Jun ISM price paid sub-index fell -4.9 to a 6-month low of 52.1, weaker than expectations of 55.9.

US May construction spending unexpectedly fell -0.1% m/m versus expectations of +0.2% m/m.

The markets are discounting the chances for a -25 bp rate cut at 9% for the next FOMC meeting on July 30-31 and 61% for the following meeting on September 17-18.

Overseas stock markets today are higher.  The Euro Stoxx 50 rose to a 2-week high and closed up +0.73%. China's Shanghai Composite rose to a 1-week high and closed up +0.92%.  Japan's Nikkei Stock 225 Index rose to a 2-3/4 month high and closed up +0.12%.

Interest Rates

September 10-year T-notes (ZNU24) Monday closed down -26 ticks.  The 10-year T-note yield rose +8.5 bp to 4.481%.  Sep T-notes Monday dropped to a 3-week low, and the 10-year T-note yield rose to a 4-week high of 4.491%.  T-notes retreated Monday on negative carryover from a decline in European government bonds.  Also, an increase in inflation expectations weighed on T-notes after the 10-year breakeven inflation rate rose to a 3-1/2 week high today at 2.328%.  In addition, T-notes were under pressure after Morgan Stanley said the growing prospect of a Trump presidential victory is making yield curve steepening trades attractive as growth will likely slow and inflation quicken under such a scenario. 

European government bond yields Monday moved higher.  The 10-year German bund yield rose to a 2-1/2 week high of 2.609% and finished up +10.7 bp at 2.607%.  The 10-year UK gilt yield rose to a 2-1/2 week high of 4.286% and finished up +10.9 bp at 4.281%. 

The Eurozone Jun S&P manufacturing PMI was revised upward by 0.2 to 45.8 from the previously reported 45.6.

German Jun CPI (EU harmonized) eased to +2.5% y/y from +2.8% y/y in May, right on expectations.

ECB President Lagarde said the ECB doesn’t yet have sufficient evidence that inflation threats have passed, bolstering expectations the ECB will delay further interest rate cuts.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 12% for the July 18 meeting and 65% for the September 12 meeting.

US Stock Movers

Strength in mega-cap technology stocks Monday gave the overall market a boost after Morgan Stanley said investors “should stay selective” and maintain a bias toward quality US Stocks heading into election season.  As a result, Apple (AAPL), Amamzon.com (AMZN), and Microsoft (MSFT) closed up more than +2%.

Tesla (TSLA) closed up more than +6% to lead gainers in the S&P 500 and Nasdaq 100 after Wells Fargo added the stock to its Tactical Ideas List for the third quarter.

Merck & Co (MRK) closed up more than +3% to lead gainers in the Dow Jones Industrials after it converted its co-exclusive license covering prostate cancer drug candidate Opevesostat with Orion into an exclusive global license for Merck.

Spirit AeroSystems (SPR) closed up more than +3% after Boeing agreed to buy the company for approximately $4.7 billion, or $37.25 per share, in an all-stock deal.

Teleflex (TFX) is up more than +2% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $245.

Cryptocurrency-linked stocks are climbing today, with the price of Bitcoin (^BTCUSD) up more than +4% at a 1-week high. As a result, Coinbase Global (COIN), Marathon Digital (MARA), and Riot Platforms (RIOT) closed up +5% or more.   

Birkenstock Holding Plc (BIRK) closed up more than +2% after UBS upgraded the stock to buy from neutral with a price target of $65.

Cruise line operators were under pressure Monday as Hurricane Beryl rushed toward the Caribbean, the earliest a Category 4 hurricane has formed since records began in 1851.  As a result, Norwegian Cruise Line Holdings (NCLH) closed down more than -5% to lead losers in the S&P 500.  Also, Carnival (CCL) closed down more than -5%, and Royal Caribbean Cruises (RCL) closed down more than -1%.

Homebuilders retreated Monday after the 10-year T-note yield rose to a 4-week high, which will push mortgage rates higher and is a negative factor for housing demand.  As a result, PulteGroup (PHM) closed down more than -3%.  Also, Toll Brothers (TOL), DR Horton (DHI), and Lennar (LEN) closed down more than -2%. 

O’Reilly Automotive (ORLY) closed down more than -3% after Barclays cut its Q2 comparable sales estimate for the company to +2%, below the consensus of +3.7%, citing ongoing demand headwinds.  AutoZone (AZO) also closed down more than -4% on the news. 

Walgreens Boots Alliance (WBA) closed down mor than -4% after JPMorgan Chase cut its price target on the stock to $20 from $30.

GE Vernova (GEV) closed down more than -1% after Pekao Investment Banking initiated coverage of the stock with a sell rating and a price target of $128.

Zimmer Biomet Holdings (ZBH) closed down more than -1% after Piper Sandle downgraded the stock to neutral from overweight.

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.