Tech Stocks Close Slightly Higher on Strength in AI and Chip Stocks

The S&P 500 Index ($SPX) (SPY) Wednesday closed down by -0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down by -0.70%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.14%.

On Wednesday, stocks gave up early gains and settled mixed, with the Nasdaq 100 posting a 2-1/4 month high.  Higher T-note yields Wednesday led to some long liquidation pressures in equities. Also, negative corporate news undercut stocks.  General Motors closed down more than -4% after being downgraded to underweight at Morgan Stanley.  Also, KB Home closed down more than -5% after reporting weaker-than-expected Q3 EPS. 

Stock indexes Wednesday initially moved higher, with the S&P 500 and Dow Jones Industrials posting record highs.  Strength in chip stocks and AI infrastructure companies boosted technology stocks and supported gains in the Nasdaq 100.  Also, some positive corporate news was positive for stocks, with Progressive Software closing up more than +11% after reporting Q3 adjusted EPS above consensus and raising its full-year adjusted EPS forecast.  Flutter Entertainment Plc closed up more than +5% after projecting annual revenue increases of +14% annually to reach $21 billion in 2027 and authorizing a $5 billion stock repurchase program.

US MBA mortgage applications rose +11.0% in the week ended September 20, with the purchase mortgage sub-index up +1.4% and the refinancing mortgage sub-index up +20.3%.  The average 30-year fixed rate mortgage fell -2 bp to a 2-year low of 6.13% from 6.15% in the prior week.

US Aug new home sales fell -4.7% m/m to 716,000, a smaller decline than expectations of 700,000.

The markets are awaiting inflation news on Friday when the Fed's preferred inflation gauge, the US core PCE price index, is released.  The consensus is for an Aug core PCE price report of +0.2% m/m and +2.7% y/y, with the year-on-year figure rising slightly from +2.6% y/y in July.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 62% for a -50 bp rate cut at that meeting.

Overseas stock markets Wednesday settled mixed.  The Euro Stoxx 50 closed down -0.48%.  China's Shanghai Composite rallied to a 2-month high and closed up by +1.16%.   Japan's Nikkei Stock 225 closed down -0.19%.

Interest Rates

December 10-year T-notes (ZNZ24) Wednesday closed down -9.5 ticks.  The 10-year T-note yield rose +5.9 bp to 3.787%.  T-note prices Wednesday were under pressure on negative carryover from lower European government bond prices.  Also, supply pressures undercut T-notes as the Treasury auctioned $70 billion of 5-year T-notes and $28 billion of 2-year floating-rate notes Wednesday as part of this week’s $202 billion auction package of T-notes and floating-rate notes.  The T-note market now must contend with the Treasury’s $44 billion auction of 7-year T-notes on Thursday.

European government bond yields Wednesday moved higher.  The 10-year German bund yield rose +2.8 bp to 2.175%.  The 10-year UK gilt yield rose to a 3-week high of 3.998% and finished up +4.9 bp at 3.990%.

ECB Governing Council member Knot said, "I don't expect interest rates to return to the extremely low levels we saw before the pandemic," and he expects gradual interest-rate cuts "in the near future" and in the first half of next year.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 61% for the October 17 meeting.

US Stock Movers

Chip stocks and AI infrastructure companies rose Wednesday to lead the Nasdaq 100 higher.  Intel (INTC) closed up more than +3% to lead gainers in the Dow Jones Industrials Nasdaq 100.  Also, Nvidia (NVDA) and Advanced Micro Devices (AMD) closed up more than +2%.  In addition, ARM Holdings Plc (ARM), Lam Research (LRCX), and Micron Technology (MU) closed up more than +1%.

HP Enterprise (HPE) is up more than +4% to lead gainers in the S&P 500 after Barclays upgraded the stock to overweight from equal weight with a price target of $24. 

Progressive Software (PRGS) closed up more than +11% after reporting Q3 adjusted EPS of $1.26, stronger than the consensus of $1.14, and raising its full-year adjusted EPS forecast to $4.75-$4.85 from a previous estimate of $4.70-$4.80, better than the consensus of $4.75. 

Cintas (CTAS) closed up more than +1% after boosting its full-year revenue estimate to $10.22 billion-$10.32 billion from a previous estimate of $10.16 billion-$10.31 billion.

DoorDash (DASH) closed up more than +1% after KeyBanc Capital Markets upgraded the stock to overweight from sector weight with a price target of $177. 

Flutter Entertainment Plc (FLUT) closed up more than +5% after projecting annual revenue increases of +14% annually to reach $21 billion in 2027 and authorizing a $5 billion stock repurchase program.

AutoZone (AZO) closed up more than +2% after UBS raised its price target on the stock to $3,500 from $3,340.

Global Payments (GPN) closed down more than -6% to lead losers in the S&P 500 after William Blair downgraded the stock to market perform from outperform and described the company’s situation as being “stuck in the mud.”

Amgen (AMGN) closed down more than -5% to lead losers in the Dow Jones Industrials and Nasdaq 100 after giving updates from its immunology and rare disease drug development pipeline that Leering Partners said was “underwhelming.” 

KB Home (KBH) closed down more than -5% after reporting Q3 EPS of $2.04, below the consensus of $2.06, and reporting Q3 net orders of 3,085, below the consensus of 3,345. 

General Motors (GM) closed down more than -4% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $42.

Ford Motor (F) closed down more than -4% after Morgan Stanley downgraded the stock to equal weight from overweight. 

Tyson Foods (TSN) closed down more than -4% after Piper Sandler downgraded the stock to underweight from neutral with a price target of $50. 

ServiceNow (NOW) closed down more than -3%, and Okta (OKTA) closed down more than -1% after Piper Sandler noted the companies have the highest portion of federal contract dollars sourced through Carahsoft, the company in the middle of a US Department of Justice probe.

Earnings Reports (9/26/2024)

Accenture PLC (ACN), CarMax Inc (KMX), Costco Wholesale Corp (COST), Jabil Inc (JBL), TD SYNNEX Corp (SNX), Vail Resorts Inc (MTN).

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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.