Stocks Trade Cautiously Ahead of Tech Earnings

The S&P 500 Index ($SPX) (SPY) today is up +0.34%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.39%.

Stocks are seeing support from a mild decline in the 10-year T-note yield, which was fueled by weaker-than-expected US economic reports. 

However, US stocks today are trading on a cautious note ahead of tech earnings.  Tesla (TSLA) and Alphabet (GOOG) are reporting after today’s close in the first batch of earnings reports from the Magnificent Seven.  Mag 7 reports next week include Microsoft (MSFT) on Tuesday, Meta (META) on Wednesday, and Apple (AAPL) and Amazon (AMZN) on Thursday.  Nvidia (NVDA) is expected to report earnings on August 28. 

Today’s June US existing home sales report of -5.4% to 3.89 million was weaker than market expectations for a -3.2% drop to 3.98 million. Home sales continue to be undercut by high mortgage rates and high home prices.

Today’s July Richmond Fed manufacturing index fell by -7 points to -17, weaker than expectations for a +3 point rise to -7.  The July Richmond Fed business conditions index fell by -1 point to -8, although June was revised higher by 3 points to -8 from -11.

Today’s July Philadelphia Fed non-manufacturing activity index fell sharply to -19.1 from 2.9 in June.

Vice President Harris has already locked up enough delegates in virtual voting to win the nomination as the Democratic presidential candidate at the Democratic convention in Chicago on August 19-22.  The so-called Trump trade so far remains largely intact following President Biden’s decision on Sunday to drop out of the race. The Trump trade favors sectors benefiting from tax cuts, looser fiscal policy, higher trade tariffs, and weaker regulations. 

The market consensus is that Q2 earnings for the S&P 500 companies will rise +9% y/y.  Of the 16% of companies in the S&P 500 that have reported thus far, the majority have beaten their earnings forecasts, according to Bloomberg.

The markets are looking ahead to Friday’s PCE deflator report for an update on when inflation may have fallen by enough to allow the Fed to proceed with a rate cut.  The PCE deflator is the Fed’s preferred inflation measure.  The consensus is that Friday’s June PCE deflator will ease to +2.4% y/y from May’s +2.6%, and the June core PCE deflator will ease to +2.5% y/y from May’s +2.6%.  The expected PCE deflator reports of +2.4% y/y (headline) and +2.5% y/y (core) would represent new 3-1/4 year lows for both measures, which would give the Fed more confidence that inflation will continue to move lower towards its +2% inflation target.

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on July 30-31 and 98% for the following meeting on September 17-18.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +0.33%, adding to Monday’s gain of +1.45%. China's Shanghai Composite closed down -1.65%.  Japan's Nikkei Stock 225 Index closed down -0.01%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +5.5 ticks.  The 10-year T-note yield is down -2.3 bp at 4.229%.  T-note prices are seeing support as the 10-year breakeven inflation expectations rate today fell by -1.1 bp to 2.281%.  T-note prices are also seeing carry-over support from lower government bond yields in Germany and the UK.

However, T-note prices are being undercut by supply pressures.  The Treasury will auction $69 billion of 2-year T-notes later today, $30 billion of 2-year floating rate notes and $70 billion of 5-year T-notes on Wednesday, and $44 billion of 7-year T-notes on Thursday.

European government bond yields are lower.  The 10-year German bund yield is down -5.5 bp at 2.441%. The 10-year UK gilt yield is down -2.7 bp at 4.133%.

The preliminary-July Eurozone consumer confidence index rose by +1.0 point to -13.0, which was slightly stronger than expectations for a +0.5 point increase to -13.5.

ECB Vice President Luis de Guindos said today that the ECB, at its September meeting, will be in a much better place to make a monetary policy decision from an information standpoint than in July.  The ECB left rates unchanged at its meeting last week, but ECB President Lagarde said the next ECB meeting on Sep 11-12 is “wide open.”

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 80% for the September 12 meeting.

US Stock Movers

NXP Semiconductors (NXPI) is down -9% after weaker-than-expected management guidance for Q3 revenue.  The report undercut the chip sector, which rallied sharply on Monday but is featured on the Nasdaq loser board today.  ON Semiconductor (ON), Texas Instruments (TXN), Analog Devices (ADI), and Microchip Technology (MCHP) are all down more than -3% today.

Mega-cap tech stocks are supporting the stock market today, with Amazon (AMZN) up more than +3%.  Meta (META), Apple (AAPL), and Microsoft (MSFT) are all up more than +1%.

UPS (UPS) is down -13% after a Q2 adjusted earnings miss ($1.79 per share versus expectations of $1.98) stemming from wage pressure and soft demand. 

Spotify (SPOT) is up +12% after reporting stronger-than-expected subscriber growth and better-than-expected gross margins.

HCA Healthcare (HCA) is up more than +3% on better-than-expected earnings, a Q2 revenue gain of +10% y/y, and an increase in management guidance for 2024 earnings and revenue.  The report provided underlying support for hospital peers such as Universal Health Services (UHS), which is up nearly +0.5%, and Community Health Systems (CYH), which is down -0.1%.

Comcast (CMCSA) is down -5% after a Q2 revenue miss, although earnings and Ebitda were favorable.

Delta Airlines (DAL) today is little changed after the US Department of Transportation opened a probe into why the airline was hit much harder than other airlines by the Crowdstrike/Microsoft outage. Delta has extended flight cancelations into this week.  Delta on Monday fell by -3.42%, more than giving back last Friday’s +1.45% rise.

Earnings Reports (7/23/2024)

United Parcel Service Inc (UPS), General Motors Co (GM), Kimberly-Clark Corp (KMB), Avery Dennison Corp (AVY), PulteGroup Inc (PHM), Quest Diagnostics Inc (DGX), HCA Healthcare Inc (HCA), Danaher Corp (DHR), Sherwin-Williams Co/The (SHW), Lockheed Martin Corp (LMT), Invesco Ltd (IVZ), A O Smith Corp (AOS), Genuine Parts Co (GPC), Freeport-McMoRan Inc (FCX), Pentair PLC (PNR), Coca-Cola Co/The (KO), Comcast Corp (CMCSA), Moody's Corp (MCO), MSCI Inc (MSCI), NVR Inc (NVR), Philip Morris International In (PM), General Electric Co (GE), PACCAR Inc (PCAR), Capital One Financial Corp (COF), Packaging Corp of America (PKG), CoStar Group Inc (CSGP), EQT Corp (EQT), Visa Inc (V), Texas Instruments Inc (TXN), Enphase Energy Inc (ENPH), Seagate Technology Holdings PL (STX), Alphabet Inc (GOOGL), Chubb Ltd (CB), Tesla Inc (TSLA).

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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.