Stocks Recover Early Losses and Close Higher as Chip Stocks Surge

The S&P 500 Index ($SPX) (SPY) Wednesday closed up by +1.07%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.31%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +2.17%.

Stocks on Wednesday recovered from early losses and settled higher, with the Nasdaq 100 climbing to a 1-week high.  Strength in chip stocks on Wednesday led to gains in technology stocks and powered the overall market higher.

Wednesday’s as-expected US consumer price report initially weighed on stocks after the Aug US core CPI was unchanged from July at +3.2% y/y, well above the Fed’s +2.0% target.  The stickiness of core prices boosted T-note yields and knocked the chances of a 50 bp rate cut at next week’s FOMC meeting down to 14% from 50% after the release of last Friday’s US payroll report. 

US MBA mortgage applications rose +1.4% in the week ended September 6, with the purchase mortgage sub-index up +1.8% and the refinancing mortgage sub-index up +0.9%.  The average 30-year fixed rate mortgage fell -14 bp to a 19-month low of 6.29% from 6.43% in the prior week.

US Aug CPI eased to +2.5% y/y from +2.9% y/y in July, right on expectations and the smallest increase in 3-1/2 years.  However, Aug CPI ex-food and energy was unchanged from July at +3.2% y/y, right on expectations.

The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 14% for a -50 bp rate cut at that meeting.

Overseas stock markets Wednesday settled mixed.  The Euro Stoxx 50 closed up +0.35%.  China's Shanghai Composite fell to a 7-month low and closed down -0.82%.  Japan's Nikkei Stock 225 closed down by -1.49%.

Interest Rates

December 10-year T-notes (ZNZ24) Wednesday closed down by -4 ticks.  The 10-year T-note yield rose +1.1 bp to 3.653%.  Dec T-notes Wednesday fell back from a 15-month high, and the 10-year T-note yield rebounded from a 15-month low of 3.603%.  T-notes retreated after the US Aug core CPI rose +3.2% y/y, right on expectations but well above the Fed’s 2.0% price target. The core CPI report knocked the chances of a 50 bp rate cut at next week’s FOMC meeting down to 14% from 50% last Friday.   The recovery in stocks on Wednesday also curbed safe-haven demand for T-notes. 

T-notes Wednesday initially moved higher on carryover support from a rally in European government bonds as 10-year German bunds and 10-year UK gilts climbed to 5-week highs.  T-notes also found support on strong demand for the Treasury’s $39 billion auction of reopened 10-year T-notes that had a bid-to-cover ratio of 2.64, well above the 10-auction average of 2.50. 

European government bond yields on Wednesday moved lower.  The 10-year German bund yield fell to a 5-week low of 2.085% and finished down -1.9 bp at 2.112%.  The 10-year UK gilt fell to a 5-week low of 3.742% and finished down -5.8 bp at 3.761%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.

US Stock Movers

Wednesday’s rally in chip stocks supported gains in the broader market.  ARM Holdings Plc (ARM) closed up more than +9% to lead gainers in the Nasdaq 100.  Also, Nvidia (NVDA) closed up more than +8%, and Broadcom (AVGO) and ASML Holding NV (ASML) closed up more than +6%.  In addition, KLA Corp (KLAC), Lam Research (LRCX), Advanced Micro Devices (AMD), Marvell Technology (MRVL), Micron Technology (MU), and Applied Materials (AMAT) closed up more than +4%.  Finally, Intel (INTC), ON Semiconductor Corp (ON), and Qualcomm (QCOM) closed up more than +3%. 

Health insurance stocks with Medicare Advantage plans fell for a second day Wednesday after Leerink Partners published a report Tuesday that said those plans might have a tougher time earning high-quality “star ratings” that drive bonus payments.  As a result, Humana (HUM) closed down more than -5% to lead losers in the S&P 500.  Also, UnitedHealth Group (UNH) and CVS Health Corp (CVS) closed down more than -1%.

Defensive food manufacturers retreated Wednesday on the rally in the broader equity market.  As a result, Conagra Brands (CAG) closed down more than -4%, and Campbell Soup (CPB) closed down more than -3%.  Also, Hershey (HSY), Sysco (SYY), Hormel Foods (HRL), Tyson Foods (TSN), and General Mills (GIS) closed down more than -2%.

Albemarle (ALB) closed up more than +13% as lithium stocks rallied after UBS said CATL curtailed lithium production at its Jiangxi operation. 

Starbucks (SBUX) closed up more than +5% after CEO Niccol said he is open to exploring a new joint venture partnership structure in China.

AES Corp (AES) closed up more than +8% after Jeffries initiated coverage on the stock with a recommendation of buy and a price target of $20. 

Viking Therapeutics (VKTX) closed up more than +11% after JPMorgan Chase initiated coverage on the stock with a recommendation of overweight and a price target of $80.

Viridian Therapeutics (VRDN) closed up more than +5% after Needham & Co. raised its price target on the stock to $48 from $30.

William-Sonoma (WSM) closed up more than +2% after Jeffries upgraded the stock to buy from hold with a price target of $156.   

Trump Media & Technology (DJT) closed down more than -10% following last night’s Harris-Trump debate, as the odds on the betting website PredictIt of Vice President Harris winning the presidency rose to 56% Wednesday morning from 53% before the debate. 

GameStop (GME) closed down more than -12% after reporting Q2 net sales of $798.3 million, weaker than the consensus of $895.5 million. 

Rollins Inc (ROL) closed down more than -2% on negative carryover from a -20% plunge in peer Rentokil after it issued a surprise downgrade to its full-year growth estimates. 

Earnings Reports (9/12/2024)

Adobe Inc (ADBE), Caleres Inc (CAL), IBEX Holdings Ltd (IBEX), Ispire Technology Inc (ISPR), Kroger Co/The (KR), Lovesac Co/The (LOVE), NexPoint Diversified Real Esta (NXDT), Radiant Logistics Inc (RLGT), RH (RH), Signet Jewelers Ltd (SIG), Value Line Inc (VALU).

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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.