S&P 500 and Nasdaq 100 Post Record Highs on Rate Cut Expectations

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.54%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.02%.

Stock indexes Friday settled moderately higher, with the S&P 500 and Nasdaq 100 posting new record highs.  Stocks found support Friday after the US June payroll report bolstered the outlook for the Fed to cut interest rates this year.  Jun nonfarm payrolls rose more than expected by +16,000, but May payrolls were revised lower by -54,000.  T-note yields tumbled after the US Jun unemployment rate unexpectedly rose to a 2-1/2 year high, and Jun average hourly earnings posted their slowest annual pace of increase in 3 years.

Weaknesses in energy stocks were a negative factor for the overall market after crude prices gave up an early advance and turned lower.  Also, airline stocks retreated Friday after Raymond James downgraded Spirit Airlines and Frontier, citing “weaker fare trends.”  In addition, Nvidia fell more than -1% after being downgraded at New Street Research.

US Jun nonfarm payrolls rose +206,000, stronger than expectations of +190,000.  However, May nonfarm payrolls were revised down to +218,000 from the previously reported +272,000.  Also, the Jun unemployment rate unexpectedly rose +0.1 to a 2-1/2 year high of 4.1%, showing a weaker labor market than expectations of no change at 4.0%.

US Jun average hourly earnings eased to +3.0% y/y from +4.1% y/y in May, right on expectations and the slowest pace of increase in 3 years.

Friday's comments from New York Fed President Williams were slightly hawkish when he said, "Inflation is now around 2.5%, so we have seen significant progress in bringing it down. But we still have a way to go to reach our 2% target on a sustained basis."

The price of Bitcoin (^BTCUSD) fell more -3% Friday to a 4-month low. Concerns about the potential selling of Bitcoin by creditors and governments are weighing on cryptocurrencies. Administrators of the failed Mt Gox exchange are returning $8 billion of Bitcoin to creditors, with uncertainty about how much of that will eventually get sold weighing on the overall market. According to Arkham Intelligence, a Mt Gox-linked wallet moved $2.7 billion worth of the token on Friday. Also, there are signs that German authorities are preparing to sell some of the 50,000 Bitcoin they seized earlier from online criminals, pressuring Bitcoin.

The markets are discounting the chances for a -25 bp rate cut at 7% for the next FOMC meeting on July 30-31 and 77% for the following meeting on September 17-18.

Overseas stock markets Friday settled mostly lower.  The Euro Stoxx 50 fell back from a 3-week high and closed down -0.16%.  China's Shanghai Composite fell to a 4-1/2 month low and closed down -0.26%.  Japan's Nikkei Stock 225 Index fell back from a record high and closed unchanged.

Interest Rates

September 10-year T-notes (ZNU24) on Friday closed up +18 ticks.  The 10-year T-note yield fell -8.4 bp to 4.275%.  Sep T-notes today climbed to a 1-week high, and the 10-year T-note yield fell to a 1-week low of 4.269%.  T-notes rallied Friday on speculation the Fed is closer to cutting interest rates after the US Jun payroll report showed the unemployment rate unexpectedly rose to a 2-1/2 year high and wage growth cooled as Jun average hourly earnings posted their slowest annual pace of increase in 3 years.  T-notes extended their gains after inflation expectations declined when the 10-year breakeven inflation rate dropped to a 1-week low Friday of 2.261%. 

European government bond yields Friday ended lower.  The 10-year German bund yield fell -5.2 bp to 2.556%.  The 10-year UK gilt yield fell to a 1-week ow of 4.121% and finished down -7.2 bp at 4.125%. 

Eurozone May retail sales rose +0.1% m/m, weaker than expectations of +0.2% m/m.

German May industrial production unexpectedly fell -2.5% m/m, weaker than expectations of a +0.1% m/m increase and the biggest decline in 17 months.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 5% for the July 18 meeting and 72% for the September 12 meeting.

US Stock Movers

The strength of mega-cap technology stocks on Friday boosted the overall market.  Meta Platforms (META) closed up more than +5% to lead gainers in the S&P 500.  Also, Alphabet (GOOGL) closed up more than +2%.  In addition, Apple (AAPL), Amazon.com (AMZN), and Microsoft (MSFT) closed up more than +1%. 

Chip stocks rallied Friday after Samsung Electronics reported better-than-expected Q2 earnings results.  As a result, ARM Holdings Plc (ARM) closed up more than +7% to lead gainers in the Nasdaq 100.  Also, Advanced Micro Devices (AMD) and Globalfoundries (GFS) closed up more than +4%.  In addition, ON Semiconductor (ON) and Qualcomm (QCOM) closed up by more than +1%. 

Macy’s (M) closed up more than +9% after the Wall Street Journal reported that Arkhouse Management and Brigade Capital management have raised their buyout offer for the company to about $6.9 billion. 

Baxter International (BAX) closed up more than +5% after the Wall Street Journal reported that Carlyle Group is in advanced talks to acquire Vantive for more than $4 billion.

Constellation Brands (STZ) closed up more than +3% after Citigroup said the recent weakness following earnings results this week presented a buying opportunity.

Golar LNG (GLNG) closed up more than +6% after it signed a deal with Pan American Energy for a 20-year deployment of a floating liquified natural gas vessel in Argentina.

Airline stocks were under pressure Friday after Raymond James downgraded Spirit Airlines and Frontier, citing “weaker fare trends.”  As a result, Southwest Airlines (LUV) closed down more than -5% to lead losers in the S&P 500.  Also, Alaska Air Group (ALK) closed down more than -4%, and United Airlines Holdings (UAL) closed down more than -3%.  In addition, Delta Air Lines (DAL) closed down more than -2%.

Energy stocks and energy service providers retreated Friday after the price of WTO crude gave up an early advance and moved lower.  As a result, Valero Energy (VLO) closed down more than -3%.  Also, Schlumberger (SLB), Marathon Petroleum (MPC), APA Corp (APA), Devon Energy (DVN), Marathon Oil (MRO), and Haliburton (HAL) closed down more than -2%.   are down more than -3%.

Nvidia (NVDA) closed down more than -1% after New Street Research downgraded the stock to neutral from buy.

Defensive healthcare stocks are under pressure today.  Universal Health Services (UHS) closed down more than -2%.  Also, Molina Healthcare (MOH), HCA Healthcare (HCA), and Cigna Group (CI) closed down more than -1%.  Also, Centene (CNC) closed down -0.54%, and UnitedHealth Group (UNH) closed down -0.34%.

Jacobs Solutions (J) closed down more than -1% on signs of inside selling after an SEC filing showed Executive Chair Demetriou sod $979,580 of shares on Monday. 

Earnings Reports (7/8/2024)

3D Systems Corp (DDD), Greenbrier Cos Inc/The (GBX), KalVista Pharmaceuticals Inc (KALV).

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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.