Stocks Finish Lower Ahead of Friday’s Comments from Fed Chair Powell

The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.89%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.43%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.68%.

US stocks gave up an early advance on Thursday and moved lower as bond yields rose and after the US manufacturing PMI fell to the lowest level in 8 months. Stocks were also weighed down by speculation that Fed Chair Powell, in his comments at the Jackson Hole Fed symposium on Friday, will downplay the need for a 50 bp rate cut at next month’s FOMC meeting.

The S&P 500 and Nasdaq 100 Thursday initially posted 1-month highs, and the Dow Jones Industrials posted a 3-week high on some favorable corporate news.  Zoom Video Communications rose more than +12% after reporting better-than-expected Q2 revenue and raising its full-year revenue estimate.  Also, Nordson rose more than +2% after reporting stronger-than-expected Q3 sales.

On the negative side, Thursday's rise in T-note yields sparked a sell-off in chip stocks.  Also, Advance Auto Parts plunged more than -17% after cutting its full-year net sales forecast.  In addition, Williams-Sonoma dropped more than -9% after reporting weaker-than-expected Q2 net revenue and cutting its full-year net revenue forecast.

Higher bond yields on Thursday were negative for stocks.  Hawkish comments from Kansas City Fed President Schmid pushed bond yields higher when he said he wants to see more economic data before supporting any decision to begin cutting interest rates since demand could pick up again if the Fed isn't careful. 

However, the rise in bond yields was limited after Boston Fed President Collin said she expects the Fed to begin easing interest rates soon and that "a gradual, methodical pace" of cuts is likely to be appropriate.  Also, Philadelphia Fed President Harker said he's on board with a September interest rate cut if data is as expected and that "a slow, methodical approach to lowering rates is the right way to go."

US weekly initial unemployment claims rose +4,000 to 232,000, right on expectations.  Weekly continuing claims rose +4,000 to 1.863 million, showing a slightly stronger labor market than expectations of 1.870 million. 

S&P’s US manufacturing PMI fell -1.6 to 48.0, weaker than expectations of 49.5 and the weakest report in 8 months.

US July existing home sales rose +1.3% m/m to 3.95 million, slightly stronger than expectations of 3.94 million.

The markets are awaiting the opening comments from Fed Chair Powell on Friday at the Fed’s annual symposium in Jackson Hole, Wyoming, for any fresh insights on the future course of Fed policy. 

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

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 fell from a 4-week high and closed down -0.01%.  China's Shanghai Composite closed down -0.27%.  Japan's Nikkei Stock 225 rallied to a 3-week high and closed up by +0.68%.

Interest Rates

September 10-year T-notes (ZNU24) Thursday closed down -19 ticks.  The 10-year T-note yield rose +5.3 bp to 3.854%.  Sep T-notes Thursday were under pressure from higher European government bond yields.  T-notes extended their losses on hawkish comments from Kansas City Fed President Schmid, who said he wants to see more economic data before supporting any decision to begin cutting interest rates.  T-note prices were also weighed down by speculation that Fed Chair Powell, in his comments at the Jackson Hole Fed symposium on Friday, will downplay the need for a 50 bp rate cut at next month’s FOMC meeting.

European government bond yields Thursday finished higher.  The 10-year German bund yield rose +5.4 bp to 2.244%.  The 10-year UK gilt yield rose to a 1-1/2 week high of 3.964% and finished up +7.0 bp at 3.960%.

The S&P Aug Eurozone manufacturing PMI fell -0.2 to 45.6, weaker than expectations of no change at 45.8.  However, the Aug Eurozone composite PMI unexpectedly rose +1.0 to 51.2, stronger than expectations of a decline to 50.1. 

The ECB reported that Q2 Eurozone negotiated wage growth eased to +3.6% y/y from +4.7% y/y in Q1.

The Eurozone Aug consumer confidence index unexpectedly fell -0.4 to -13.4, weaker than expectations of an increase to -12.6.

The summary of the ECB's July 17-18 policy meeting stated that "The September meeting was widely seen as a good time to re-evaluate the level of monetary-policy restriction as new economic data and a new set of staff projections would be available."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 97% for the September 12 meeting.

US Stock Movers

Thursday's weakness in chip stocks weighed on the broader market. Intel (INTC) closed down more than -6% to lead losers in the Dow Jones Industrials.  Also, Advanced Micro Devices (AMD), Lam Research (LRCX), ON Semiconductor (ON), and Applied Materials (AMAT) closed down more than -4%.  In addition, Nvidia (NVDA), Microchip Technology (MCHP), GlobalFoundries (GFS), ASML Holding NV (ASML), KLA Corp (KLAC), Marvell Technology (MRVL), and NXP Semiconductors NV (NXPI) closed down more than -3%.

Software stocks sold off Thursday, led by a -13% fall in Snowflake (SNOW) after it forecasted full-year product revenue of $850 million-$855 million, below some estimates of as much as $900 million.  Also, MongoDB (MDB) closed down more than -5%, and Microsoft (MSFT) closed down more than -2%. 

Zoom Video Communications (ZM) closed up more than +12% after reporting Q2 revenue of $1.16 billion, better than the consensus of $1.15 billion, and raising its full-year revenue estimate to $4.63 billion-$4.64 billion from a previous estimate of $4.61 billion-$4.62 billion. 

Nordson (NDSN) closed up more than +3% after reporting Q3 sales of $661.6 million, better than the consensus of $656.3 million.

Edwards Lifesciences (EW) closed up more than +1% after Citigroup opened a 90-day positive watch on the stock. 

Southwest Airlines (LUV) closed up more than +1% after it began a survey to seek customer feedback on possible changes to its policy allowing free checked bags as the company is under pressure from activists to overhaul its business and boost profitability. 

Paramount Global (PARA) closed up more than +1% after media investor Bronfman raised his offer to buy the company to $6 billion from a $4.3 billion offer he made last week.

Advance Auto Parts (AAP) closed down more than -17% after cutting its full-year net sales forecast to $11.15 billion-$11.25 billion from a previous view of $11.30 billion-$11.40 billion, weaker than the consensus of $11.29 billion. 

Williams-Sonoma (WSM) closed down more than -9% after reporting Q2 net revenue of $1.79 billion, weaker than the consensus of $1.81 billion, and cutting its full-year net revenue forecast to down -1.5% to -4.0% from a previous estimate of -3% to +3%. 

Urban Outfitters (URBN) closed down more than -9% after reporting Q2 comparable retail segment sales rose +2.00%, below the consensus of +2.94%. 

Sprout Social (SPT) closed down more than -6% after KeyBank Capital Markets downgraded the stock to underweight from sector weight with a price target of $28.

Earnings Reports (8/23/2024)

Aviat Networks Inc (AVNW), Buckle Inc/The (BKE), Dakota Gold Corp (DC), Dakota Gold Corp (DC), Movado Group Inc (MOV).

More Stock Market News from Barchart

• Dollar Rallies Ahead of Fed Chair Powell’s Comments
• LINE vs. COLD: Which REIT is a Better Buy?
• If I Could Buy 1 AI Stock, This Is It - Especially Ahead of Q2 Earnings
• 5 Analyst-Approved Retail Stocks to Bet on the U.S. Consumer

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.