Broader Market Settles Higher on Chip Stock Strength

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.10%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.08%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.23%.

Stock indexes on Monday settled mixed, with the S&P 500 and Nasdaq 100 posting new record highs and the Dow Jones Industrials retreating from a 6-week high.  Strength in chip stocks on Monday led technology stocks higher and boosted the overall market.  However, weakness in software stocks limited the upside for stock indexes, and a -3% slump in Nike weighed on the Dow Jones Industrials.

US stocks had carryover support from reduced political tensions in France.  The Euro Stoxx 50 rose to a 3-week high Monday after Sunday’s elections in France showed a surprise victory for the far-left party that produced a divided parliament with no clear majority.  That outcome limits how much any party can do, leading to expectations that President Macron will form a new coalition between the center and center-left.

The markets are looking ahead to Fed Chair Powell’s semiannual monetary policy report to the Senate Banking Committee on Tuesday and to the House Financial Services Committee on Wednesday.  The markets will then look to Thursday’s June US CPI report to see if price pressures are continuing to ease.  The consensus is that the June CPI eased to +3.1% y/y from +3.3% y/y in May, and the June core CPI remained unchanged from May at +3.4% y/y.  Finally, Q2 earnings season begins Friday as some of the biggest US banks, including JPMorgan Chase, Citigroup, and Wells Fargo, will report quarterly results.  

Monday’s economic news showed US May consumer credit rose +$11.354 billion, stronger than expectations of +$8.850 billion and the largest increase in 4 months.

The markets are discounting the chances for a -25 bp rate cut at 7% for the next FOMC meeting on July 30-31 and 73% for the following meeting on September 17-18.

Overseas stock markets Monday settled lower.  The Euro Stoxx 50 fell back from a 3-week high and closed down -0.19%.  China's Shanghai Composite fell to a 4-1/2 month low and closed down -0.93%.  Japan's Nikkei Stock 225 Index fell back from a record high and closed down -0.32%.

Interest Rates

September 10-year T-notes (ZNU24) Monday closed down -0.5 of a tick.  The 10-year T-note yield fell -0.7 bp to 4.271%.  Sep T-notes Monday were little changed on caution ahead of Tuesday’s semiannual testimony to Congress from Fed Chair Powell. Also, supply pressures are weighing on T-notes as the Treasury will auction $119 billion of T-notes and T-bonds this week, beginning with Tuesday’s auction of $58 billion of 3-year T-notes. 

European government bond yields Monday moved lower.  The 10-year German bund yield fell -1.6 bp to 2.540%.  The 10-year UK gilt yield fell to a 1-1/2 week low of 4.100% and finished down -1.2 bp at 4.113%. 

The Eurozone July Sentix investor confidence index fell -7.6 to a 4-month low of -7.3, weaker than expectations of -0.5.

German May exports fell -3.6% m/m, weaker than expectations of -2.8% m/m and the biggest decline in 5 months.  May imports fell -6.6% m/m, weaker than expectations of -1.0% m/m and the biggest decline in 17 months.

ECB Governing Council member Muller said Eurozone wage gains and service-price growth remain elevated, and "for that reason, the ECB can't rush with lowering interest rates."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 7% for the July 18 meeting and 72% for the September 12 meeting.

US Stock Movers

Paramount Global (PARA) closed down more than -5% to lead losers in the S&P 500 despite agreeing to merge with Skydance Media as KeyBanc Capital Markets said the stock will likely trade lower in the near term as the weakness reflects “the uncertain EBITDA trajectory of legacy Paramount” and a valuation that “appears high relative to peers.” 

ServiceNow (NOW) closed down more than -4% after Guggenheim Securities downgraded the stock to sell from neutral with a price target of $640. 

Software stocks were under pressure on Monday and weighed on the overall market.  Atlassian (TEAM) and MongoDB (MDB) closed down more than -2%.  Also, Ansys (ANSS), Datadog (DDOG), Workday (WDAY), Salesforce (CRM), Paycom Software (PAYC), and Intuit (INTU) closed down more than -1%.

Nike (NKE) closed down more than -3% to lead losers in the Dow Jones Industrials after Jim Cramer said the company’s latest conference call was a “call of despair” and he “can’t find anything going right for the company.”

Devon Energy (DVN) closed down more than -1% after it acquired the Williston Basin business of Grayson Mill Energy for $5 billion, an amount that several analysts said was expensive.

Brinker International (EAT) is down nearly -1% after Raymond James downgraded the stock to outperform from a strong buy.   

The strength of chip stocks on Monday was supportive of the overall market.  Intel (INTC) closed up more than +6% to lead gainers in the Dow Jones Industrials and Nasdaq 100.  Also, Advanced Micro Devices (AMD) and Marvell Technology (MRVL) closed up more than +3%.  In addition, ON Semiconductor (ON) and Broadcom (AVGO) closed up more than +2%.  Finally,  Nvidia (NVDA), Texas Instruments (TXN), Applied Materials (AMAT), KLA Corp (KLAC), Lam Research (LRCX), Microchip Technology (MCHP), Qualcomm (QCOM), NXP Semiconductors NV (NXPI), and Analog Devises (ADI) closed up more than +1%.

Corning (GLW) closed up more than +11% to lead gainers in the S&P 500 after reporting preliminary Q2 core sales of $3.60 billion, better than the consensus of $3.41 billion.

R1 RCM Inc (RCM) closed up more than +15% after top holder TCP-ASC said it is in the process of finalizing a proposal to acquire all of the outstanding shares of the company that it doesn’t already own. 

Morphic Holding (MORF) closed up more than +74% after Eli Lilly agreed to purchase the company in a deal valued at $3.2 billion.

StoneCo (STNE) closed up more than +5% after UBS upgraded the stock to buy from neutral with a price target of $17.

Gilead Sciences (GILD) closed up more than +1% after Raymond James upgraded the stock to outperform from market perform with a price target of $93. 

Domino’s Pizza (DPZ) closed up more than +1% after Baird upgraded the stock to outperform from neutral with a price target of $580.

Earnings Reports (7/9/2024)

Byrna Technologies Inc (BYRN), Helen of Troy Ltd (HELE), Kura Sushi USA Inc (KRUS), SMART Global Holdings Inc (SGH).

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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.