Stocks Slump on Weakness in Chipmakers and Energy Stocks

The S&P 500 Index ($SPX) (SPY) today is down -1.52%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -2.28%.

Stocks today are sharply lower, with the Nasdaq 100 sliding to a 2-1/2 week low as weakness in chip stocks drags down the overall market. Also, today’s -3% plunge in WTI crude prices to a 7-1/2 month low weighed on energy stocks.  Losses in stocks accelerated on today’s weaker-than-expected ISM manufacturing and construction spending reports. 

US stocks are also being undercut by concern that weakness in China’s economy will derail global growth prospects after China’s Aug manufacturing PMI unexpectedly fell -0.3 to a 6-month low of 49.1, weaker than expected of an increase to 49.5.

The US Aug ISM manufacturing index rose +0.4 to 47.2, weaker than expectations of 47.5.  The Aug ISM price paid sub-index unexpectedly rose +1.1 to 54.0 versus expectations of a decline to 52.0, which was hawkish for Fed policy.

US July construction spending unexpectedly fell -0.3% m/m, weaker than expectations of a +0.1% m/m increase and the biggest decline in 1-3/4 years.

The financial markets are awaiting fresh US economic news this week that will offer insight into the health of the US economy and help determine the path of the Fed’s interest rate policy.  On Thursday, the Aug ISM services index is expected to ease to 51.1 from 51.4 in July.  Also, Friday’s monthly payroll report is expected to show Aug nonfarm payrolls rose +165,000 from +114,000 in July, and the Aug unemployment rate is expected to ease to 4.2% from 4.3% in July.

The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 39% for a -50 bp rate cut at that meeting.

Overseas stock markets today are lower.  The Euro Stoxx 50 fell back from a 7-week high and is down -1.05%.  China's Shanghai Composite fell to a 6-3/4 month low and closed down -0.29%.  Japan's Nikkei Stock 225 closed down -0.04%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up +17 ticks.  The 10-year T-note yield is down -7.3 bp at 3.831%.  Dec T-notes today recovered from a 2-week low and are moderately higher, and the 10-year T-note yield fell back from a 2-week high of 3.930%.  Weakness in stocks today spurred some safe-haven buying of T-notes.   Also, a -3% plunge in crude prices today has weighed on inflation expectations and boosted T-notes after the 10-year breakeven inflation rate fell to a 1-week low of 2.119%.  T-notes extended their gains on today’s weaker-than-expected US ISM manufacturing and construction spending reports, dovish factors for Fed policy. 

Supply pressures are negative for T-notes, with as much as $55 billion of corporate debt expected to be issued this week, which prompts bond dealers to short T-notes as a hedge against the incoming supply.   

European government bond yields today are moving lower.  The 10-year German bund yield is down -7.0 bp at 2.268%.  The 10-year UK gilt yield is down -7.8 bp at 3.977%.

The Eurozone Aug S&P manufacturing PMI was revised upward by +0.2 to 45.8 from the previously reported 45.6.

German May retail sales fell -1.1% y/y, weaker than expectations of -0.7% y/y.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% for the September 12 meeting.

US Stock Movers

Chip stocks are falling today and are weighing on the overall market. Nvidia (NVDA) is down more than -7% to lead losers in the Nasdaq 100.  Also, Intel (INTC), KLA Corp (KLAC), Marvell Technology (MRVL), GlobalFoundries (GFS), and ARM Holdings Plc (ARM) are down more than -6%.  In addition, Micron Technology (MU), ON Semiconductor (ON), Analog Devices (ADI), Microchip Technology (MCHP), Broadcom (AVGO), and Lam Research (LRCX) are down more than -5%.  Finally, Advanced Micro Devices (AMD), ASML Holding NV (ASML), Qualcomm (QCOM), and Texas Instruments (TXN) are down more than -4%. 

Energy producers and energy service providers are moving lower, with the price of WTI crude oil down more than -3% to a 7-1/2 month low.  As a result, APA Corp (APA) is down more than -5%, and Devon Energy (DVN) is down more than -4%.  Also, Diamondback Energy (FANG), Phillips 66 (PSX), Baker Hughes (BKR), Haliburton (HAL), Schlumberger (SLB), ConocoPhillips (COP), Marathon Oil (MRO), and Valero Energy (VLO) are down more than -3%.

Mining stocks are under pressure today, with Comex copper futures prices down more than -3% at a 2-week low.  Freeport McMoRan (FCX) is down more than -7%.  Also, Southern Copper (SCCO) and ArcelorMittal (MT) are down more than -5%.

Defensive consumer durable stocks are climbing with today’s rout in the broader market.  Church & Dwight (CHD), J M Smucker (SJM), and Campbell Soup (CPB) are up more than +3%.  Also, Constellation Brands (STZ), Clorox (CLX), and Procter & Gamble (PG) are up more than +2%. 

Boeing (BA) is down more than -8% to lead losers in the S&P 500 and Dow Jones Industrials after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $119. 

US Steel (X) is down more than -3% after US presidential candidate Harris said the company should remain domestically owned and operated, which may hurt Nippon Steel’s proposed takeover of US Steel.

Sphere Entertainment (SPHR) is down more than -4% after Benchmark downgraded the stock to sell from hold.

CME Group (CME) is down more than -1% after Bank of America Global Research downgraded the stock to underperform from neutral. 

Super Micro Computer (SMCI) is up more than +2% after CEO Liang said the company doesn’t anticipate any material changes in its fourth quarter of fiscal year 2024 results even after delaying its annual report filing. 

Autodesk (ADSK) is up more than +2% after HSBC upgraded the stock to buy from hold with a price target of $299.

Unity Software (U) is up more than +7% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $22. 

Southwest Airlines (LUV) is up more than +2% after Reuters reported that Elliot Investment Management increased its stake in the company to 10% of outstanding shares, which allows the hedge fund to call a special meeting of Southwest’s board of directors.

Vaxcyte (PCVX) is up more than +36% after the company’s Vax-31 vaccine, designed to prevent invasive pneumococcal disease, was advanced to a Phase 3 program after it demonstrated robust opsonophagocytic immune response in a previous study. 

Earnings Reports (9/3/2024)

Asana Inc (ASAN), Gitlab Inc (GTLB), HealthEquity Inc (HQY), Lovesac Co/The (LOVE), PagerDuty Inc (PD), Zscaler Inc (ZS).

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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.