Stocks Stabilize on Reduced Fears About A Weaker Economy

The S&P 500 Index SPY today is up +0.22%, the Dow Jones Industrials Index DIA is up +0.55%, and the Nasdaq 100 Index QQQ is down -0.14%.

US stocks are mixed today following Wednesday's plunge, when the S&P 500 index fell -2.31% and the Nasdaq 100 index fell -3.65%. Wednesday's plunge was driven by disappointing Tesla and Google earnings, weakness in chip stocks, doubts about when AI bets will pay off, concern about economic growth, and US political uncertainty.

Today's US economic reports were on the stronger side and reduced fears that the US economy might be headed for trouble, led by weaker consumer spending. 

US Q2 real GDP rose +2.8% (y/y annualized), stronger than expectations of +2.0% and up from Q1's growth rate of +1.4%. In addition, Q3 personal consumption rose +2.3%, stronger than expectations of +2.0% and up from Q1's growth rate of +1.5%. The GDP report helped to ease market fears about reduced consumer spending and a slowing economy. The inflation news in the report was positive, with the GDP price index easing to +2.3% from +3.1% in Q1 and the core PCE price index falling to +2.9% from +3.7% in Q1.

Looking ahead, the markets are expecting US GDP to ease to +2.0% in Q3 and +1.6% in Q4. On an annual basis, the markets are expecting US GDP to ease to +1.8% in 2025 from an expected growth rate of +2.3% in 2024 and +2.5% in 2023.

US weekly initial unemployment claims fell by -8,000 to 235,000, which showed a slightly stronger labor market than expectations for a decline to 238,000. Weekly continuing claims fell -16,000 to 1.851 million, showing a slightly stronger labor market than expectations for a report of 1.868 million.

US June durable goods orders plunged by -6.6%, much weaker than expectations of +0.3%. However, the decline was mostly in the airline segment since June durable goods orders ex-transportation rose +0.5% m/m, stronger than expectations of +0.2%. June capital goods orders excluding defense and aircraft, a proxy for US corporate capital spending, rose +1.0%, stronger than expectations of +0.2% and better than May's report of a revised -0.9%.

Stock investors will continue to focus on tech stocks, with key earnings reports on tap for next week. Magnificent 7 companies reporting next week include Microsoft MSFT on Tuesday, Meta META on Wednesday, and Apple AAPL and Amazon AMZN on Thursday. Nvidia NVDA is expected to report earnings on August 28. Tesla TSLA and Alphabet GOOG were the first of the Magnificent 7 to report earnings, with their reports late Wednesday. 

The market consensus is that Q2 earnings for the S&P 500 companies will rise +9% y/y. About one-third of the companies in the S&P 500 have reported thus far. The majority of reporting companies have beaten their earnings consensus, but only 43% have beaten revenue expectations, the lowest percentage in five years, according to Bloomberg.

The markets are looking ahead to Friday's PCE deflator report for an update on when inflation may have fallen enough to allow the Fed to proceed with a rate cut. The PCE deflator is the Fed's preferred inflation measure. The consensus is that Friday's June PCE deflator will ease to +2.4% y/y from May's +2.6%, and the June core PCE deflator will ease to +2.5% y/y from May's +2.6%. The expected PCE deflator reports of +2.4% y/y (headline) and +2.5% y/y (core) would represent new 3-1/4 year lows for both measures, which would give the Fed more confidence that inflation will continue to move lower towards its +2% inflation target.

The markets are discounting the chances for a -25 bp rate cut at 7% for next week's FOMC meeting on July 30-31, and 100% for the following meeting on September 17-18 if the FOMC does not cut rates next week.

Overseas stock markets on Thursday are lower. The Euro Stoxx 50 is down -1.15%. China's Shanghai Composite closed down -0.52% for the fourth consecutive daily decline. Japan's Nikkei Stock 225 Index closed sharply lower by -3.28% for the seventh consecutive daily decline.

Interest Rates

September 10-year T-notes (ZNU24) today are up +11.5 ticks. The 10-year T-note yield fell by -5.9 bp to 4.225%. T-note prices are seeing support from increased hopes that the Fed will cut rates soon in response to expected weaker US economic growth. T-note prices also have support from today's -1.7 bp drop in the 10-year inflation expectations rate to 2.252%, the fourth consecutive daily decline. 

Today's US economic reports were net bearish for T-note prices. Also, T-note prices are being undercut by supply pressures ahead of the Treasury's sale later today of $44 billion of 7-year T-notes.

European government bond yields are lower. The 10-year German bund yield today is down -2.1 bp at 2.423%. The 10-year UK gilt yield is down -2.3 bp at 4.133%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 93% for the September 12 meeting.

US Stock Movers

Alphabet GOOG today is down -0.4%, and Tesla TSLA is up +3.7%, after the two companies led the US stock market sharply lower on Wednesday due to disappointing earnings reports. Google on Wednesday fell -5.03% and Tesla plunged -12.33%.

Chip stocks are on the loser board again today, undercutting tech stocks and the broad market. ON Semiconductor ON is down -2.4%. Meanwhile, AMD AMD, Micron Technology MU, NXP Semiconductors NXPI, and Microchip Technology MCHP are down more than -1%. However, KLA Corp KLAC is up +2% after reporting earnings since some analysts note that KLA should benefit from improved chip spending trends.

Lululemon LULU at the top of the Nasdaq 100 loser board with a -6.9% loss after Citi cut its rating on the stock to neutral from buy.

Honeywell HON is also high on the Nasdaq 100 loser board with a loss of more than -4% after the company cut its 2024 earnings guidance. 

Royal Caribbean Cruises RCL is down more than -3% after its earnings report, although it became the first cruise operator to reinstate dividends following the pandemic. Carnival CCL is down more than -3% today.

Las Vegas Sands LVS is down more than -1% after its Q2 revenue missed expectations.

New York Community Bancorp NYCB is down more than -5% after reporting a larger-than-expected provision for loan losses.

Teradyne TER is down more than -12% after Q3 earnings guidance was weaker than expected.

American Air AAL is up more than +5% after its earnings report. United Airlines UAL is up about +2%, and Delta Air Lines DAL is up more than +1%.

Earnings Reports (7/24/2024)

CBRE Group Inc (CBRE), Northrop Grumman Corp (NOC), Pool Corp (POOL), Dow Inc (DOW), Honeywell International Inc (HON), LKQ Corp (LKQ), Keurig Dr Pepper Inc (KDP), Valero Energy Corp (VLO), Masco Corp (MAS), Nasdaq Inc (NDAQ), AbbVie Inc (ABBV), RTX Corp (RTX), CMS Energy Corp (CMS), West Pharmaceutical Services I (WST), DTE Energy Co (DTE), Royal Caribbean Cruises Ltd (RCL), American Airlines Group Inc (AAL), Willis Towers Watson PLC (WTW), PG&E Corp (PCG), Tractor Supply Co (TSCO), Hasbro Inc (HAS), Dover Corp (DOV), Carrier Global Corp (CARR), Southwest Airlines Co (LUV), Union Pacific Corp (UNP), VeriSign Inc (VRSN), Eastman Chemical Co (EMN), Principal Financial Group Inc (PFG), Baker Hughes Co (BKR), Juniper Networks Inc (JNPR), Healthpeak Properties Inc (DOC), Dexcom Inc (DXCM), Edison International (EIX), Weyerhaeuser Co (WY), Mohawk Industries Inc (MHK), Veralto Corp (VLTO), Norfolk Southern Corp (NSC), Digital Realty Trust Inc (DLR), L3Harris Technologies Inc (LHX), Cincinnati Financial Corp (CINF), Arthur J Gallagher & Co (AJG), Hartford Financial Services Gr (HIG), Deckers Outdoor Corp (DECK).

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.