Stocks Surge as Tech and Trade Deficit Data Boost Market Confidence
The S&P 500 Index ($SPX) (SPY) closed up by +0.97% on Tuesday, while the Dow Jones Industrials Index ($DOWI) (DIA) increased by +0.30%. The Nasdaq 100 Index ($IUXX) (QQQ) led the gains with a rise of +1.55%.
In a positive trading session, stocks ended higher, driven largely by strong performance from major technology companies. The Nasdaq 100 reached a one-week high, reflecting broad confidence in the market. This optimism was bolstered by remarks from New York Fed President John Williams, who indicated that the Federal Reserve is “well positioned” to achieve a soft landing for the U.S. economy. Moreover, the U.S. trade deficit for August dropped to a five-month low, appearing to contribute positively to Q3 GDP expectations.
Despite this positive momentum, higher Treasury note yields presented a challenge for stocks. The 10-year Treasury note yield climbed to a 2-1/4 month high influenced by hawkish comments from St. Louis Fed President Musalem, who cautioned against easing monetary policy too quickly. Additionally, crude oil prices fell by -4%, impacting energy sector stocks negatively.
Ongoing tensions in the Middle East also weighed on market sentiment. The Israel Defense Force (IDF) announced the deployment of additional troops in Lebanon, intensifying its military response to threats from Hezbollah. Investors are closely monitoring Israel’s actions following a missile attack from Iran last week.
The U.S. trade deficit narrowed to -$70.4 billion in August, down from -$78.9 billion in July—this was better than the anticipated -$70.5 billion, marking the smallest deficit seen in five months.
Fed Governor Kugler emphasized the importance of keeping inflation close to the 2% target while also being mindful of potential negative impacts on employment and economic growth. Musalem reiterated this sentiment, stating the risks of premature easing outweigh the costs of a delayed response.
As markets look ahead, investors are preparing for consumer price index (CPI) data to be released on Thursday. The forecast predicts a decrease in the September CPI to +2.3% year-over-year, down from +2.5% in August. The core CPI, excluding food and energy, is expected to hold steady at +3.2% year-over-year. Additionally, Q3 earnings season begins on Friday with major U.S. banks set to report their results.
Currently, the markets view an October 25 basis-point rate cut during the Federal Open Market Committee (FOMC) meeting on November 6-7 as a high possibility (88%), while the odds of a 50 basis-point cut are considered negligible (0%).
International markets posted mixed results on Tuesday. The Euro Stoxx 50 dipped by -0.42%, whereas China’s Shanghai Composite surged by +4.59%, reaching a 2-3/4 year high. Japan’s Nikkei Stock 225, on the other hand, fell by -1.00%.
Interest Rates
On Tuesday, December 10-year T-notes (ZNZ24) decreased by -0.5 of a tick. The yield on the 10-year T-note increased by +0.7 basis points to 4.033%, with the yield reaching a 2-1/4 month high of 4.055%. T-notes faced selling pressure as equities gained, which reduced demand for safe-haven T-notes, coupled with hawkish comments from Fed officials about the risks of easing monetary policy too quickly. A weaker-than-expected bid-to-cover ratio of 2.45 for the Treasury’s $58 billion auction of 3-year T-notes also contributed to the downward pressure on T-note prices.
T-notes rebounded somewhat during Tuesday’s session as short covering supported them, coinciding with a recovery in European government bonds. Additionally, the -4% drop in crude oil prices eased inflation expectations, benefiting T-note prices.
European government bond yields dipped after an early rise. The yield on the 10-year German bund fell slightly from a one-month high of 2.264% to 2.243%. Similarly, the 10-year UK gilt yield decreased from a three-month high of 4.221% to 4.184%.
In Germany, industrial production rose by +2.9% month-over-month in August, outperforming expectations of +0.8%. Meanwhile, ECB Executive Board member Elderson commented on the weaker-than-expected Eurozone economy, hinting that if inflation converges to the 2% target by the second half of 2025, the ECB may gradually ease its restrictive stance.
Swaps currently suggest a 95% chance of a -25 basis point rate cut by the ECB at the upcoming meeting on October 17.
US Stock Movers
Technology stocks were the day’s big winners, with major players leading the charge. Netflix (NFLX) climbed over +3%, while Tesla (TSLA), Apple (AAPL), Amazon.com (AMZN), Meta Platforms (META), and Microsoft (MSFT) saw gains exceeding +1%.
Palo Alto Networks (PANW) surged more than +5%, topping the Nasdaq 100 after BNP Paribas Exane rated it as outperform with a $410 price target. Airlines and cruise line stocks also benefited from lower crude prices, with Carnival (CCL) up more than +4%, and Norwegian Cruise Line Holdings (NCLH) rising more than +3%. Delta Air Lines (DAL) and Royal Caribbean Cruises (RCL) also saw gains of more than +2%.
Nvidia (NVDA) increased more than +4% after Hon Hai announced plans to build the world’s largest facility to produce Nvidia’s GB200 AI chips. Additionally, DocuSign (DOCU) rose more than +6% following news that it will join the S&P Midcap 400 Index on October 11.
Affirm Holdings (AFRM) jumped over +7% after being upgraded by BTIG LLC with a target price of $68. Humana (HUM) and Waters Corp (WAT) also experienced gains of over +2% following positive ratings from analysts.
Conversely, energy stocks struggled following the drop in crude prices, with Marathon Petroleum (MPC) leading losses with a drop of over -7%. Valero Energy (VLO) and Phillips 66 (PSX) fell more than -5%. A wider drop in energy sectors affected companies like Haliburton (HAL) and ConocoPhillips (COP), which fell more than -3% each.
Chinese stocks listed in the U.S. declined as the National Development and Reform Commission failed to announce new stimulus measures. PDD Holdings (PDD) dropped over -5%, while JD.com (JD), Alibaba Group Holdings (BABA), and others also saw losses exceeding -5%.
Mining stocks faced challenges after copper prices fell over -2% to a two-week low, impacting companies like Freeport McMoran (FCX) and Southern Copper (SCCO), which each dropped more than -3%. Albemarle (ALB) fell over -3%, following a downgrade by CFRA, and Otis Worldwide (OTIS) fell more than -2% after Wolfe Research downgraded its rating.
American Express (AXP) decreased by over -1% after being downgraded by BTIG LLC, which set a $230 price target.
Earnings Reports (10/9/2024)
Notable earnings reports set for release include Applied Digital Corp (APLD), AZZ Inc (AZZ), Byrna Technologies Inc (BYRN), E2open Parent Holdings Inc (ETWO), Helen of Troy Ltd (HELE), and Richardson Electronics Ltd/Uni (RELL).
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On the date of publication,
Rich Asplund
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