Stocks Post Moderate Gains on Strength in Energy Stocks and Lower Bond Yields

Rich Asplund - Barchart - Mon Jul 24, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.39%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.50%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.15%.

Stocks this morning are moderately higher, with the Dow Jones Industrial climbing to a 1-1/4 year high. Today’s rally in crude oil prices to a 3-month high is lifting energy stocks and boosting the overall market. Also, a decline in T-note yields today is positive for stocks.

Today’s U.S. economic news was mixed for equities. The Jun Chicago Fed activity index unexpectedly fell -0.4 to -0.32, weaker than expectations of an increase to -0.13. However, the Jul S&P manufacturing PMI unexpectedly rose +2.7 to 49.0, stronger than expectations of a decline to 46.2.

Quarterly corporate earnings results will be key to the stock market direction this week, with more than 500 major companies, including Alphabet and Meta Platforms, due to report earnings results. The earnings results will be scoured to see if slowing economic momentum shows up on profit margins.

The markets are expecting the Fed and the ECB this week to both raise their respective interest rates by 25 bp and will look for guidance from the central banks to see if more rate hikes are likely.

The markets are discounting the odds at 96% for a +25 bp rate hike at the Tue/Wed FOMC meeting. The markets are anticipating a peak funds rate of 5.42% by November, which is +34 bp higher than the current effective federal funds rate of 5.08%.

Global bond yields are lower. The 10-year T-note yield is down -1.2 bp at 3.823%. The 10-year German bund yield is down -4.7 bp at 2.422%. The 10-year UK Gilt yield is down -3.9 at 4.240%.

Overseas stock markets are mixed. The Euro Stoxx 50 is down -0.24%. China’s Shanghai Composite Index today closed down -0.11%. Japan’s Nikkei Stock Index closed up +1.23%.

Today’s stock movers…

Becton Dickson (BDX) is up more than +7% to lead gainers in the S&P 500 after receiving FDA approval for its updated Alaris Infusion System.

Generac Holdings (GNRC) is up more than +2% after CL King and Associates initiated coverage on the stock with a buy recommendation and a price target of $178.

Domino’s Pizza (DPZ) is up more than +2% after reporting Q2 adjusted EPS of $3.08, above the consensus of $3.04.

Chevron (CVX) is up more than +2% to lead gainers in the Dow Jones Industrials after reporting Q2 adjusted EPS of $3.08, better than the consensus of $2.91.

Lam Research (LRCX) is up more than +1% to lead gainers in the Nasdaq 100 after Stifel upgraded the stock to buy from hold with a price target of $725.

Energy stocks and energy service providers are climbing today, with the price of WTI crude up more than +1% at a 3-month high. As a result, Valero Energy (VLO), Haliburton (HAL), and Occidental Petroleum (OXY) are up more than +2%. Also, Exxon Mobil (XOM), Marathon Petroleum (MPC), Diamondback Energy (FANG), ConocoPhillips (COP), and Phillips 66 (PSX) are up more than +1%.

Kinder Morgan (KMI) is up more than +2% after reaffirming full-year adjusted Ebitda of $7.70 billion, above the consensus of $7.68 billion.

D.R. Horton (DHI) gained more than +1% after Raymond James upgraded the stock to outperform from market perform with a price target of $160.

Estee Lauder (EL) is down more than -3% to lead losers in the S&P 50 after Piper Sandler downgraded the stock to neutral from overweight.

Salesforce (CRM) is down more than -1% to lead losers in the Dow Jones Industrials on signs of insider selling after an SEC filing showed CEO Benioff sold $3.45 million of shares last Thursday.

Juniper Networks (JNPR) is down more than -2% after Raymond James downgraded the stock to outperform from a strong buy.

Interpublic Group (IPG) is down more than -2% after Wells Fargo Securities downgraded the stock to equal weight from overweight.

American Express (AXP) is down more than -1% after Piper Sandler downgraded the stock to underweight from neutral.

Gilead Sciences (GILD) is down more than -1% after a Phase 3 Enhance Study evaluating the company’s magolimab in combination with azacytidine in higher-risk myelodysplastic syndromes was halted.

Across the markets…

September 10-year T-notes (ZNU23) today are up +3 ticks, and the 10-year T-note yield is down -1.2 bp at 3.823%. Sep T-notes today are slightly higher on carryover support from a rally in 10-year German bunds. T-notes fell back from their best levels after today’s report on U.S. Jul S&P manufacturing activity unexpectedly increased. Also, supply pressures are weighing on T-notes ahead of the Treasury’s $42 billion auction of 2-year T-notes later today.

The dollar index (DXY00) today is up by +0.27% and posted a 1-1/2 week high. Weakness in the euro today is giving the dollar a boost after monthly PMI news missed expectations and hinted at a worsening slowdown in the Eurozone. The dollar extended its gains on today’s stronger-than-expected report on July S&P manufacturing activity.

EUR/USD (^EURUSD) today is down by -0.37% and fell to a 1-1/2 week low. Economic concerns are weighing on the euro after today’s Eurozone PMI reports were weaker than expected, a dovish factor for ECB policy. Also, political uncertainty in Spain is bearish for EUR/USD after Sunday’s undecisive election results may leave Spain facing months of instability without a fully functioning government.

The Eurozone Jul S&P manufacturing PMI unexpectedly fell -0.7 to 42.7, weaker than expectations of an increase to 43.5 and the steepest pace of contraction in more than three years. The Jul S&P composite PMI fell -1.0 to an 8-month low of 48.9, weaker than expectations of 49.6.

USD/JPY (^USDJPY) is down by -0.40%. The yen today is moderately higher against the dollar on reports that the BOJ this Friday would raise its consumer inflation projection to around 2.5% for the year ending in March, up from an April projection of 1.8%. Lower T-note yields today are also supportive for the yen.

Today’s Japanese economic news was bearish for the yen after the Jul Jibun Bank manufacturing PMI fell -0.4 to a 4-month low of 49.4.

August gold (GCQ3) today is down -4.9 (-0.25%), and Sep silver (SIU23) is down -0.260 (-1.05%). Precious metals prices this morning are moderately lower, with silver falling to a 1-week low. Today’s rally in the dollar index to a 1-1/2 week high is bearish for metals prices. Also, expectations for the Fed and ECB to raise interest rates this week are undercutting metals prices. Silver prices also fell on industrial metals demand concerns after the Eurozone Jul S&P manufacturing PMI contracted by the most in over three years. In addition, the liquidation by funds in their long gold positions is weighing on gold prices after long gold positions in ETFs fell to a 3-year low last Friday.

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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.