Stocks Close Little Changed Ahead of Mega-Cap Tech Earnings

Rich Asplund - Barchart - Wed Jul 19, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.24%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.31%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.09%.

Stocks Wednesday settled mixed, with the S&P 500 and the Dow Jones Industrials posting 15-month highs. The Nasdaq 100 fell from an early 1-1/2 year high on long liquidation and position squaring ahead of some Q2 mega-cap technology earnings results, including IBM, Netflix, and Tesla.

Positive Q2 corporate earnings results were supportive for stocks on Wednesday. Also, easing inflation pressures in the UK sparked a rally in European government bonds, as the 10-year UK gilt yield fell to a 6-week low, which fueled rallies in U.S. bonds and stocks. The UK June CPI eased to +7.9% y/y from +8.7% y/y in May, better than expectations of +8.2% y/y. Stock indexes kept their gains, and bond yields remained lower, on Wednesday’s weaker-than-expected U.S. June housing starts report.

U.S. June housing starts fell -8.0% m/m to 1.434 million, weaker than expectations of 1.480 million. June building permits, a proxy for future construction, unexpectedly fell -3.7% m/m to 1.440 million, weaker than expectations of an increase to 1.500 million.

The markets are discounting the odds at 96% for a +25 bp rate hike at the next FOMC meeting on July 25-26. 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 mixed. The 10-year T-note yield dropped to a 2-1/2 week low of 3.725% and finished down -4.6 bp at 3.739%. The 10-year German bund yield fell to a 3-week low of 2.317% but rebounded and finished up +4.9 bp at 2.438%. The 10-year UK gilt yield fell to a 6-week low of 4.145% and finished down -11.6 bp at 4.215%.

Overseas stock markets Wednesday settled mixed. The Euro Stoxx 50 closed down -0.17%. China’s Shanghai Composite Index today closed up +0.03%. Japan’s Nikkei Stock Index closed up +1.24%.

Today’s stock movers…

Northern Trust (NTRS) closed up more than +13% to lead gainers in the S&P 500 after reporting a Q2 recovery of credit losses of $15.5 million, beating the estimated provision of $6.32 million.

AT&T (T) closed up more than +8% after it said less than 10% of its nationwide copper-wire telecom network had lead-clad cables.

U.S. Bancorp (USB) closed up more than +6% after reporting its Q2 Basel II CET 1 ratio grew 9.1% from the prior quarter’s 8.5%, better than the consensus of +8.75%.

Citizens Financial Group (CFG) closed up more than +6% after reporting Q2 provision for credit losses of $176 million, below the consensus of $187.5 million.

Constellation Brands (STZ) closed up more than +5% after appointing two new independent directors as it reached a cooperation agreement with activist investor Elliot Investment Management.

Elevance Health (ELV) closed up more than +4% after reporting Q2 adjusted EPS of $9.04, better than the consensus of $8.78. Other health insurers rallied on the news, with Centene (CNC) and Molina Healthcare (MOH) closing up more than +3%, Cigna Group (CI) closing up more than +2%, and Humana (HUM) closing up more than +1%.

Carvana (CVNA) closed up more than +40% after reporting Q2 revenue of $2.97 billion, stronger than the consensus of $2.56 billion, and said it reached a deal with bondholders to reduce debt and announced plans to sell 35 million Class A shares.

Cisco Systems (CSCO) closed up more than +2% after JPMorgan Chase upgraded the stock to overweight from neutral.

Omnicom Group (OMC) closed down more than -10% to lead losers in the S&P 500 after reporting Q1 revenue of $3.61 billion, weaker than the consensus of $3.66 billion.

Align Technology (ALGN) closed down more than -5% after Stifel said they are “cautious” about the dental service company in the near term.

Interactive Brokers (IBKR) closed down more than -4% after reporting Q2 adjusted EPS of $1.32, weaker than the consensus of $1.40.

Halliburton (HAL) closed down more than -2% after reporting Q2 revenue of $5.80 billion, weaker than the consensus of $5.85 billion.

Across the markets…

September 10-year T-notes (ZNU23) Wednesday closed up +8 ticks, and the 10-year T-note yield fell -4.6 bp to 3.739%. Sep T-notes Wednesday rose moderately, holding below Tuesday’s 2-1/2 week high, and the 10-year T-note yield fell to a 2-1/2 week low of 3.725%. T-notes moved higher Wednesday on carryover support from a rally in 10-year UK gilts to a 6-week high after UK June CPI rose less than expected. Also, Wednesday’s weaker-than-expected U.S. housing starts report was supportive for T-notes.

T-notes maintained moderate gains Wednesday on decent demand for the Treasury’s $12 billion 20-year T-bond auction, which had a bid-to-cover ratio of 2.68, above the 10-auction average of 2.65. Also, a decline in inflation expectations was bullish for T-notes after the 10-year breakeven inflation rate dropped to a 2-1/2 week low Wednesday of 2.186%.

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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.