What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.61%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.45%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.11%.

U.S. stocks are being undercut by today’s weak U.S. manufacturing PMI and the weak Eurozone PMI reports, which indicated that the U.S. and Eurozone economies are struggling even as the Fed and the ECB plan further rate hikes.

Stocks today are not getting much of a lift from lower global bond yields, which fell on the weak Eurozone PMI reports.  The 10-year T-note yield is down -6.4 bp at 3.731%. Meanwhile, the German 10-year bund yield is sharply lower by -15 bp at 2.34%, and the 10-year UK gilt yield is down -7 bp at 4.29%.

U.S. investors were already in a gloomy mood after Fed Chair Powell earlier this week warned that higher interest rates are likely and after the Bank of England raised rates by +50 bp.  The FOMC, at its meeting last week, left its funds rate target range unchanged at 5.00%/5.25% but raised its dot-plot forecast to indicate FOMC members expect a further +50 bp rate hike by the end of this year.  The markets are discounting the odds at 72% for a +25 bp rate hike at the next FOMC meeting on July 25-26, and are fully anticipating that +25 bp rate hike by November.

The markets currently expect weak U.S. GDP growth in the second half of the year, with a consensus of a 65% chance of a recession.  The consensus among economists is for U.S. GDP growth of unchanged in Q3 and a -0.4% decline in Q4, according to a Bloomberg monthly survey released today.  That would just narrowly avoid the short-hand definition of a recession of back-to-back quarters of negative growth.

Today’s preliminary-June S&P U.S. PMI fell by -2.1 points to a 6-month low of 46.3, weaker than expectations for a +0.1 point increase to 48.5. The services PMI fell -0.8 points to a 2-month low of 54.1, which was slightly better than expectations for a -0.9 point drop to 54.0.  The composite PMI fell by -1.3 points to a 3-month low of 53.0, which was weaker than expectations for a -0.8 point drop to 53.5.

Today’s Eurozone PMI report suggested that the Eurozone might be in for another quarter of negative growth in Q2 after Eurozone GDP fell slightly by -0.1% q/q in both Q4-2022 and Q1-2023, meeting the short-hand definition of a recession.  The consensus is that Eurozone GDP will show a slight increase of +0.1% q/q in Q2, but today’s weak PMI report called that forecast into question.

The preliminary-June S&P Eurozone composite PMI fell by -2.5 points to a 5-month low of 50.3, much weaker than market expectations of 52.5.  The preliminary-June S&P Eurozone manufacturing PMI fell by -1.2 points to a very weak 43.6, which was weaker than expectations of unchanged at 44.8. The preliminary-June S&P Eurozone services PMI fell by -2.7 points to 52.4, weaker than expectations for a -0.6 point drop to 54.5.  The preliminary-June S&P German composite PMI fell by -3.1 points to 50.8, while the French composite PMI fell by -3.9 points to 47.3.

On the more positive side, Eurozone input prices fell to the lowest level since December 2020, and selling prices for goods and services fell to the lowest level since March 2021.

Atlanta Fed President Bostic today delivered dovish comments for the second time this week, saying that he thinks rates should remain unchanged through year-end and long into next year.

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.64%.  Japan’s Nikkei Stock Index today closed down -1.45%. China’s stock market was closed again today for a public holiday. 

Today’s stock movers…

Breadth in the Nasdaq 100 index today is bearish, with all but 16 of the index’s constituent stocks showing losses.  Notable decliners include Tesla (TSLA) with a -2.6% loss, PayPal (PYPL) with a -3.0% loss, and Starbucks (SBUX) with a -3.0% loss.  U.S.-listed Chinese stocks led decliners with PDD Holdings (PDD) down -4.8% and JD.com (JD) down -4.5%.

CarMax (KMX) is up +10.5% after reporting better-than-expected fiscal Q1 adjusted profit of $1.44 per share, well above the consensus of 80 cents.

Tesla (TSLA) is down -2.6% on some end-week fatigue after Tesla received three downgrades earlier this week from Morgan Stanley, Barclays, and DZ Bank.

Accenture (ACN) is down -1.9% after TD Cowen cut its rating to market perform from outperform due to warning signs for demand. 

Under Armour (UAA) is down -2.2% on a downgrade by Wells Fargo to equal-weight from overweight due to its view that the stock will stagnate during the next 6-12 months.

Virgin Galactic (SPCE) is down by -18% after the company announced a plan to sell up to $400 million of its stock over time.

Wayfair (W) is up +0.7% on an upgrade by Moffett Nathanson to market perform from underperform.

Sofi Technologies (SOFI) is down -6.3% after Compass Point started its research coverage with a sell rating.

Across the markets…

September 10-year T-notes (ZNU23) today are up +13.5 ticks, and the 10-year T-note yield is down -6.4 bp at 3.731%.  T-notes prices rallied on today’s weak U.S. and Eurozone PMI reports.  T-note prices also saw support from dovish comments from Atlanta Fed President Bostic.

The dollar index (DXY00) today is up +0.53% on support from liquidity demand due to today’s sell-off in stocks.  EUR/USD (^EURUSD) is down -0.58% as today’s weak Eurozone PMI reports suggest that the Eurozone recession may extend into Q2.  USD/JPY (^USDJPY) is up +0.38%.

August gold (GCQ3) today is up +15.0 (+0.78%), and July silver (SIN23) is up +0.023 (+0.10%).  Precious metals prices today are seeing support after today’s weak U.S. and Eurozone PMI reports were dovish for Fed and ECB policy.  However, the strong dollar is undercutting precious metals prices.

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