Markets Today: Stocks Drop on Apple Weakness and U.S. Labor Market Strength

Rich Asplund - Barchart - Thu Sep 7, 2023

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are down -0.67%, and Sep Nasdaq 100 E-Mini futures (NQU23) are down -1.20%, both at 1-week lows.

Stock indexes this morning are moderately lower. Apple is down more than -2% in pre-market trading to lead technology stocks lower on a report from the Wall Street Journal that said China plans to expand a ban on the use of iPhones to government-backed agencies and state companies.

Stock index futures extended their losses as bond yields rose after weekly initial unemployment claims unexpectedly fell to a 7-month low, a sign of strength in the labor market that may prompt the Fed to keep interest rates higher for longer.

U.S. weekly initial unemployment claims unexpectedly fell -13,000 to a 7-month low of 216,000, showing a stronger labor market than expectations of an increase to 233,000. Weekly continuing claims fell -40,000 to 1.679 million, showing a stronger labor market than expectations of 1.719 million.

U.S. Q2 nonfarm productivity was revised lower to +3.5% from the initially reported +3.7%, stronger than expectations of +3.4%. Also, Q2 unit labor costs were revised higher to +2.2% from the initially reported +1.6%, stronger than expectations of +1.9%.

The markets are discounting the odds at 10% for a +25 bp rate hike at the September 20 FOMC meeting and 55% for that +25 bp rate hike at the November 1 FOMC meeting.

Global bond yields are mixed. The 10-year T-note yield climbed to a 2-week high of 4.304% and is up +0.8 bp at 4.288%. The 10-year German bund yield is down -1.8 bp at 2.636%. The 10-year UK gilt yield is down -4.8 bp at 4.486%.

Overseas stock markets are lower. The Euro Stoxx 50 is down -0.43%. China’s Shanghai Composite Index closed down -1.13%. Japan’s Nikkei Stock Index closed down -0.75%.

The Euro Stoxx 50 today fell to a 2-1/2 week low and is moderately lower. Economic concerns are weighing on European stocks after today’s weaker-than-expected German July industrial production report and a downward revision to Eurozone Q2 GDP. A decline in European government bond yields fueled gains in interest-rate sensitive stocks, including utility and construction companies, and limited losses in the overall market.

German July industrial production fell -0.8% m/m, weaker than expectations of -0.4% y/y.

Eurozone Q2 GDP was revised lower to +0.1% q/q and +0.5% y/y from the previously reported +0.3% q/q and +0.6% y/y.

China’s Shanghai Composite Index closed moderately lower. Chinese stocks retreated, and the yuan tumbled to a 15-year low against the dollar on pessimism over China’s economic outlook. Weakness in Chinese chipmakers led the overall market lower after a U.S. lawmaker said Semiconductor Manufacturing International (SMIC), China’s top chipmaker, may have violated U.S. sanctions by supplying components to Huawei Technologies. Also, property stocks declined on concerns that the limited stimulus measures proposed by the government will not be enough to spark a turnaround in the sector.

Chinese trade news was slightly better than expected. China Aug exports fell -8.8% y/y, a smaller decline than expectations of -9.0% y/y. Also, Aug imports fell -7.3% y/y, a smaller decline than expectations of -9.0% y/y.

Japan’s Nikkei Stock Index today fell back from a 5-week high and closed moderately lower. Japanese suppliers to Apple retreated today to lead the overall market lower after the Wall Street Journal reported that China plans to expand a ban on the use of iPhones in sensitive departments to government-backed agencies and state companies. Japanese stocks were also weighed down on negative carryover from Wednesday’s fall in U.S. stocks after stronger-than-expected economic news on the U.S. service sector bolstered concerns the Fed would keep interest rates higher for longer.

The Japan July leading index CI fell -1.2 to a 2-3/4 year low of 107.6, weaker than expectations of 107.8.

Pre-Market U.S. Stock Movers

Apple (AAPL) is down more than -2% in pre-market trading, adding to Wednesday’s -3% drop, as China plans to expand a ban on the use of iPhones to government-backed agencies and state companies.

Nvidia (NVDA) dropped more than -2% in pre-market trading, adding to Wednesday’s -2% fall after Research Affiliates said the stock is “a textbook story of a Big Market Delusion,” and with shares trading around 110 times earnings, the stock is priced beyond perfection.

Verint Systems (VRNT) plunged more than -15% in pre-market trading after reporting Q2 adjusted revenue of $210.4 million, weaker than the consensus of $226.6 million, and cutting its full-year adjusted revenue forecast to $910 million from a previous estimate of $935 million, below the consensus of $933.6 million.

C3.ai (AI) sank more than -9% in pre-market trading, saying it expects its fiscal-year adjusted loss will be as much as -$100 million, wider than a previous estimate of -$75 million, and said profitability would take longer than expected.

ChargePoint Holdings (CHPT) tumbled more than -8% in pre-market trading after reporting Q2 revenue of $150.5 million, weaker than the consensus of $153.1 million.

Dave & Buster’s Entertainment (PLAY) dropped more than -5% in pre-market trading after reporting Q2 EPS of 60 cents, well below the consensus of 94 cents.

Dell Technologies (DELL) fell more than -3% in pre-market trading after Barclays downgraded the stock to underweight from equal weight.

UiPath (PATH) climbed more than +4% in pre-market trading after reporting Q2 total revenue of $287.3 million, better than the consensus of $282.3 million, and sees 2024 revenue of $1.27 billion-$1.28 billion, stronger than the consensus of $1.27 billion.

McDonald’s (MCD) gained more than +1% in pre-market trading after Wells Fargo Securities upgraded the stock to overweight from equal weight.

G-III Apparel Group Ltd (GIII) surged more than +14% in pre-market trading after reporting Q2 net sales of $659.8 million, well above the consensus of $592.2 million.

Moderna (MRNA) gained nearly +1% in pre-market trading after a company study said its updated Covid-19 vaccine helps protect people from a new, highly mutated strain of the virus.

Earnings Reports (9/7/2023)

ABM Industries Inc (ABM), Avid Bioservices Inc (CDMO), Braze Inc (BRZE), Concrete Pumping Holdings Inc (BBCP), Copart Inc (CPRT), Designer Brands Inc (DBI), DocuSign Inc (DOCU), G-III Apparel Group Ltd (GIII), Guidewire Software Inc (GWRE), John Wiley & Sons Inc (WLY), Korn Ferry (KFY), Limoneira Co (LMNR), Methode Electronics Inc (MEI), Planet Labs PBC (PL), RH (RH), Science Applications Internati (SAIC), Semtech Corp (SMTC), Smartsheet Inc (SMAR), Smith & Wesson Brands Inc (SWBI), Toro Co/The (TTC), Urban One Inc (UONEK), Zumiez Inc (ZUMZ).

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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.