Stocks Push Higher on Strength in Chip Stocks and Lower Bond Yields

Rich Asplund - Barchart - Thu Apr 4, 9:15AM CDT

The S&P 500 Index ($SPX) (SPY) this morning is up +0.72%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.51%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.92%.

Stocks are higher today on positive carryover from Wednesday when Fed Chair Powell reiterated his expectation that it will likely be appropriate to begin lowering interest rates “at some point this year.” Stocks also found support after T-note yields turned lower today when US weekly jobless claims rose more than expected to a 2-month high, a dovish factor for Fed policy.

In addition, chip stocks are leading technology stocks higher after Taiwan Semiconductor Manufacturing, which supplies chips to Apple and Nvidia, said there was “no damage to critical tools” from Wednesday’s earthquake in Taiwan.

Market attention now turns to Friday’s monthly US payroll report for direction.

US weekly initial unemployment claims rose +9,000 to a 2-month high of 221,000, showing a weaker labor market than expectations of 214,000.

The US Feb trade deficit was -$68.9 billion, wider than expectations of -$67.6 billion and the largest deficit in 10 months, a negative factor for Q1 GDP.

The markets are discounting the chances for a -25 bp rate cut at 7% for the next FOMC meeting on April 30-May 1 and 64% for the following meeting on June 11-12.

Overseas stock markets today are higher. The Euro Stoxx 50 is up +0.14%. China's Shanghai Composite was closed for the Tomb Sweeping Day holiday. Japan's Nikkei Stock Index closed up +0.81%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are up +4 ticks. The 10-year T-note yield is down -2.6 bp at 4.321%. June T-note prices today recovered from early losses and are slightly higher. Short-covering emerged in T-notes this morning after weekly US initial unemployment claims rose more than expected to a 2-month high, a dovish factor for Fed policy. Also, today’s news showing an increase in the US Feb trade deficit to the highest in 10 months is negative for Q1 GDP and supportive for T-notes. The strength in stocks today is reducing safe-haven demand for government debt and is bearish for T-notes.

European government bond yields today are lower. The 10-year German bund yield is down -5.4 bp at 2.341%. The 10-year UK gilt yield is down -7.6 bp at 3.981%.

Eurozone Feb PPI fell -1.0% m/m and -8.3% y/y, weaker than Jan’s -0.9% m/m and -8.0% y/y.

The Eurozone Mar S&P Composite PMI was revised upward by +0.4 to 50.3 from 49.9, the highest level in 10 months.

In the account of the March 6-7 ECB meeting, ECB officials said, "While it was wise to await incoming data and evidence, the case for considering rate cuts was strengthening," and the date of a first rate-cut is now "coming more clearly into view."

US Stock Movers

Conagra Brands (CAG) is up more than +5% to lead gainers in the S&P 500 after reporting Q3 adjusted operating margin of 16.4%, better than the consensus of 15.7%, and raising its full-year operating margin estimate to 15.8% from a prior view of 15.6%.

The strength of chip stocks is boosting the overall market as analysts see limited impact on the semiconductor market from Taiwan’s recent earthquake after Taiwan Semiconductor Manufacturing, which supplies chips to Apple and Nvidia, saying there was “no damage to critical tools.” As a result, Marvell Technology (MRVL) is up more than +3% to lead gainers in the Nasdaq 100. Also, Western Digital (WDC) is up more than +3%, and Broadcom and Applied Materials are up more than +2%. In addition, Nvidia (NVDA), Micron Technology (MU), ASML Holding NV (ASML), NXP Semiconductors (NXPI), Lam Research (LRCX), and Advanced Micro Devices (AMD) are up more than +1%.

Wayfair (W) is up more than +3% after Evercore ISI upgraded the stock to outperform from in line with a price target of $80.

Synchrony Financial (SYF) is up more than +2% after Wolfe Research upgraded the stock to outperform from underperform with a price target of $50.

Microsoft (MSFT) is up more than +1% to lead gainers in the Dow Jones Industrials after Cloud Software Group signed an eight-year partnership agreement with Microsoft and said it will make a $1.65 billion commitment to the Microsoft cloud and its generative AI capabilities.

Levi Strauss & Co (LEVI) is up more than +18% after reporting Q1 adjusted EPS of 26 cents, stronger than the consensus of 21 cents, and raising its full-year adjusted EPS estimate to $1.17-$1.27 from a previous estimate of $1.15-$1.25.

Staar Surgical (STAA) is up more than +15% after reporting preliminary Q1 net sales of $77 million, above the consensus of $72.1 million.

MacroGenics (MGNX) is up more than +27% after Stifel said preliminary safety data from a mid-stage trial of MacroGenics’ Tamarack drug for the treatment of patients with prostate cancer appears to be a “better/best-case scenario.”

Lamb Weston Holdings (LW) is down more than -15% to lead losers in the S&P 500 after reporting Q3 net sales of $1.46 billion, below the consensus of $1.65 billion, and cut its full-year net sales estimate to $6.54 billion-$6.60 billion from a previous forecast of $6.8 billion-$7.0 billion.

Salesforce (CRM) is down more than -3% to lead losers in the Dow Jones Industrials on signs of insider selling after an SEC filing showed CEO Benioff sold $4.51 million of shares on Tuesday.

Alphabet (GOOGL) is down more than -1% after the Financial Times reported the company is considering charging for new “premium” features run by artificial intelligence.

Block (SQ) is down more than -1% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $60.

Celanese (CE) is down more than -1% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $160.

Hertz Global Holdings (HTZ) is down more than -5% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $7.

Radian Group (RDN) and MGIC Investment Corp (MTG) are down more than -2% after Keefe, Bruyette & Woods downgraded the mortgage insurers to market perform from outperform.

Earnings Reports (4/4/2024)

Conagra Brands Inc (CAG), Lamb Weston Holdings Inc (LW), NET Lease Office Properties (NLOP), and RPM International Inc (RPM).

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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.