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Stocks Undercut by Economic Growth Concerns and Taiwan

Barchart - Thu Aug 4, 3:49PM CDT
Stocks-Money-Rates - Wall St-American Flags

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed down -0.08%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.26%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.44%. 

U.S. stock indexes on Thursday settled mixed, with the Nasdaq 100 climbing to a nearly 3-month high. Concern about global growth was a negative for stocks Thursday after the Bank of England (BOE) raised interest rates and warned of a UK recession later this year.  Also, a plunge of more than -16% in Fortinet Thursday led cybersecurity stocks lower and weighed on the overall market after the company forecasted slower-than-expected Q3 revenue.  A positive for stocks today was Thursday’s -3.5 bp decline in the 10-year T-note to 2.670%.

China-Taiwan tensions are a negative for stocks after China on Thursday fired 11 missiles near Taiwan as a result of House Speaker Pelosi’s visit to Taiwan.  Also, Kyodo News reported that five of the missiles fired by China in its live testing military drills went over Taiwan and landed inside Japan’s exclusive economic zone.  In addition, China said it canceled a meeting between Foreign Minister Wang Yi and his Japanese counterpart over a G-7 statement expressing concern about China’s “threatening actions” around Taiwan.

U.S. economic data Thursday was neutral for stocks.  U.S. weekly initial unemployment claims rose +6,000 to 260,000, right on expectations. Also, the U.S. June trade deficit of -$79.6 billion was slightly narrower than expectations of -$80.0 billion.

Comments Thursday from Cleveland Fed President Mester were hawkish for Fed policy and negative for stocks when she said she has yet to evaluate what she sees as an appropriate path for interest rates come the September FOMC meeting, but it's "not unreasonable" to maintain increases until they get to "a little above 4%."

The Bank of England (BOE) voted 8-1 today to raise its benchmark rate by +50 bp to 1.75% and warned the UK economy is heading for a recession that will start in Q4 this year and last for a year under the weight of soaring inflation.

Today’s stock movers…

Walmart (WMT) closed down more than -3% Thursday to lead losers in the Dow Jones Industrials after Bloomberg News, and the Wall Street Journal reported that the company is eliminating about 200 corporate jobs as it contends with rising costs, bloated inventories, and weakening consumer demand. 

Ball Corp (BALL) closed down more than -18% Thursday to lead losers in the S&P 500 after reporting Q2 comparable EPS of 82 cents, weaker than the consensus of 91 cents.

DXC Technology (DXC) closed down more than -17% Thursday after reporting Q1 revenue of $3.71 billion, below the consensus of $3.72 billion, and cut its full-year revenue forecast to $14.60 billion-$14.75 billion from a prior forecast of $14.90 billion-$15.05 billion, weaker than the consensus of $$14.97 billion. 

Energy stocks and energy service providers fell sharply Thursday for a second day as crude prices fell more than -2% to a 5-3/4 month low.  Marathon Oil (MRO) and Baker Hughes (BKR) closed down more than -6%, and Occidental Petroleum (OXY) closed down by more than -5%.  Also, Diamondback Energy (FANG), Schlumberger (SLB), Haliburton (HAL), and Exxon Mobil (XOM) closed down by more than -4%.  Devon Energy (DVN), Phillips 66 (PSX), and Valero Energy (VLO) closed down by more than -3%. 

Weakness in cybersecurity stocks Thursday weighed on the overall market.  Fortinet (FTNT) closed down more than -16% today to lead losers in the Nasdaq 100 after forecasting Q3 revenue of $1.11 billion-$1.14 billion, with a midpoint below the consensus of $1.13 billion.  Also, Palo Alto Networks (PANW) closed down more than -5%, and Crowdstrike Holdings (CRWD) closed down more than -3%.  Zscaler (ZS) closed down more than -2%, and Datadog (DDOG) closed down more than -1%

Lucid Group (LCID) closed down more than -9% Thursday after reporting Q2 revenue of $97.3 million, well below the consensus of $147.5 million, and halved its 2022 production target to about 6,000-7,000 vehicles. 

Epam Systems (EPAM) closed up more than +12% Thursday to lead gainers in the S&P 500 after reporting Q2 revenue rose +36% y/y to 1.19 billion and forecasting Q3 revenue of at least $1.21 billion.

Ceridian HCM Holding (CDAY) closed up more than +10% Thursday after reporting Q2 revenue of $301.2 million, better than the consensus of $294.6 million, and raising its full-year revenue forecast to $1.22 billion-$1.23 billion from an earlier forecast of $1.21 billion-$1.23 billion.

MercadoLibre (MELI) closed up more than +16% Thursday to lead gainers in the Nasdaq 100 after reporting Q2 net revenue of $2.6 billion, higher than the consensus of $2.5 billion.

Advanced Micro Devices (AMD) closed up more than +5% Thursday after it was announced that it will enter a pact with China’s Ecarx on electric vehicle computing platforms that will be rolled out in 2023.

U.S.-listed Chinese stocks pushed higher Thursday on positive carry-over from a more than +1% gain in Alibaba Group Holding (BABA) after it reported better-than-expected Q1 revenue.  Pinduoduo (PDD) and JD.com (JD) closed up more than +3%. Also, Baidu (BIDU) closed by more than +2%. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Thursday closed up +20.5 ticks, and the 10-year T-note yield fell by -3.5 bp to 2.670%.  Sep T-notes Thursday moved higher on positive carry-over from a rally in 10-year UK gilts, which raced higher after the BOE warned of a recession late this year in the UK. Also, U.S. stock indexes Thursday gave up overnight gains and turned mixed, which sparked some safe-haven buying of T-notes. 



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