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Stocks Close Moderately Higher as Bank Stocks Rally and Inflation Expectations Fall

Barchart - Thu Sep 8, 9:15PM CDT
Wall Street - Banks in the Skyline

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed up +0.66%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.61%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.50%.

Stocks on Thursday posted moderate gains as they added to Wednesday's sharp rally.  Strength in bank stocks Thursday led the overall market higher.  Stocks also received a boost after the 10-year breakeven inflation expectations rate fell to a 6-week low Thursday of 2.411%.

Fed comments Thursday were mixed for stock prices.  On the bearish side, Fed Chair Powell said the Fed will not stop in its efforts to curb inflation "until the job is done."  He added that "the Fed has and accepts responsibility for price stability" and that history cautions against prematurely loosening monetary policy.  However, comments from Chicago Fed President Evans were slightly dovish and supportive for stocks when he said he favors raising the fed funds rate to 4% and then pausing as overtightening becomes a concern once rates get to the 3.5% range.

Stocks were undercut Thursday by the ECB’s sharp rate hike. The 10-year German bund yield climbed to a 2-1/2 month high of 1.730% after the ECB raised its main refinancing rate by +75 bp to 1.25% and said it "expects to raise rates further.”

Thursday’s U.S. economic news was mixed for Fed policy and stocks.  On the dovish side, July consumer credit rose +$23.811 billion, weaker than expectations of +$32.000 billion.  Conversely, weekly initial unemployment claims unexpectedly fell -6,000 to a 3-month low of 222,000, showing a stronger labor market than expectations of an increase to 235,000.

Today’s stock movers…

Bank stocks rallied Thursday and were a supportive factor for the overall market.  Huntington Bancshares (HBAN) and Citizens Financial Group (CFG) closed up more than +4%.  Also, Fifth Third Bancorp (FITB), Bank of America (BAC), Wells Fargo (WFC), and Zions Bancorp (ZION) closed up more than +3%.  In addition, Citigroup (C), Comerica (CMA), JPMorgan Chase (JPM), M&T Bank (MTB), and US Bancorp (USB) closed up more than +2%. 

Regeneron Pharmaceuticals (REGN) closed up more than +18% Thursday to lead gainers in the S&P 500 and Nasdaq 100 after the company said two global trials of its eye treatment aflibercept for patients with diabetic macular edema and wet age-related macular degeneration met their primary endpoints. 

Moderna (MRNA) closed up more than +4% Thursday after Deutsche Bank upgraded the stock to buy from hold, citing a “solid” Q2 earnings beat and the “welcome” late-July news of additional fall 2022 orders from the U.S.

Advanced Micro Devices (AMD) closed up more than +3% Thursday after Stifel initiated coverage of the stock with a buy recommendation.

First Solar (FSLR) closed up more than +2% Thursday after Goldman Sachs upgraded the stock to buy from sell.

Food companies retreated Thursday on concern that higher inflation will undercut company profits. Kraft Heinz (KHC) closed down more than -3% to lead losers in the Nasdaq 100. Also, Campbell Soup (CPB) closed down by more than -2%, and Kellogg (K), Conagra Brands (CAG), JM Smucker (SJM), and Hershey (HSY) closed down by more than -1%.

McCormick & Co (MKC) closed down more than -6% Thursday to lead losers in the S&P 500 after reporting Q3 preliminary Q3 adjusted EPS of 65 cents, weaker than the consensus of 83 cents and then lowering its full-year adjusted EPS estimate to $2.63-$2.68 from $3.03-$3.08.

Williams Cos (WMB) closed down more than -3% Thursday after Goldman Sachs downgraded the stock to sell from neutral. 

American Eagle Outfitters (AEO) closed down more than -8% Thursday after the company reported Q2 adjusted EPS of 4 cents, weaker than the consensus of 14 cents, and then paused its quarterly dividend. 

Across the markets…

Dec 10-year T-notes (ZNZ22) on Thursday closed down -6.5 ticks, and the 10-year T-note yield rose +2.1 bp to 3.285%.  Dec T-notes Thursday relinquished an early advance and posted moderate losses.  Hawkish comments Thursday from Fed Chair Powell weighed on T-notes when he warned against prematurely loosening monetary policy.  Also, an unexpected decline in U.S. weekly jobless claims to a 3-month low was bearish for T-notes.  In addition, higher European government bond yields undercut T-note prices after the 10-year UK gilt yield Thursday jumped to an 11-year high of 3.156%, and the 10-year German bund yield rose to a 2-1/2 month high of 1.730%. 

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Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.