Poised for a very good start

Microsoft (MSFT) reported its quarterly results after yesterday’s close and its stock promptly declined more than 6.0%, reportedly because Azure growth was not quite as high as expected. To say the least, one had the sense that it was not going to be a good start for the stock market today.

The latter view, however, has been negated. It will be a very good start for the broader market.

Currently, the S&P 500 futures are up 69 points and are trading 1.3% above fair value, the Nasdaq 100 futures are up 410 points and are trading 2.2% above fair value, and the Dow Jones Industrial Average futures are up 88 points and are trading 0.2% above fair value.

The good start isn’t because Microsoft turned positive, although it has worked its way back. It is now indicated just 1.7% lower in pre-market trading. The good start has a lot to do with the semiconductor stocks and NVIDIA (NVDA) in particular.

NVIDIA is up 7.1% in pre-market trading, drafting off the reassuring earnings report and outlook from Adv. Micro Devices (AMD) and a Reuters report that the foreign chip equipment export rule will have key exemptions for allies. ASML (ASML) for its part is up 7.8% on that report.

In any case, the strong rebound action in the semiconductor stocks, and a further drop in Treasury yields, have been influential sources of support for market sentiment, which has had a ton of news infusion since yesterday’s close.

Some of those headlines include:

• The Bank of Japan raised its uncollateralized overnight call rate to “around 0.25%” from around 0.0-0.1%, and announced a plan to reduce the JGB purchase amount by about 400 bln yen each calendar quarter
  • USD/JPY -1.6% to 150.25
• Earnings results from Boeing (BA), Starbucks (SBUX), DuPont (DD), Mondelez Intl. (MDLZ), Humana (HUM), Mastercard (MA), and Norwegian Cruise Line Holdings (NCLH)
• The political leader of Hamas was killed in Iran and Iran is alleging that Israel is responsible for the strike, according to The Wall Street Journal
  • Brent crude futures are up 3.0% to $80.44/bbl and WTI crude futures are up 3.5% to $77.37/bbl
• Boeing (BA) appointed Kelly Ortberg, former CEO of Rockwell Collins, as President and CEO, effective August 8
• The July ADP Employment Change Report showed 122,000 jobs were added to private-sector payrolls (Briefing.com consensus 160,000) following an upwardly revised 155,000 (from 150,000) in June. The 4.8% year-over-year gain for job-stayers was the slowest pace of growth in three years.
  • The key takeaway from the report is that it connotes a slowdown in private-sector hiring and pay, which is the right mix for furthering the market’s belief that the Fed will cut rates in September
• The second quarter Employment Cost Index showed compensation costs for civilian workers increased 0.9% (Briefing.com consensus 1.0%), seasonally adjusted, for the three-month period ending in June 2024 versus 1.2% for the three-month period ending in March 2024.
  • The key takeaway is that there was a year-over-year moderation in wages and salaries and benefit costs that, again, trended in the right manner to suggest the Fed might be convinced to cut rates in September.
• China’s official Manufacturing PMI for July checked in at 49.4, as expected, but remained below the expansion/contraction demarcation point of 50.0. The Non-Manufacturing PMI for July was 50.2.
• The eurozone’s flash CPI for July accelerated to 2.6% year-over-year from 2.5% while core CPI remained at 2.9%.
• The Treasury Department announced a quarterly refunding plan that showed no changes in the 2-yr, 3-yr, 5-yr, 7-yr note, 10-yr note, and 30-yr bond auction sizes for the August to October quarter; moreover, it believes it will not need to increase nominal coupon or FRN auction sizes for at least the next several quarters. 

We haven’t even talked about the Federal Open Market Committee (FOMC) meeting. That two-day meeting concludes today. A new policy directive will be issued at 2:00 p.m. ET and Fed Chair Powell will hold his press conference at 2:30 p.m. ET.

The FOMC is expected to leave the target range for the fed funds rate unchanged at 5.25-5.50%. Market participants, however, are widely expecting the directive and/or Fed Chair Powell to lay the groundwork for a rate cut in September.

Failing to do so would be deemed a disappointment and would presumably trigger some post-FOMC selling in front of the Meta Platforms (META) earnings report after today’s close.

Did we mention that there has been a ton of news to digest? Frankly, we haven’t covered it all, but for now, the stock market and the Treasury market have things covered with a positive orientation.

The 2-yr note yield is down two basis points to 4.34% and the 10-yr note yield is down four basis points to 4.11%.

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Originally Posted July 31, 2024 – Poised for a very good start