Stock Market Update

The stock market is experiencing a mixed day, with the S&P 500 Index ($SPX) (SPY) reaching a 1-month high. The broader market is garnering support from today’s US economic news, which showed that June producer prices rose less than expected and the July Empire manufacturing survey rose more than expected.

More specifically, the S&P 500 Index is up +0.15%, the Dow Jones Industrial Average ($DOWI) (DIA) is up +0.35%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.64%. September E-mini S&P futures (ESU26) are up +0.16%, and September E-mini Nasdaq futures (NQU26) are down -0.60%. These numbers indicate a relatively stable market with some fluctuations.

One of the key factors contributing to the market’s stability is the strong earnings results from ASML, a leading chipmaker. The company’s fresh evidence of relentless demand for chips needed for the global artificial intelligence buildout has provided a significant boost to the broader market. ASML is the only maker of sophisticated lithography machines needed to manufacture advanced semiconductors, making it a crucial player in the industry.

However, the Nasdaq 100 fell into negative territory amid weakness in chipmakers. The iShares Semiconductor ETF (SOXX) is down more than -2%. Sandisk (SNDK) is down more than -12% to lead losers in the Nasdaq 100, and Western Digital (WDC) and Seagate Technology Holdings Plc (STX) are down more than -7%. Also, Micron Technology (MU) is down more than -6%, and Marvel Technology (MRVL) and Intel (INTC) are down more than -5%. In addition, Advanced Micro Devices (AMD) and Lam Research (LRCX) are down more than -4%, and Applied Materials (AMAT) and KLA Corp (KLAC) are down more than -3%.

Health insurance stocks are also under pressure after Elevance Health (ELV) plunged following its updated guidance that fell short of the second-quarter beat. Elevance Health is down more than -10% to lead health insurance stocks lower, followed by Molina Healthcare (MOH) at -4% and Centene (CNC) at -3%. UnitedHealth Group (UNH) is down more than -1%, contributing to the decline in the health insurance sector.

On the other hand, technology stocks are climbing today, recovering some of Tuesday’s sharp losses. Thomson Reuters (TRI) is up more than +6%, and Atlassian Corp (TEAM) is up more than +4%. Adobe Systems (ADBE) is up more than +3%, and Microsoft (MSFT), Oracle (ORCL), and Workday (WDAY) are up more than +2%. In addition, ServiceNow (NOW), Salesforce (CRM), and Autodesk (ADSK) are up more than +1%.

The markets are also discounting a 12% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29. Overseas stock markets are mixed today, with the Euro Stoxx 50 down -0.08% and China’s Shanghai Composite closed down -0.29%. Japan’s Nikkei-225 Stock Average closed up +1.49%.

The average 30-year fixed-rate mortgage rose +7 bp to 6.65% from 6.58% in the prior week. US MBA mortgage applications fell -2.7% in the week ended July 10, with the purchase mortgage sub-index down -7.3% and the refinancing mortgage sub-index up +3.5%. US Jun PPI final demand eased to +5.5% y/y from +6.0% y/y, weaker than expectations of +6.2% y/y. Jun PPI ex food and energy rose +4.7% y/y, weaker than expectations of +5.1% y/y.

The US Jul Empire manufacturing survey of general business conditions rose +9.9 to 15.6, stronger than expectations of 9.2. Dovish comments today from New York Fed President John Williams were supportive for stocks and bonds when he said, ‘Inflation is unquestionably too high, but there are encouraging reasons to expect that inflation has peaked and should edge down in coming quarters.’ Chinese economic news was mixed for global growth prospects, with China’s Q2 GDP rising +4.3% y/y, slightly weaker than expectations of +4.4% y/y and the smallest increase in 3.5 years.

On the negative side, geopolitical risks are ramping up, as the interim peace deal between the US and Iran has effectively collapsed. The US maintained its naval blockade of Iran and launched another wave of airstrikes on Iran today, the fifth straight day of attacks. President Trump pledged to intensify the bombardment until Iran stops attacking ships in the Strait of Hormuz and agrees to open the waterway. Iran responded with missile and drone attacks against Kuwait.

The outlook for strong Q2 earnings, which will begin this week, is a bullish factor for stocks. Forecasts compiled by Bloomberg Intelligence suggest Q2 earnings may increase by +23%, close to Q1’s blowout earnings of +30%, which was more than double the +12% analysts had expected. AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500’s earnings-per-share growth in Q2.

Interest Rates

September 10-year T-notes (ZNU6) today are up +8 ticks, and the 10-year T-note yield is down -3.6 bp to 4.553%. T-notes recovered from early losses today and moved higher after US Jun producer prices rose less than expected, a dovish factor for Fed policy. T-notes added to their gains today when New York Fed President John Williams said, ‘there are encouraging reasons to expect that inflation has peaked and should edge down in coming quarters.’ T-notes initially moved lower on today’s strength in WTI crude oil prices, which boosts inflation expectations and is bearish for T-notes.