The S&P 500 Index SPY Friday closed down -0.41%, the Dow Jones Industrials Index DIA closed down -0.12%, and the Nasdaq 100 Index QQQ closed down -0.54%.

Stock indexes Friday gave up early gains and settled moderately lower, with the S&P 500 and Nasdaq 100 retreating from all-time highs. Stocks came under pressure Friday after stronger-than-expected US economic reports on Jun MNI Chicago PMI and the University of Michigan Jun consumer sentiment index pushed the 10-year T-note yield to a 2-week high. 

Comments Friday from Richmond Fed President Barkin were slightly hawkish and negative for stocks when he said, "Given the remarkable strength we are seeing in the economy," he is open to the idea that the longer run rate that keeps supply and demand in balance "has shifted up somewhat" and that policy may not be as restrictive as perceived.

On Friday, stocks initially moved higher as easing US price pressures briefly knocked T-note yields lower and bolstered the chances of Fed interest rate cuts this year. Fridays economic news showed the US May core PCE deflator, the Feds preferred inflation gauge, eased +2.6% y/y from +2.8% y/y in April, right on expectations and the slowest pace of increase in 3 years. The strength of chip stocks on Friday was also supportive of the overall market.

Stocks also had support on quarter-end window dressing as stock fund managers bought stocks that performed well this quarter to put into their portfolios, as Friday is the last trading day of Q2. 

US May personal spending rose +0.2% m/m, weaker than expectations of +0.3% m/m. May personal income rose +0.5% m/m, stronger than expectations of +0.4% m/m.

The US May core PCE price index eased to +2.6% y/y form +2.8% y/y in Apr, right on expectations and the slowest pace of increase in 3 years.

The US Jun MNI Chicago PMI rose +12.0 to a 7-month high of 47.4, stronger than expectations of 40.0.

The University of Michigan US Jun consumer sentiment index was revised upward to 68.2 from 65.6, stronger than expectations of 66.0.

The markets are discounting the chances for a -25 bp rate cut at 10% for the next FOMC meeting on July 30-31 and 60% for the following meeting on September 17-18.

Generally positive Q1 earnings results are supportive of stocks. Q1 earnings are expected to climb +7.1% y/y, well above the pre-earnings season estimate of +3.8%. According to data compiled by Bloomberg Intelligence, about 81% of reporting S&P 500 companies have beaten Q1 earnings estimates. 

Overseas stock markets Friday settled mixed. The Euro Stoxx 50 closed down -0.18%. China's Shanghai Composite closed up +0.73%. Japan's Nikkei Stock 225 Index closed up +0.61%.

Interest Rates

September 10-year T-notes (ZNU24) Friday closed down -8.5 ticks. The 10-year T-note yield rose +6.5 bp to 4.351%. Sep T-notes Friday fell to a 2-week low, and the 10-year T-note yield rose to a 2-week high of 4.402%. T-notes gave up an early advance Friday and moved lower after stronger-than-expected US economic news on Jun MNI Chicago PMI and the University of Michigan US Jun consumer sentiment index, hawkish factors for Fed policy. Also, an increase in inflation expectations weighed on T-notes after the 10-year breakeven inflation rate rose to a 2-week high Friday at 2.287%. In addition, comments Friday from Richmond Fed President Barkin undercut T-note prices when he said Fed policy may not be as restrictive as perceived.

T-notes Friday initially moved higher on signs of cooling US price pressures after the May core PCE price index increased by the slowest pace in over three years, bolstering the outlook for Fed rate cuts this year. 

European government bond yields on Friday moved higher. The 10-year German bund yield rose to a 2-week high of 2.500% and finished up +5.2 bp on its high. The 10-year UK gilt yield rose to a 2-week high of 4.185% and ended up +4.2 bp at 4.172%. 

The Eurozone's May ECB 1-year inflation expectations eased to 2.8% from 2.9% in Apr, the slowest pace of increase in 2-1/2 years. The May 3-year inflation expectations eased to 2.3% from 2.4% in April, the slowest pace of increase in 2-1/4 years.

German Jun unemployment rose by +19,000, showing a weaker labor market than expectations of +15,000. The Jun unemployment rate rose +0.1 to a 3-year high of 6.0%, showing a weaker labor market than expectations of no change at 5.9%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 12% for the July 18 meeting and 65% for the September 12 meeting.

US Stock Movers

Nike NKE closed down more than -19% to lead losers in the S&P 500 and Dow Jones Industrials after reporting Q4 revenue of $12.61 billion, weaker than the consensus of $12.86 billion, and forecasting Q1 revenue to be down about 10%. Other athletic apparel makers fell on the news, with Lululemon Athletica LULU closing down more than -3% to lead losers in the Nasdaq 100. Also, Foot Locker FL, Dicks Sporting Goods DKS, and Under Armour UAA closed down more than -2%.

Estee Lauder EL closed down more than -4% on negative carryover from a fall in LOreal SA after LOreal said it expects slower growth for the overall beauty market this year due to weakness in Chinese sales.

Kura Sushi USA KRUS closed down -23% after forecasting 2024 sales between $235 million-$237 million, weaker than the consensus of $246 million.

Xerox Holdings XRX closed down more than -5% after Citigroup initiated coverage of the stock with a recommendation of sell and a price target of $11.

Hartford Financial Services Group HIG closed down more than -2% after Citigroup downgraded the stock to neutral from buy. 

Chubb Ltd CB closed down more than -2% after Wiliam Blair & Co downgraded the stock to underperform from market perform.

Travelers Cos TRV closed down more than -1% after Citigroup downgraded the stock to sell from neutral with a price target of $200.

Synchrony Financial SYF closed up more than +6% to lead gainers in the S&P 500 after Baird initiated coverage on the stock with a recommendation of outperform and a price target of $56.

Chip stocks rose on Friday, a supportive factor for the broader market. Microchip Technology MCHP and Qualcomm QCOM closed up more than +2%. Also, Advanced Micro Devices AMD, Marvell Technology MRVL, NXP Semiconductor NV NXPI, KLA Corp KLAC, Applied Materials AMAT, ON Semiconductor ON and Intel INTC closed up more than +1%.

Healthcare stocks are climbing today and giving support to the overall market after RBC Capital Markets said Thursday nights presidential debate bodes well for health insurers. UnitedHealth Group UNH closed up more than +4% to lead gainers in the Dow Jones Industrials. Also, Humana HUM closed up more than +2%. 

Infinera INFN closed up more than +15% after Nokia Oyj agreed to buy the company in a deal valued at about $2.3 billion.

United Rentals URI closed up more than +3% after Raymond James initiated coverage on the stock with a recommendation of outperform and a price target of $750.

Digital Realty Trust DLR closed up more than +2% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $175. 

Earnings Reports (7/1/2024)

Grail Inc (GRAL).

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.

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