Stock market today: S&P 500, Nasdaq eye fresh records as Powell notes inflation progress
07/03/2024 01:44
Investors cautiously weighed the rate-cut odds ahead of crucial June jobs data, with Powell comments on deck.
US stocks rallied on Tuesday as investors digested fresh commentary from Federal Reserve chair Jerome Powell that data is "getting back on a disinflationary path."
The Dow Jones Industrial Average (^DJI) rose nearly 0.3%, while the S&P 500 (^GSPC) added 0.4%. Meanwhile, the tech-filled Nasdaq Composite (^IXIC) gained nearly 0.7%. Both the S&P 500 and Nasdaq Composite were pacing for record closes.
The market came off its lows just after 10 a.m. ET when fresh data on job openings showed the labor market remains resilient despite concerns over recent softer data.
New data from the Bureau of Labor Statistics released Tuesday showed there were 8.14 million jobs open at the end of May, an increase from the 7.92 million job openings in April.
Also on Tuesday, Federal Reserve Chair Jay Powell said that he is encouraged by cooler inflation but reinforced that the central bank will need to see more evidence before cutting interest rates. He noted the latest inflation readings from April and May "do suggest that we are getting back on a disinflationary path."
The 10-year Treasury yield (^TNX) nudged lower to 4.43% on Tuesday after one of its largest single-day gains of the year on Monday. On the corporate front, Tesla (TSLA) delivered more vehicles than expected in the second quarter, sending shares up nearly 10%.
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Q2 earnings season comes with a 'high bar'
Wall Street has high hopes for the upcoming earnings season, which will kick off in earnest with reports from big banks on July 12.
Consensus expects earnings to grow 9% from the year prior during the second quarter, which would mark the largest year-over-year gain since the fourth quarter of 2021. Given that expectations have been trimmed less than normal entering earnings season, Wall Street strategists have noted both earnings beats and stock pops following releases could be less frequent than normal.
"We expect the magnitude of EPS beats to diminish as consensus forecasts set a higher bar than in previous quarters," Goldman Sachs chief US equity strategist David Kostin wrote in a note previewing earnings season.
With the market trading near record levels entering earnings seasons, Kostin and other strategists are cautious about how much upside investors should expect following earnings that top Wall Street analysts' expectations.
Kostin notes that last quarter, companies that beat expectations outperformed the S&P 500 by three basis points in the following day of trading, well below the historical average of 100 basis points. Given investor sentiment is still elevated entering this round of earnings, Kostin reasons, "the reward for beats should be smaller than average this quarter, although not as extreme as during the 1Q season."
Deutsche Bank chief equity strategist Binky Chadha detailed a similar outcome in his research note previewing second quarter reports.
Chadha's work shows that the S&P 500 rises 80% of the time during earnings season with an average return of 2%. But Chadha, noted, "on the other hand, the market run up into earnings season and overweight equity positioning argue for a muted rally."
Oil prices rise amid Hurricane Beryl concerns, Middle East tensions
Oil prices have been picking up as a category 5 hurricane looms amid what some fear could be a "very active" hurricane season.
Yahoo Finance's Ines Ferre reports:
Oil prices remained near a two-month high on Tuesday as the first Category 5 hurricane of the season threatened to disrupt the markets and tensions in the Middle East showed no signs of abating.
West Texas Intermediate (CL=F) topped $83 per barrel while Brent (BZ=F) hovered above $86 per barrel in midday trading.
Traders are keeping a close eye on Hurricane Beryl in the Caribbean, the earliest Category 5 storm on record.
“The weather agencies are suggesting that this is going to be a very active hurricane season," TD Cowen managing director Jason Gabelman told Yahoo Finance on Tuesday.
"If [hurricanes] hit the Gulf Coast, it could disrupt that center of US refining capacity, which is about 50% of total capacity in the US," he said.
Analysts are keeping an eye out for Mexico's oil output. The country is responsible for about 5% of global production. Hurricane Beryl is expected to threaten Jamaica on Wednesday and continue toward Mexico's Yucatan Peninsula this week.
"Gulf Coast refineries import about 400,000 barrels per day of crude oil from Mexico, representing 25% of the crude oil that is imported into the Gulf Coast. Damage to the oil production facilities as well as to the export locations is a possibility," wrote Andy Lipow, president of Lipow Oil Associates, in a note on Tuesday.
Tesla leads Consumer Discretionary, Nasdaq higher
Consumer Discretionary (XLY) led the gains in the S&P 500 (^GSPC) on Tuesday as Tesla surged roughly 9%.
Meanwhile, Healthcare (XLV) was the biggest laggard, falling about 0.7%. Across the board, the major indexes were rather quiet on Wednesday. The Nasdaq Composite (^IXIC) led the gains, rising more than 0.2% an approaching a close at 18,000 for the first time ever.
Source: Yahoo Finance RBC Capital Markets raises S&P 500 year-end target to 5,700
More strategists are calling for a rise in the S&P 500 (^GSPC) during the second half of 2024.
RBC Capital Markets head of US equity strategy Lori Calvasina raised her year-end target to 5,700 from 5,300 on Tuesday.
"The story we see in our data for 2024 is that the stock market has gotten a bit ahead of itself from a valuation perspective, as well as on some of our sentiment work," Calvasina wrote. "But that some of our tools (including one of our sentiment models) do still point to the potential for the S&P 500 to move a little bit higher between now and year-end."
RBC's upgrade came with a boost to their earnings outlook which now sees $242 in earnings per share for the S&P 500, up from $237. The team also now sees margins expanding in both 2024 and 2025, as opposed to prior forecast of flat margins in 2024.
Still, Calvasina calls herself a “nervous and jumpy bull," noting economic certainty remains a key risk to her market call.
"We are mindful that there is a lot of fog in the 2H24-2025 outlook (specifically regarding the US consumer and election), that the US economy appears to be entering a soft patch, and that stock market volatility often picks up to some extent in Presidential election years," Calvasina wrote. "We assume any pullback will end up being a pothole on the path to recovery (off conditions that were close to a recession in 2022) that will get back on track before too long.
"But if we are wrong and the economic forecast takes a turn for the worse in the months ahead, or looks like it’s poised to do so in 2025, there is downside risk to our year-end 2024 call."
Powell: 'We are getting back on a disinflationary path'
Federal Reserve chair Jerome Powell spoke publicly on Tuesday for the first time since the Fed's preferred inflation gauge showed prices increased at their slowest pace in more than three years during the month of May.
While still showing signs of caution, Powell admitted the data has been in the right direction recently.
Yahoo Finance's Jennifer Schonberger reports:
Powell said Tuesday that he is encouraged by cooler inflation but reinforced that the central bank will need to see more evidence before cutting interest rates.
The last two inflation readings in April and May "do suggest that we are getting back on a disinflationary path,” Powell said speaking on a panel in Portugal for a European Central Bank conference.
Powell’s comments come days after the latest reading of the Fed’s preferred inflation target — the "core" Personal Consumption Expenditures (PCE) index — rose 2.6% in May, in line with expectations and down from 2.8% in April.
On a month-over-month basis, the inflation measure rose 0.1%, also in line with expectations and down from 0.2% in April.
The reading offered new support for rate cuts later this year, easing concerns that mounted during the first quarter that hotter-than-expected inflation could upend plans for an loosening of monetary policy in 2024.
Despite another positive signal that inflation is easing, the central bank isn't likely to cut rates at its next meeting in late July.
Powell declined to answer a question about whether the Fed could cut as soon as September.
Instead, he underscored the Fed will need more time and evidence that inflation is moving sustainably down to its 2% target, noting that the central bank can afford to be patient given a strong job market that is cooling gradually.
"We've made a lot of progress," said Powell. "We just want to understand that the levels that we're seeing are a true reading on what is actually happening with underlying inflation."
Job openings unexpectedly increase in May
Job openings picked up in May, surprising Wall Street which had been watching for further signs of cooling in the labor market
New data from the Bureau of Labor Statistics released Tuesday showed there were 8.14 million jobs open at the end of May, an increase from the 7.92 million job openings in April.
March's figure was revised lower from the 8.06 million open jobs initially reported. Economists surveyed by Bloomberg had expected the report to show 7.95 million openings in May.
The Job Openings and Labor Turnover Survey (JOLTS) also showed 5.8 million hires were made during the month, a slight uptick from April.
The hiring rate held at 3.6%, unchanged from April. Also in Tuesday's report, the quits rate, a sign of confidence among workers, held steady at 2.2%.
Tesla shares rise after deliveries beat
Tesla stock (TSLA) jumped roughly 5% in early trading Tuesday after the electric vehicle maker reported quarterly vehicle deliveries that beat Wall Street expectations.
The EV giant delivered 443,956 vehicles during the second quarter, versus an analyst consensus estimate of 439,302 deliveries, per Bloomberg data.
“In the second quarter, we produced approximately 411,000 vehicles and delivered approximately 444,000 vehicles,” read a company statement. Broken down by car type, Tesla said it delivered 422,405 models 3/Y, and 21,551 other models.
That second quarter total delivery figure is higher than the 386,810 vehicles globally delivered in the first quarter but lower than the approximate 466,140 delivered a year ago.
Stocks slip at the open
US stocks retreated on Tuesday as investors cautiously weighed rate-cut odds ahead of crucial jobs data and eyed what higher chances of a Donald Trump win could mean for markets.
The Dow Jones Industrial Average (^DJI) slipped 0.1% while the S&P 500 (^GSPC) nearly 0.2%. The tech-filled Nasdaq Composite (^IXIC) slid more than 0.2%.
Meanwhile, political risk is preying on minds as Wall Street assesses what a Trump election win could mean for markets as speculation grows about Biden's future as the Democratic Party's standard bearer. The 10-year Treasury yield (^TNX) nudged lower to 4.43% on Tuesday after one of its largest single-day gains of the year on Monday.
Roaring Kitty's likely investment thesis on Chewy...
Talk about a well-timed note from Evercore ISI tech analyst Mark Mahaney.
Mahaney nicely breaks down the investment thesis in Chewy (CHWY) the day after Keith 'Roaring Kitty' Gill disclosed a 6.6% stake in the company. He also shared some helpful survey analysis below.
Mahaney wrote:
"We continue to view Chewy as a solid business that is impacted by broader industry weakness, but still holds many investment positives – consistently rising spend/loyalty per Chewy customer, budding growth opportunities in sponsored ads, international expansion, and vertical expansion (e.g. vet care clinics), and the potential for ongoing gross and EBITDA margin expansion."
Mahaney is sticking with an in-line rating for now, citing competitive pressures, valuation, and an unproven push into Canada.
Chewy is a top-of-mind destination for pet products, according to a new survey from Evercore ISI. (EvercoreISI)
