Stock Market Performance
The stock market had a decidedly strong showing. The S&P 500 (+1.7%) and Dow Jones Industrial Average (+1.3%) reached fresh all-time highs, while the Nasdaq Composite climbed 2.5%. The rally was in response to yesterday's decision by the FOMC to cut the target rate for the fed funds rate by 50 basis points to 4.75-5.00%. Today's gains also reflected a belief that the economy is in good shape and the Fed will cut rates as needed to maintain a solid economic backdrop. This morning's data supported this optimistic view.
Economic Data
- Weekly jobless claims remain steady below recession-like levels.
- The Philadelphia Fed Index tipped back into expansion (i.e., above 0.0 reading) in September.
- Existing home sales were slightly below expectations in August but still reflected a tight market.
Sector Performance
Just about everything came along for the upside ride, boosted by a fear of missing out on further gains, along with strength in the mega caps and chipmakers. The Vanguard Mega Cap Growth ETF (MGK) rose 2.5%, and the PHLX Semiconductor Index (SOX) jumped 4.3%.
Apple (AAPL 228.87, +8.18, +3.7%) traded up after T-Mobile's (TMUS 199.64, +2.96, +1.5%) CEO indicated iPhone 16 sales in the first week were better than last year's models. This price action led the S&P 500 information technology sector to close 3.1% higher. The consumer discretionary (+2.2%), communication services (+1.9%), and industrials (+1.8%) sectors were the next best performers.
Meanwhile, defensive-oriented sectors like utilities (-0.6%) and consumer staples (-0.6%) underperformed today, reflecting a more risk-on vibe in the market.
Bond Market
The 10-yr yield settled five basis points higher at 3.73% and the 2-yr yield settled unchanged at 3.60%.
Year-to-Date Performance
- Nasdaq Composite: +20.0% YTD
- S&P 500: +19.8% YTD
- S&P Midcap 400: +12.3% YTD
- Dow Jones Industrial Average: +11.5% YTD
- Russell 2000: +11.1% YTD
Reviewing Today's Economic Data
- Weekly Initial Claims: 219K (consensus 232K); Prior was revised to 231K from 230K
- Weekly Continuing Claims: 1.829 million; Prior was revised to 1.843 million from 1.850 million
- Q2 Current Account Balance: -$266.8 billion; Prior was revised to -$241.0 billion from -$237.6 billion
- September Philadelphia Fed Index: 1.7 (consensus 3.0); Prior -7.0
- August Existing Home Sales: 3.86 million (consensus 3.90 million); Prior was revised to 3.96 million from 3.95 million
- August Leading Home Sales: -0.2% (consensus -0.3%); Prior -0.6%
The key takeaway from the report is that there is nothing in the low initial claims reading that, as Fed Chair Powell might agree, suggests the likelihood of a recession or downturn in the economy is elevated. More inventory is becoming available with mortgage rates dropping, yet it is still a tight market, evidenced by the ongoing increase in the median home price.
Today's News
Advanced Micro Devices (AMD, Financial), Nvidia (NVDA, Financial), and several other semiconductor stocks saw significant gains after the Federal Open Market Committee decided to cut its benchmark interest rate by 50 basis points. Nvidia, Taiwan Semiconductor Manufacturing (TSM, Financial), Broadcom (AVGO, Financial), and Analog Devices (ADI, Financial) all climbed 5% by noon trading. Advanced Micro Devices (AMD) jumped 6%. Other semiconductor stocks such as Texas Instruments (TXN), Lattice Semiconductor (LSCC), NXP Semiconductors (NXPI), Microchip Technology (MCHP), and Qualcomm (QCOM) also experienced notable increases.
FedEx (FDX, Financial) reported Q1 Non-GAAP EPS of $3.60, missing estimates by $1.17, with revenue of $21.6 billion, down 0.5% year-over-year and missing by $310 million. The company revised its fiscal 2025 revenue and earnings forecasts and reaffirmed its forecast for capital spending of $5.2 billion, focusing on network optimization and efficiency improvements. FedEx expects earnings per diluted share of $17.90 to $18.90 before adjustments and $20.00 to $21.00 after excluding costs related to business optimization initiatives.
Skechers (SKX, Financial) shares dropped 10.9% after the company warned about demand issues in China due to severe consumer discretionary pressures and supply chain problems during a presentation at the Wells Fargo Consumer Conference. Despite these challenges, Skechers remains optimistic about long-term opportunities in China and other Asian markets. Other footwear stocks such as Deckers Outdoor (DECK, Financial), On Holding AG (ONON, Financial), and Crocs (CROX, Financial) also saw declines, while Nike (NKE, Financial) managed a slight increase.
NextEra Energy (NEE, Financial) fell 3.1% after Jefferies initiated coverage with a Hold rating and an $87 price target. Despite being well-positioned to benefit from the increased demand for renewables, the shares have substantially outperformed and now trade at a 30%-plus premium to the average utility 2027 P/E. Meanwhile, NextEra Energy Partners (NEP) gained 3.3% as Jefferies initiated coverage with a Buy rating and a $28 price target.
CrowdStrike (CRWD) provided several financial updates at its annual cybersecurity event, maintaining its $10 billion ARR target for Fal.Con'24 despite near-term visibility challenges. Analyst Shrenik Kothari noted that contract extensions and deferred spending under its Customer Commitment Package are dampening some ARR momentum, with a $60 million impact for the back half of the year. However, CrowdStrike remains positive on long-term growth, particularly in cloud security and identity protection.
Philip Morris International (PM) faced criticism from Tucker Carlson, who made derogatory remarks about the Zyn brand as he prepares to launch a competing nicotine-pouch brand called Alp. Carlson’s comments focused on political contributions made by Zyn employees to Kamala Harris. Despite the criticism, Philip Morris did not make any direct political contributions to presidential campaigns, and its subsidiary Swedish Match North America distributed contributions to both Republicans and Democrats.
Texas Instruments (TXN) announced a 4.6% increase in its quarterly dividend to $1.36 per share, with a forward yield of 2.62%. The dividend is payable on November 12 for shareholders of record on October 31. This increase comes as part of the company's ongoing strategy to return value to shareholders.
Two Harbors Investment (TWO) declared a $0.45 per share quarterly dividend, maintaining its previous payout. The forward yield is 12.78%, with the dividend payable on October 29 for shareholders of record on October 1.
Commerzbank (CRZBF) announced it will offer bitcoin (BTC-USD) and ether (ETH-USD) trading to its existing corporate clients in Germany through its subsidiary Crypto Finance. The bank will also provide cryptocurrency custody services, having secured a crypto custody license in Germany in November 2023.
Synopsys (SNPS) announced it has entered into a definitive agreement to sell its Optical Solutions Group to Keysight Technologies (KEYS). The transaction is expected to close in the first half of 2025 and is a necessary step towards obtaining regulatory approval for Synopsys' proposed acquisition of Ansys.
Alphabet (GOOG) continued its gains for eight consecutive sessions, closing 1.5% higher at $163.24. The stock has gained nearly 17% year-to-date, reflecting strong investor confidence in the tech giant's profitability and growth prospects.
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