Stocks Give Up Early Gains as Chip Makers Slide and Bond Yields Climb

US stock indexes relinquished early gains on Wednesday and finished moderately lower. Chip stocks gave up an early advance Wednesday and retreated, which weighed on the overall market. Also, weak demand for the Treasury’s $42 billion auction of 10-year T-notes on Wednesday pushed bond yields higher and sparked the selling of stocks.

Stocks Wednesday initially moved higher on positive carryover from a rally in Japanese stocks in the wake of dovish comments from Bank of Japan (BOJ) Deputy Governor Uchida, who pledged to refrain from raising interest rates when the markets are unstable. The Nikkei Stock Index Wednesday rallied more than +1%, and other global bourses rose, while the yen tumbled nearly -2%.

BOJ Deputy Governor Uchida said, “I believe that the BOJ needs to maintain monetary easing with the current policy interest rate for the time being, with developments in financial and capital markets at home and abroad being extremely volatile.”

Financial markets have been in turmoil since last week when the BOJ unexpectedly raised interest rates, which sparked a surge in the yen to a 7-month high against the dollar and fueled a rapid unwinding of the yen carry trade that dragged down risk assets globally.

Some positive corporate news Wednesday lent early support to stocks. Fortinet rose more than +25% after reporting better-than-expected Q2 billings and raising its full-year revenue forecast. Also, Axon Enterprise rose more than +18% after raising its revenue guidance for the year. Global Payments rose more than +6% after reporting Q2 adjusted EPS above consensus.

US Stocks

US MBA mortgage applications rose +6.9% in the week ended August 2, with the purchase mortgage sub-index up +0.8% and the refinancing mortgage sub-index up +15.9%. The average 30-year fixed rate mortgage fell -27 bp to a 15-month low of 6.55% from 6.82% the prior week.

US Jul consumer credit rose +$8.934 billion, weaker than expectations of +$10.000 billion.

Chinese trade news Wednesday was mixed as China’s July exports rose +7.0% y/y, weaker than expectations of +9.5% y/y and a bearish factor for global growth prospects. July imports rose +7.2% y/y, stronger than expectations of +3.2% y/y.

China Trade

The market consensus is that Q2 earnings for the S&P 500 companies will rise +9% y/y. About half of the companies in the S&P 500 have reported thus far. According to Bloomberg, most reporting companies have beaten their earnings consensus, but only 43% have beaten revenue expectations, the lowest percentage in five years.

The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 76% for a -50 bp rate cut at that meeting.

Overseas stock markets Wednesday settled higher. The Euro Stoxx 50 closed up +2.03%. China’s Shanghai Composite closed up +0.09%. Japan’s Nikkei Stock 225 closed up +1.19%.

Global Stocks

Interest Rates

September 10-year T-notes Wednesday closed down -16 ticks. The 10-year T-note yield rose +7.8 bp to 3.970%. Supply pressures Wednesday weighed on T-note prices as seventeen corporate borrowers offered nearly $32 billion of debt to be priced, which prompted bond dealers to short T-notes as a hedge against the incoming supply. T-note prices fell to their lows Wednesday afternoon due to weak demand for the Treasury’s $42 billion auction of 10-year T-notes that had a bid-to-cover ratio of 2.32, well below the 10-auction average of 2.52. The Treasury will conclude the quarterly August refunding on Thursday with a $25 billion 30-year T-bond auction.

Interest Rates

European government bond yields on Wednesday moved higher. The 10-year German bund yield rose +6.8 bp to 2.268%. The 10-year UK gilt yield rose +2.9 bp to 3.949%.

German June industrial production rose +1.4% m/m, stronger than expectations of +1.0% m/m and the largest increase in 16 months.

German trade news was weaker than expected as June exports fell -3.4% m/m, weaker than expectations of -1.5% m/m and the biggest decline in 6 months. Also, June imports rose +0.3% m/m, weaker than expectations of +2.5% m/m.

ECB Governing Council member Rehn said the ECB may continue cutting interest rates if confidence in the slowing inflation trend continues.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.

US Stock Movers

Chip stocks gave up early gains and turned lower on Wednesday, weighing on the overall market. Nvidia, Broadcom, and ARM Holdings Plc closed down more than -5%. Also, Intel closed down more than -4%, and Marvell Technology, Microchip Technology, ON Semiconductor, and NXP Semiconductors closed down more than -3%. In addition, Micron Technology, Lam Research, and Texas Instruments closed down more than -2%.

Chip Stocks

Super Micro Computer closed down more than -20% to lead losers in the S&P 500 and Nasdaq 100 after reporting Q4 adjusted EPS of $6.25, well below the consensus of $8.25, and forecasting Q1 adjusted EPS of $6.69-$8.27, the midpoint well below the consensus of $7.68.

Airbnb closed down more than -13% after forecasting Q3 revenue of $3.67 billion-$3.73 billion, below the consensus of $3.84 billion, and warning of slowing demand from US vacationers.

Charles River Laboratories International closed down more than -12% after cutting its full-year adjusted EPS estimate to $9.90-$10.20 from a previous forecast of $10.90-$11.40, well below the consensus of $11.00.

Bio-Techne closed down more than -9% after reporting Q4 net sales of $306.1 million, weaker than the consensus of $307.1 million.

TripAdvisor closed down more than -16% after reporting Q2 revenue of $497 million, below the consensus of $504.9 million.

Amgen closed down more than -5% to lead losers in the Dow Jones Industrials after reporting Q2 adjusted EPS of $4.97, below the consensus of $4.98. operating income of $223.9 million, weaker than the consensus of $231.2 million.

Trex Co closed down more than -21% after reporting Q2 net sales of $376.5 million, weaker than the consensus of $388 million, and cutting its full-year sales forecast to $1.13 billion-$1.15 billion from a previous forecast of $1.215 billion-$1.235 billion.

Emerson Electric closed down more than -7% after reporting Q3 net sales of $4.38 billion, weaker than the consensus of $4.41 billion.

Fortinet closed up more than +25% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q2 billings of $1.54 billion and raising its full-year revenue forecast to $5.80 billion-$5.90 billion from a previous estimate of $5.75 billion-$5.85 billion, above the consensus of $5.80 billion.

Axon Enterprise closed up more than +18% after raising its revenue guidance for the year to $2.00 billion-$2.05 billion from a previous estimate of $1.94 billion-$1.99 billion, stronger than the consensus of $1.98 billion.

Global Payments closed up more than +6% after reporting Q2 adjusted EPS of $2.93, better than the consensus of $2.91.

Shopify closed up more than +17% after reporting Q2 revenue of $2.05 billion, above the consensus of $2.01 billion.

VF Corp closed up more than +6% after reporting Q1 revenue of $1.91 billion, stronger than the consensus of $1.85 billion.

Illumina closed up more than +4% after reporting Q2 revenue of $1.11 billion, above the consensus of $1.09 billion.

MGM Resorts International closed up more than +2% on insider buying of the stock after an SEC filing showed the CEO and several board members purchased more than $7.31 million of shares on Monday.

Stock Movers