On Friday, U.S. stocks experienced a modest rally, with the S&P 500 Index ($SPX) closing up 0.20%, the Dow Jones Industrial Average ($DOWI) rising by 0.24%, and the Nasdaq 100 Index ($IUXX) increasing by 0.09%. This upward momentum came after an initial period of losses and was fueled by a mix of positive economic data and investor reactions.
Indices Performance:
- S&P 500 Index: Closed at 4,525.16, marking a 0.20% increase. This represents a two-week high, reflecting renewed investor confidence.
- Dow Jones Industrial Average: Finished at 35,044.24, up by 0.24%. The index reached its highest level in two weeks, driven by gains across a range of sectors.
- Nasdaq 100 Index: Ended the day at 14,712.85, up 0.09%. This climb to a three-week high suggests a positive outlook in the technology sector.
Economic Influences
Consumer Sentiment and Inflation Expectations: The University of Michigan’s August consumer sentiment index showed a stronger-than-expected rise to 67.8, surpassing the anticipated 66.9. This positive shift in consumer sentiment provided a boost to market confidence, as it suggests increased consumer spending potential. Additionally, inflation expectations remained stable, with the 1-year expectations at 2.9% and the 5-10 year expectations steady at 3.0%. These readings were slightly above forecasts and indicate that inflation concerns might be manageable in the near term.
Housing Market Data: U.S. housing data revealed ongoing challenges. July housing starts fell by 6.8% month-over-month to 1.238 million units, the lowest level in four years. This decline was more significant than the anticipated 1.333 million units. Similarly, building permits, a key indicator of future construction, dropped by 4.0% to 1.396 million units, falling short of the expected 1.425 million. These figures suggest continued weaknesses in the housing sector, impacting overall economic growth.
Interest Rates and Federal Reserve Comments: The bond market saw a slight decline in yields. The September 10-year Treasury note yield fell to 3.892%, influenced by dovish comments from Chicago Fed President Austan Goolsbee. Goolsbee highlighted potential warning signs in the labor market and other leading economic indicators, signaling possible support for a rate cut at the September FOMC meeting. The market is currently pricing in a 100% chance of a 25 basis point rate cut and a 30% chance of a 50 basis point cut.
Stock Market Reactions
Early Losses and Recovery: The stock market initially faced losses due to weaker-than-expected housing data and negative corporate news. For instance, Applied Materials and Amcor Plc reported disappointing forecasts, leading to declines in their stock prices. However, the market rebounded later in the day, bolstered by the improved consumer sentiment and lower Treasury yields.
Sector-Specific Movements:
- Applied Materials (AMAT): The stock fell by 1.86% after the company forecasted Q4 net sales of $6.53 billion to $7.33 billion. While these figures aligned with market consensus, they fell short of investor expectations for a more significant impact from AI investments. This disappointment led to declines in other semiconductor stocks, including Lam Research (LRCX), KLA Corp (KLAC), and ASML Holding NV (ASML).
- Ulta Beauty (ULTA): Ulta’s shares surged by over 3% following an 11% increase on Thursday, driven by Berkshire Hathaway’s disclosure of a new stake in the company. This significant investment bolstered investor confidence in Ulta’s future performance.
- Align Technology (ALGN): The stock rose more than 2% after Piper Sandler reported that the company’s dental medical devices have outperformed expectations by the widest margin in nearly three years.
- H&R Block (HRB): The company’s shares jumped over 11% following a strong Q4 revenue report of $1.06 billion, which exceeded the consensus estimate. H&R Block also raised its forecast for 2025 revenue, further boosting investor optimism.
- Coherent (COHR): Coherent’s stock climbed more than 7% after reporting Q4 revenue of $1.31 billion, surpassing the consensus estimate. The company’s positive Q1 revenue forecast also contributed to the stock’s gains.
- Cisco Systems (CSCO): Cisco’s shares increased by more than 1% following an upgrade from HSBC to “buy” with a target price of $58, reflecting improved confidence in the company’s future performance.
- Fox Corp (FOXA): Fox’s stock rose more than 1% after Wells Fargo Securities upgraded the stock to “overweight” with a target price of $46, reflecting a positive outlook on the company’s prospects.
- Amcor Plc (AMCR): Amcor’s shares fell more than 3% after the company reported weaker-than-expected Q4 net sales of $3.54 billion, falling short of the consensus estimate.
- Palo Alto Networks (PANW): The stock declined more than 2% following a downgrade by Evercore ISI, which labeled the stock a “tactical underperform” ahead of its upcoming earnings report.
- Vistra Corp (VST): Vistra’s shares decreased by more than 2% amid signs of insider selling, as an SEC filing revealed that an executive sold $2.79 million worth of shares.
- Pfizer (PFE): Pfizer’s stock dropped over 1% after its Covid-flu vaccine, developed in collaboration with BioNTech SE, missed one of its goals in a final-stage trial, raising concerns about its future performance.
Global Market Performance
European Markets: European stock indices saw positive movements on Friday. The Euro Stoxx 50 rose by 0.68%, reaching a two-week high. The Shanghai Composite Index in China increased by 0.07%, and Japan’s Nikkei Stock 225 surged by 3.64%, marking a significant gain and reaching a two-week high.
Bond Markets: The bond markets exhibited mixed movements. In the U.S., September 10-year T-notes closed up by 5 ticks, with the yield falling by 2.1 basis points to 3.892%. The decline was supported by dovish Fed comments and weak housing data. European government bond yields were also mixed, with the 10-year German bund yield falling by 1.5 basis points to 2.247%, while the 10-year UK gilt yield rose by 0.3 basis points to 3.926%. Swaps are currently pricing in a 100% chance of a 25 basis point rate cut by the ECB at their September 12 meeting.
Upcoming Earnings Reports
On August 19, several notable companies are scheduled to report their earnings, including:
- 3D Systems Corp (DDD)
- Bit Digital Inc (BTBT)
- Estee Lauder Cos Inc/The (EL)
- Fabrinet (FN)
- Flexsteel Industries Inc (FLXS)
- Maui Land & Pineapple Co Inc (MLP)
- Palo Alto Networks Inc (PANW)
These earnings reports will be closely watched for insights into company performance and broader market trends.
Summary
Overall, the stock market’s recovery from early losses and the positive movements in major indices reflect a shift in investor sentiment, driven by encouraging economic data and supportive comments from Federal Reserve officials. Despite initial concerns over housing data and corporate earnings, the market showed resilience and optimism, bolstered by improved consumer sentiment and favorable bond market conditions.