The S&P 500 Index ($SPX) (SPY) Tuesday closed up by +0.97%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.30%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +1.55%.

Stocks Tuesday settled moderately higher, with the Nasdaq 100 posting a 1-week high.  Strength in megacap technology stocks Tuesday propelled the overall market higher. Stocks also rose on upbeat comments from New York Fed President Williams, who said the Fed is "well positioned" to pull off a soft landing for the US economy.  In addition, Tuesday’s news that the US Aug trade deficit fell to a 5-month low was a positive factor for US Q3 GDP. 

Higher T-note yields Tuesday were bearish for stocks as the 10-year T-note yield rose to a 2-1/4 month high on hawkish comments Monday evening from St. Louis Fed President Musalem, who warned of easing too quickly.  Also, a -4% fall in crude oil prices Tuesday undercut energy stocks.

Middle East tensions continue to be a negative factor for stocks.  In addition to Gaza, Israel is waging a ground and air offensive in Lebanon to combat Hezbollah.  The Israel Defense Force (IDF) said Tuesday that it deployed a fourth division of troops in southern Lebanon while maintaining airstrikes in Beirut’s southern suburbs.  The markets are also awaiting Israel’s response to last Tuesday’s missile barrage from Iran.

The US Aug trade deficit fell to -$70.4 billion from -$78.9 billion in July, smaller than expectations of -$70.5 billion and the smallest deficit in 5 months.

Fed Governor Kugler said the Fed should keep its focus on bringing inflation back to its 2% target, though with a "balanced approach" that avoids an "undesirable" slowdown in employment growth and economic expansion.

Monday evening, St. Louis Fed President Musalem said, "Given where the economy is today, I view the costs of easing too much too soon as greater than the costs of easing too little too late."

The markets are awaiting US consumer price news on Thursday to see if the trend toward easing prices will continue.  The consensus is for Sep CPI to ease to +2.3% y/y from +2.5% y/y in Aug.  Sep CPI ex-food and energy is expected to remain unchanged from Aug at +3.2% y/y.  Also, Q3 earnings season begins on Friday as big US banks report results. 

The markets are discounting the chances at 88% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut at that meeting.

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 closed down -0.42%.  China's Shanghai Composite rallied to a 2-3/4 year high and closed up sharply by +4.59%.   Japan's Nikkei Stock 225 closed down by -1.00%.

Interest Rates

December 10-year T-notes (ZNZ24) Tuesday closed down by -0.5 of a tick.  The 10-year T-note yield rose +0.7 bp to 4.033%. Dec T-notes Tuesday slid to a 2-1/4 month low, and the 10-year T-note yield rose to a 2-1/4 month high of 4.055%. T-notes were under pressure Tuesday due to strength in stocks, which curbed safe-haven demand for T-notes. Also, hawkish comments Monday evening from St. Louis Fed President Musalem weighed on T-notes when he warned of easing too quickly.  In addition, slack demand for the Treasury’s $58 billion auction of 3-year T-notes undercut T-note prices, with the auction's bid-to-cover ratio at 2.45, below the 10-auction average of 2.57. 

T-notes recovered most of their losses Tuesday as short covering emerged following a rebound in European government bonds.  Also, Tuesday’s -4% plunge in crude oil prices lowered inflation expectations, a supportive factor for T-notes.  

European government bond yields Tuesday gave up an early advance and moved lower.  The 10-year German bund yield fell from a 1-month high of 2.264% and finished down by -1.3 bp at 2.243%.  The 10-year UK gilt fell from a 3-month high of 4.221% and finished down by -2.4 bp at 4.184%.

German Aug industrial production rose +2.9% m/m, stronger than expectations of +0.8% m/m and the largest increase in 2-3/4 years.

ECB Executive Board member Elderson said the Eurozone economy is weaker than expected, and "if our projections that inflation will converge toward our 2% target in the second half of 2025 continue to be confirmed, the ECB will continue to gradually ease its restrictive policy stance."

ECB Governing Council member and Bundesbank President Nagel said "he's open to considering the possibility" of an ECB interest rate cut at next week's ECB meeting.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 95% for the October 17 meeting.

US Stock Movers

Megacap technology stocks rallied Tuesday and supported gains in the overall market.  Netflix (NFLX) closed up more than +3%.  Also, Tesla (TSLA), Apple (AAPL), Amazon.com (AMZN), Meta Platforms (META), and Microsoft (MSFT) closed up more than +1%.

Palo Alto Networks (PANW) closed up more than +5% to lead gainers in the Nasdaq 100 after BNP Paribas Exane initiated coverage on the stock with a recommendation of outperform and a price target of $410.

Travel stocks and cruise line operators moved higher Tuesday after crude prices fell more than -4% and after upbeat comments from New York Fed President Wiliams, who said the US is well positioned for a soft landing. As a result, Carnival (CCL) closed up more than +4%, and Norwegian Cruise Line Holdings (NCLH) closed up more than +3%.  In addition, Delta Air Lines (DAL) and Royal Caribbean Cruises (RCL) closed up more than +2%.  Finally, United Airlines Holdings (UAL), Expedia Group (EXPE), and Booking Holdings (BKNG) closed up by more than +1%.

Nvidia (NVDA) closed up more than +4% after Hon Hai said it is building the world’s largest facility to produce Nvidia’s GB200 AI chips. 

DocuSign (DOCU) closed up more than +6% after S&P 500 Dow Jones Indices said the company will join the S&P Midcap 400 Index before trading opens on October 11. 

Affirm Holdings (AFRM) closed up more than +7% after BTIG LLC upgraded the stock to buy from neutral with a price target of $68. 

Humana (HUM) closed up more than +2% after Bernstein upgraded the stock to outperform from market perform with a price target of $308.

Waters Corp (WAT) closed up more than +2% after Jeffries upgraded the stock to buy from hold with a price target of $415.

Energy stocks retreated Tuesday after the price of WTI crude oil fell more than -4%.  As a result, Marathon Petroleum (MPC) closed down more than -7% to lead losers in the S&P 500.  Also, Valero Energy (VLO) closed down more than -5%, and Phillips 66 (PSX) closed down more than -4%.  In addition, Haliburton (HAL), Marathon Oil (MRO), ConocoPhillips (COP), and Schlumberger (SLB) closed down more than -3%.

US-listed Chinese stocks fell Tuesday after China’s National Development and Reform Commission, the country’s economic planning agency, failed to announce any new large stimulus measures following Tuesday’s meeting.  As a result, PDD Holdings (PDD) closed down more than -5% to lead losers in the Nasdaq 100.  Also, JD.com (JD), NetEase (NTES), Alibaba Group Holdings (BABA), and Yum China Holdings (YUMC) closed down more than -5%.   

Mining stocks were under pressure Tuesday as copper prices (HGZ24) tumbled more than -2% to a 2-week low after China’s economic planning agency failed to announce any new major stimulus measures.  As a result, Freeport McMoran (FCX) and Southern Copper (SCCO) closed down more than -3%. 

Albemarle (ALB) closed down more than -3% after CFRA downgraded the stock to hold from buy with a price target of $99. 

Otis Worldwide (OTIS) closed down more than -2% after Wolfe Research downgraded the stock to peer perform from outperform.

American Express (AXP) closed down more than -1% after BTIG LLC downgraded the stock to sell from neutral with a price target of $230. 

Earnings Reports (10/9/2024)

Applied Digital Corp (APLD), AZZ Inc (AZZ), Byrna Technologies Inc (BYRN), E2open Parent Holdings Inc (ETWO), Helen of Troy Ltd (HELE), Richardson Electronics Ltd/Uni (RELL).

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