Stock Indices Move Higher Amid Lower US Bond Yields

The S&P 500 Index ($SPX) (SPY) is up by +0.58% today, the Dow Jones Industrial Average ($DOWI) (DIA) is up by +0.55%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +0.07%. E-mini S&P futures (ESU26) are up +0.61%, and September E-mini Nasdaq futures (NQU26) are up +0.05%.

Stock indices are moving higher today, with the Nasdaq 100 rebounding from a 1.5-week low. The broader market is supported today by lower US bond yields. The 10-year T-note yield dropped -6 bp to 4.64% today after the US Treasury announced that it will boost liquidity and double the size of buybacks for longer-dated nominal coupon securities to at least $4 billion.

However, weakness in chipmaker and AI-infrastructure stocks continued today, limiting gains in the Nasdaq 100. Despite this, the market remains optimistic, driven by the potential for strong Q2 earnings. The S&P 500 is tracking for earnings growth of almost 32% in Q2, well above projections of +23%, and nearly four times the average earnings growth rate outside of the Covid period since Q4 of 2013, according to Bloomberg Intelligence.

AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500’s earnings-per-share growth in Q2. So far, earnings results have been positive, with 85% of the 459 S&P 500 companies that have reported Q2 earnings beating estimates, according to Bloomberg data.

The markets are discounting a 36% chance of a +25 bp rate hike at the next FOMC meeting on September 15-16. Overseas stock markets are lower today, with the Euro Stoxx 50 falling to a 2-week low and the Shanghai Composite closing down -2.40%. Japan’s Nikkei-225 Stock Average slid to a 1.5-week low, closing down sharply by -3.16%.

Interest rates remain a key factor in the market, with September 10-year T-notes (ZNU6) up by +10 ticks today. The 10-year T-note yield is down -6.1 bp to 4.643%. Gains in T-notes are limited amid higher crude oil prices, as WTI crude oil climbed to a 3-week high today, boosting inflation expectations. The 10-year breakeven inflation rate rose to a 2-month high of 2.319% today.

Supply pressures are also weighing on T-notes as the Treasury will auction $16 billion of 20-year T-bonds later today. European government bond yields are moving lower today, with the 10-year German bund yield falling from a 15-year high of 3.275% and the 10-year UK gilt yield down -3.7 bp to 5.042%. UK July CPI rose +2.9% y/y, right on expectations, while July core CPI rose +2.6% y/y, stronger than expectations of +2.5% y/y.

Markets are discounting a 95% chance of a +25 bp ECB rate hike at its next policy meeting on September 10. US stock movers include mining stocks, which are up sharply today after metals prices surged when the Treasury announced that it was boosting its buybacks of longer-dated US government debt. Software stocks are also climbing today, with ServiceNow (NOW) up more than +6% and Atlassian Corp (TEAM) and Thomson Reuters (TRI) up more than +5%.

Cryptocurrency-exposed stocks are stronger today as Bitcoin (^BTCUSD) rallied to a 3-week high. Strategy (MSTR) is up more than +11% to lead gainers in the Nasdaq 100, and Circle Internet Group (CRCL) is up more than +10%. Chipmakers and AI-infrastructure stocks are sliding for a second day today, weighing on the broader market. The iShares Semiconductor ETF (SOXX) is down more than -2%.

Cybersecurity stocks are retreating today, a negative factor for the overall market. Crowdstrike Holdings (CRWD) is down more than -6%, and Palo Alto Networks (PANW) is down more than -4%. Moderna (MRNA) is up more than +120% to lead gainers in the S&P 500, and Merck & Co (MRK) is up more than +10% to lead gainers in the Dow Jones Industrial Average.