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ETFsector.com Daily Trading Outlook, September 19, 2024

S&P Futures Surge Higher:

S&P futures are up 1.6% in Thursday morning trading, following a mixed Wednesday session where US equities mostly ended lower in choppy conditions, with defensive sectors underperforming. Cyclical stocks held up better but still closed well off their intraday highs. The Russell 2000 finished slightly higher but was down nearly 2% from its peak earlier in the day. Treasuries firmed with some steepening of the yield curve. The Dollar weakened against most major currencies, particularly the Australian dollar, though it strengthened against the yen. Gold rose 0.6%, Bitcoin futures surged 3.7%, WTI crude climbed 1.1%, and Copper gained 1.4%.

The rally is largely driven by the Fed’s more aggressive 50 basis point rate cut on Wednesday, following a 14-month hold on policy changes. The dovish tone in the dot plot further fueled optimism, showing expectations for 100 basis points of rate cuts in both 2024 and 2025. While markets initially failed to hold post-FOMC gains, with some attributing this to hawkish remarks from Powell regarding a higher neutral rate and the pace of cuts not continuing at 50 bp, the decline was also seen as a “sell-the-news” reaction after last week’s 4%+ rally in the S&P. Overall, the combination of Fed easing and hopes for an economic soft landing are viewed as positive drivers for equities. Additional bullish factors include AI secular growth, expanding earnings, record buybacks, and favorable Q4 seasonality.

On the economic calendar, initial jobless claims, Philly Fed manufacturing, and existing home sales are in focus today. Initial claims, expected to hold steady at 230K, will receive close attention given the Fed’s heightened focus on labor market conditions. Philly Fed manufacturing is projected to improve to -1.0 for September, up from August’s -7.0, while existing home sales are expected to decline by 1.3% in August following a 0.6% drop in July. Meanwhile, the Bank of England left its policy unchanged, as expected, and the Bank of Japan is also expected to hold policy steady tonight.

In corporate news, it remains relatively quiet. Darden Restaurants (DRI-US) reports this morning, with expectations for a fairly uneventful quarter, though continued softness at Olive Garden has been noted alongside strong cost control measures. FedEx (FDX-US) is set to report after the close, with the stock having outperformed following Q4 results. Analysts remain optimistic about cost-cutting initiatives and potential spinoff of the Freight division. Lennar (LEN-US) also reports this afternoon; while the stock lagged after its last report in June due to concerns about Q4 margin expansion, homebuilders remain strong performers year-to-date

Wednesday Market Overview 

US equities finished mostly lower on Wednesday, with the Dow down 0.25%, the S&P 500 down 0.29%, and the Nasdaq down 0.31%. The Russell 2000 slightly outperformed, up 0.04%. Defensives, including utilities and staples, lagged the broader market, while Treasuries weakened with the yield curve steepening. The Dollar Index rose 0.2%, Gold was up 0.2%, Bitcoin futures climbed 0.3%, and WTI crude settled down 0.1%.

Among sector SPDRs, XLE led the tape gaining 0.19% with XLC and XLI next in line, while XLU and XLK were the biggest laggards off 0.76% and 0.91% respectively.

Federal Reserve Commentary

The Fed’s monetary policy pivot dominated market sentiment as the central bank cut rates by 50 basis points, bringing the federal funds rate to 4.75-5.00%. The decision leaned toward the more aggressive side, with the market split between a 25 and 50 bp cut, though Fed funds futures were favoring the larger cut. This marked the start of an easing cycle, with the Fed also projecting 100 bp of cuts for both 2024 and 2025 in its dot plot. Powell emphasized that the move reflected the Fed’s commitment to staying ahead of the curve, noting that economic activity continues to expand at a solid pace, inflation is progressing toward the 2% target but remains elevated, and labor market conditions are softening. Fed Governor Bowman dissented, advocating for a more conservative 25 bp cut. Concerns linger about negative seasonality in the second half of September and fading buyback support heading into earnings season.

Information Technology

  • Microsoft (MSFT-US) and BlackRock (BLK-US) are reportedly planning a $30B AI investment fund, underscoring continued enthusiasm for AI as a growth driver.
  • Intuitive Machines (LUNR-US) surged 38.3% after winning a Near Space Network contract with NASA worth up to $4.82B.

Consumer Discretionary

  • VF Corp (VFC-US) rose 3.9% after being upgraded to overweight by Barclays, which cited improvements in sales-to-inventory ratios and product/brand strength in its ongoing turnaround.
  • Victoria’s Secret (VSCO-US) gained 3.5% after Barclays upgraded the stock to equal weight, citing its defensible market share and low expectations for the second half of the year.
  • InterContinental Hotels Group (IHG-US) rose 2.0% after being upgraded to buy by Goldman Sachs, which cited improved long-term earnings growth potential and valuation against peers.

Health Care

  • ResMed (RMD-US) dropped 5.1% after Wolfe Research downgraded the stock to underperform, raising concerns that Lilly’s GLP-1 medication could disrupt the sleep apnea treatment market.
  • Incyte (INCY-US) fell 1.9% after Truist downgraded it to hold, despite optimism about the Opzelura launch, due to concerns about pipeline projects offsetting the loss of exclusivity for Jakafi.

Real Estate

  • Extra Space Storage (EXR-US) gained 1.6% after being upgraded to buy by Jefferies, citing attractive valuation and expectations of a home sales recovery driven by lower mortgage rates.
  • Medical Properties Trust (MPW-US) fell 4.8% after announcing a $430M impairment and $120M amortization expense related to its settlement with major tenant Steward, which recently filed for Chapter 11 bankruptcy.

Industrials

  • United States Steel (X-US) rose 1.5% following reports that Nippon Steel’s takeover proposal will receive an extension for a security review by the US Committee on Foreign Investment.
  • McGrath RentCorp (MGRC-US) dropped 3.1% after announcing the mutual termination of its merger agreement with WSC-US, citing regulatory challenges.

Energy

  • WTI crude settled down 0.1% as oil services and related sectors faced mild pressure amid broader market concerns.

Telecommunication Services

  • T-Mobile (TMUS-US) fell 3.0% after updating its long-term guidance at Capital Markets Day, including expectations for accelerating service revenue growth and plans to return $50B to shareholders through buybacks and dividends by 2027.

Staples

  • General Mills (GIS-US) reported revenue ahead of expectations, with slightly better-than-expected EPS. However, organic growth remained negative, and North American Foodservice was noted as a weak spot.

Financials (FN)

  • Bausch + Lomb (BLCO-US) rose 7.8% on reports that several private equity firms, including Blackstone and TPG Capital, are considering bids for the company.

Eco Data Releases | Thursday September 19th, 2024

 

S&P 500 Constituent Earnings Announcements | Thursday September 19th, 2024

 

Data sourced from FactSet Data Systems

Patrick Torbert

Editor | Chief Strategist

Patrick Torbert is a veteran financial market analyst who is currently the Editor and Chief at ETF Insight a NY based full-service content, TV, video podcast and digital marketing firm that represents several ETF issuers. Patrick brings 20+ years of experience from Fidelity Asset Management where he most recently served as an equity and multi-asset analyst.
  • patrick.torbert@etfsector.com

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