The S&P 500 Index ($SPX) (SPY) Friday closed down -1.73%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.01%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.69%.

Stocks sold off sharply Friday, with the S&P 500 falling to a 3-1/2 week low, the Dow Jones Industrials sliding to a 3-week low, and the Nasdaq 100 dropping to a 4-week low.  Weakness in chip stocks weighed on the overall market Friday, led by a -10% plunge in Broadcom after it gave disappointing guidance on Q4 revenue. Also, a slump in megacap technology stocks was a drag on the broader market.

Weakness in the US labor market is a negative factor for the economy and stocks after US Aug nonfarm payrolls rose less than expected and July payrolls were revised lower.  However, stocks found some support as the weak payroll report knocked the 10-year T-note yield down to a 15-month low.

US Aug nonfarm payrolls rose +142,000, weaker than expectations of +165,000.  Also, July nonfarm payrolls were revised lower to +89,000 from the previously reported +114,000.  The Aug unemployment rate fell -0.1 to 4.2%, right on expectations.

US Aug average hourly earnings rose +0.4% m/m and +3.8% y/y, slightly stronger than expectations of +0.3% m/m and +3.7% y/y.

Dovish Fed comments were supportive of stocks.  New York Fed President Williams said, "With the economy now in equipoise and inflation on a path to 2%, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate."  Also, Fed Governor Waller said, "The balance of risks has shifted toward the employment side of our dual mandate, and that policy needs to adjust accordingly." He added that he's "open-minded about the size and pace of rate cuts."

The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 29% for a -50 bp rate cut at that meeting.

Overseas stock markets Friday settled lower.  The Euro Stoxx 50 dropped to a 3-week low and closed down -1.60%.  China's Shanghai Composite fell to a 7-month low and closed down -0.81%.  Japan's Nikkei Stock 225 fell to a 3-week low and closed down by -0.72%.

Interest Rates

December 10-year T-notes (ZNZ24) Friday closed up +8.5 ticks.  The 10-year T-note yield fell -1.4 bp to 3.714%.  Dec T-notes today climbed to a 1-month high, and the 10-year T-note yield fell to a 15-month low of 3.6442%.  T-note prices rallied Friday after US Aug nonfarm payrolls rose less than expected, and July payrolls were revised lower, which is a dovish factor for Fed policy.  Also, dovish Fed comments from New York Fed President Williams and Fed Governor Waller were supportive for T-notes when they said it is now appropriate for the Fed to start lowering interest rates.  In addition, a decline in inflation expectations is bullish for T-notes after the 10-year breakeven inflation rate Friday fell to a 1-month low of 2.027%.  T-notes maintained moderate gains after stocks sold off, which boosted safe-haven demand for government debt.

European government bond yields on Friday moved lower.  The 10-year German bund yield dropped to a 1-month low of 2.148% and finished down -3.6 bp to 2.172%.  The 10-year UK gilt yield fell to a 3-week low of 3.847% and finished down -2.9 bp to 3.886%.

Eurozone Q2 GDP was revised lower to +0.2% q/q from the previously reported +0.3% q/q.

German July industrial production fell -2.4% m/m, weaker than expectations of -0.5% m/m.

France's July industrial production fell -0.5% m/m, weaker than expectations of -0.3% m/m.

German trade data was better than expected after July exports rose +1.7% m/m, stronger than expectations of +1.1% m/m.  Also, July imports rose +5.4% m/m, stronger than expectations of +0.7% m/m and the most in 3-1/4 years.

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 were under pressure Friday, led by a -10% fall in Broadcom (AVGO) after forecasting Q4 revenue of $14.0 billion, weaker than the consensus of $14.13 billion.  Also, ASML Holding NV (ASML) and Marvell Technology (MRVL) closed down more than -5%.  In addition, Nvidia (NVDA), ARM Holdings Plc (ARM), and NXP Semiconductors NV (NXPI) closed down more than -4%.  Finally, Advanced Micro Devices (AMD), Micron Technology (MU), KLA Corp (KLAC), Microchip Technology (MCHP), ON Semiconductor Corp (ON), and Qualcomm (QCOM) closed down more than -3%.

Megacap technology stocks retreated Friday and weighed on the broader market.  Tesla (TSLA) closed down more than -8%.  Also, Amazon.com (AMZN) closed down more than -3% to lead losers in the Dow Jones Industrials.  In addition, Alphabet (GOOGL) and Meta Platforms (META)  closed down more than -3%.  Finally, Netflix (NFLX) closed down more than -2%, and Microsoft (MSFT) closed down more than -1%.

Super Micro Computer (SMCI) closed down more than -6% after JPMorgan Chase downgraded the stock to neutral from overweight. 

Wells Fargo & Co (WFC) closed down more than -5% after Evercore ISI lowered its price target on the stock to $65 from $67.

Invitation Homes (INVH) closed down more than -3% after reporting a July-August QTD renewal lease rate growth of 4.4%, a deceleration from the 5.6% growth rate in the May-June period.

Mobileye (MBLY) closed down more than -8% after Bloomberg reported that Intel was considering offloading some of its 88% stake in the company on the public market or via a sale to a third party. 

Etsy (ETSY) closed down more than -4% after Cantor Fitzgerald initiated coverage on the stock with a recommendation of neutral and a price target of $50.

Organon & Co (OGN) closed down more than -3% after JPMorgan Chase downgraded the stock to underweight with a price target of $20. 

Home builders rose Friday after the 10-year T-note yield fell to a 15-month low, a supportive factor for housing demand.  As a result, Lennar (LEN), DR Horton (DHI), Toll Brothers (TOL), Builders FirstSource (BLDR), and PulteGroup (PHM) closed up more than +1%.

US Steel (X) closed up more than +4% after Cleveland-Cliff’s CEO Gonclaves said he’s still in the market for US Steel’s assets.

Smartsheeet (SMAR) closed up more than +6% after reporting Q2 adjusted EPS of 44 cents, stronger than the consensus of 30 cents, and raising its 2025 adjusted EPS forecast to $1.36-$1.39 from a previous estimate of $1.22-$1.29, better than the consensus of $1.26. 

Samsara (IOT) closed up more than +14% after reporting Q2 revenue of $300.2 million, above the consensus of $289.6 million, and raising its 2025 revenue forecast to $1.22 billion-$1.23 billion from a previous estimate of $1.21 billion. 

Guidewire Software (GWRE) closed up more than +12% after reporting Q4 revenue of $291.5 million, better than the consensus of $284 million, and forecasting Q1 revenue of $251 million-$257 million, well above the consensus of $236.1 million. 

Carrier Global (CARR) closed up more than +1% after Wolfe Research upgraded the stock to peer perform from underperform.

Earnings Reports (9/9/2024)

Apartment Income REIT Corp (AIRC), Aviat Networks Inc (AVNW), Avid Bioservices Inc (CDMO), Calavo Growers Inc (CVGW), Dakota Gold Corp (DC), Dakota Gold Corp (DC), Limoneira Co (LMNR), Matrix Service Co (MTRX), Mission Produce Inc (AVO), Oracle Corp (ORCL).

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