Stock Market Midday, Sept. 3: Stocks Rally as Treasury Yields Fall, Broadcom Falls Despite Earnings Beat

S&P 500 E-Mini futures ticked higher this morning, recovering from three consecutive sessions of losses. This upturn occurred as oil prices and bond yields declined. WTI crude fell more than -1% on Wednesday, alleviating some of yesterday's surge sparked by escalating U.S.-Iran tensions over the Strait of Hormuz. The Islamic Republic retaliated with drone and missile strikes against U.S. bases in the Middle East.

Lower oil prices eased concerns about persistent inflation, supporting the bond market. The benchmark 10-year Treasury note yield fell to 4.78% from 4.82%, its highest level since November 2023. Dell Technologies surged over +9% in pre-market trading after reporting strong Q2 results and raising its full-year sales outlook amid robust demand for AI servers.

However, AI-related and chip stocks faced pressure due to elevated bond yields, which elevate the discount rate applied to future earnings and lessen their present value.

Investors are now looking forward to the U.S. ADP jobs report and earnings from Broadcom. Yesterday, major indexes closed lower, with AI and chip stocks sliding. Chip stocks such as Lam Research and Applied Materials fell more than -3%, while cybersecurity firms like CrowdStrike and Palo Alto Networks dropped over -6% and -5%, respectively. Alumis also plunged more than -56% after its lupus drug candidate failed in a mid-stage trial.

On the positive side, Edison International and PG&E climbed over +8% and +6%, respectively, following reports that California lawmakers dropped a key wildfire bill without including liability protection for utilities. Economic data from Tuesday revealed a U.S. economy that remains healthy but is losing momentum. The U.S. JOLTS job openings rose to 7.271 million in July but fell short of expectations.

The ISM manufacturing index also declined below expectations. Fed Governor Michael Barr suggested the central bank should be prepared to raise interest rates if inflation does not moderate towards 2%. Rate futures indicate a 68.0% probability of a 25-basis-point hike and a 32.0% chance of no change at the September FOMC meeting.