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Rich Asplund

Debt Ceiling Standoff Weighs on Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.46%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.68%.

Stock indexes Tuesday closed moderately lower ahead of U.S. inflation news on Wednesday. The debt ceiling stalemate is also undercutting investor sentiment and is weighing on stocks.  Also, global growth concerns were negative for stocks after Chinese Apr imports plunged -7.9% y/y, weaker than expectations of -0.1% y/y and a sign that China’s recovery is weaker than expected, which weighed on global growth prospects.

The markets are awaiting Wednesday’s news on U.S. April consumer prices.  The consensus is for an Apr CPI report of +5.0% y/y, unchanged from March, and for Apr core CPI to ease to +5.5% y/y from +5.6% y/y in March.

Clarity regarding the U.S. debt ceiling is a bearish factor for stocks.  Treasury Secretary Yellen said Sunday that there are “simply no good options” for solving the debt limit stalemate other than Congress lifting the debt ceiling cap. Yellen has said that the Treasury Department may run out of cash to pay its bills as soon as June 1 unless the debt ceiling is raised. 

Hawkish Fed comments Tuesday were bearish for stocks.  Fed Governor Jefferson said inflation has started to come down, and the U.S. economy has started to slow in an orderly fashion. Also, New York Fed President Williams said, "In my forecast, we need to keep a restrictive stance of policy in place for quite some time, and I don't see in my baseline forecast any reason to cut interest rates this year."

Global bond yields are mixed.  The 10-year T-note yield rose +2.1 bp to 3.528%.  The 10-year German bund yield rose +3.1 bp to 2.350%, and the UK 10-year gilt yield finished the day at a 2-1/2 week high of 3.855%.

On the bearish side for stocks, PayPal Holdings closed down more than -10% after reporting 433 million active customer accounts in Q1, below the consensus of 437.6 million, and warned that its adjusted operating margin wouldn’t grow as quickly as it had anticipated earlier.  Also, Waters closed down more than -6% after reporting weaker-than-expected Q1 adjusted EPS and forecasting Q2 adjusted EPS below consensus.  In addition, International Flavors & Fragrances closed down more than -7% after lowering its full-year sales estimate.

On the positive side, DaVita closed up more than +12% after reporting Q1 revenue above consensus and raising its full-year operating income estimate.  Also, McKesson closed up more than +5% after reporting Q4 adjusted EPS above consensus and forecasting 2024 adjusted EPS above estimates.  In addition, Boeing closed up more than +2% after Ryanair ordered 300 Boeing 737-MAX-10 aircraft worth more than $40 billion. 

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 closed down -0.59%.  China’s Shanghai Composite closed down -1.10%, and Japan’s Nikkei Stock Index closed up +1.01%. 

Today’s stock movers…

PayPal Holdings (PYPL) closed down more than -11% to lead losers in the S&P 500 and Nasdaq 100 after reporting 433 million active customer accounts in Q1, below the consensus of 437.6 million and warned that its adjusted operating margin wouldn’t grow as quickly as it had anticipated earlier.

Chip stocks fell back Tuesday as GlobalFoundries (GFS) closed down more than -9% after reporting Q1 adjusted Ebitda of $655 million, well below the consensus of $694.7 million.  Also, Analog Devices (ADI), Marvell Technology (MRVL), Qualcomm (QCOM), Intel (INTC), Microchip Technology (MCHP), and Lam Research (LRCX) closed down more than -2%.

International Flavors & Fragrances (IFF) closed down more than -7% after lowering its full-year sales estimate to $12.3 billion from a prior view of $12.5 billion, below the consensus of $12.41 billion.

Waters (WAT) closed down more than -6% after reporting Q1 adjusted EPS of $2.49, below the consensus of $2.62, and forecast Q2 adjusted EPS of $2.52-$2.62, weaker than the consensus of $2.89.

Henry Schein (HSIC) closed down more than -6% after reporting Q1 net sales of $3.06 billion, weaker than the consensus of $3.09 billion.

Air Products and Chemicals (APD) closed down more than -5% after forecasting Q3 adjusted EOS of $2.85-$2.95, the midpoint below the consensus of $2.91. 

Lucid Group (LCID) closed down more than -5% after reporting Q1 revenue of $149.4 million, well below the consensus of $197.8 million.

Skyworks Solutions (SWKS) closed down more than -5% after reporting Q2 adjusted EPS of $2.02, below the consensus of $2.03 million, and forecast Q3 adjusted EPS of $1.67, well below the consensus of $2.10.

DaVita (DVA) closed up more than +12% to lead gainers in the S&P 500 after reporting Q1 revenue of $2.87 billion, stronger than the consensus of $2.83 billion, and raising its full-year operating income estimate to $1.48 billion-$1.63 billion from a previous estimate of $1.40 billion-$1.60 billion, above the consensus of $1.48 billion.

McKesson (MCK) closed up more than +5% after reporting Q4 adjusted EPS of $7.19, above the consensus of $7.14, and forecast 2024 adjusted EPS of $26.10-$26.90, the midpoint above the consensus of $26.15.

Albemarle (ALB) closed up +5% after Scotiabank upgraded the stock to sector outperform from sector perform with a price target of $250. 

TransDigm Group (TDG) closed up more than +4% after reporting Q2 net sales of $1.59 billion, better than the consensus of $1.52 billion, and raised guidance on full-year net sales to $6.41 billion-$6.50 billion from a previous estimate of $6.07 billion-$6.24 billion.

Boeing (BA) closed up more than +2% to lead gainers in the Dow Jones Industrials after Ryanair ordered 300 Boeing 737-MAX-10 aircraft worth more than $40 billion. 

Axon Enterprise (AXON) closed up more than +2% after raising guidance on full-year adjusted Ebitda to $288 million-$292 million from a prior view of $286 million.

Across the markets…

June 10-year T-notes (ZNM23) on Tuesday closed up +0.5 of a tick, and the 10-year T-note yield rose by +2.1 bp to 3.528%.  June T-notes Tuesday gave up early gains and were little changed.  Negative carryover Tuesday from a slump in 10-year UK gilts to a 2-1/2 week low weighed on T-note prices.  Also, hawkish Fed comments Tuesday from New York Fed President Williams and Fed Governor Jefferson undercut T-note prices.

On the positive side was a slide in stocks that boosted the safe-haven demand for T-notes.  Also, strong demand for the Treasury’s $40 billion auction of 3-year T-notes was bullish for T-notes as the auction had a bid-to-cover ratio of 2.93, well above the 10-auction average of 2.56 and the highest in five years.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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