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Rich Asplund

Stocks Pressured from Higher Bond Yields

The S&P 500 Index ($SPX) (SPY) today is down -0.06%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.05%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.06%. 

US stock indexes today are mixed.  Rising global bond yields are weighing on the broader market today.  UK and German 10-year yields rose to 2-1/2 week highs after consumer prices in the UK slowed less than expected last month, raising questions about when the Bank of England can start cutting interest rates.  Also, Q1 wages rose more than expected in Germany, prompting the Bundesbank to warn about persistent price pressures in the service sector.

The markets are looking ahead to today’s April 30-May 1 FOMC meeting minutes to see how close the Fed is to cutting interest rates.  Also, earnings results from Nvidia will be examined after the close today to gauge the demand for semiconductor chips. 

Generally positive Q1 earnings results are supportive of stocks.  Q1 earnings are expected to climb +7.1% y/y, well above the pre-earnings season estimate of +3.8%.  According to data compiled by Bloomberg Intelligence, about 81% of reporting S&P 500 companies have beaten Q1 earnings estimates. 

The markets are discounting the chances for a -25 bp rate cut at 0% for the June 11-12 FOMC meeting and 18% for the following meeting on July 30-31.

Overseas stock markets today are mixed.  The Euro Stoxx 50 fell to a 1-1/2 week low and is down -0.31%. China's Shanghai Composite closed up +0.02%.  Japan's Nikkei Stock Index closed down -0.85%. 

Interest Rates

June 10-year T-notes (ZNM24) today are down -9 ticks.  The 10-year T-note yield is up +3.1 bp to 4.443%.  June T-notes today fell to a 1-week low, and the 10-year T-note yield climbed to a 1-week high of 4.459%.  Today’s economic news shows sticky UK consumer prices and rising wage pressures in Germany, which has pushed European government bond yields higher and is weighing on T-note prices.  Also, supply pressures are undercutting T-notes as the Treasury will auction $16 billion of 20-year T-bonds later today. 

European government bond yields today are moving higher.  The 10-year German bund yield rose to a 2-1/2 week high of 2.565% and is up +5.5 bp to 2.554%.  The 10-year UK gilt yield rose to a 2-1/2 week high of 4.253% and is up +11.7 bp to 4.248%.

Eurozone Apr new car registrations rose +13.7% y/y to 914,000, the largest increase in 6 months.

UK Apr core CPI eased to +3.9% y/y from +4.2% y/y in Mar, higher than expectations of +3.6% y/y.  Also, the UK Apr services CPI eased to +5.9% y/y from +6.0% y/y in March, which was higher than the expectations of +5.4% y/y.

In its monthly report released today, the Bundesbank reported negotiated Q1 pay raises in Germany rose +6.2%, well above expectations of +4.8%. The Bundesbank said, " As a result, still-high price pressure on services could persist for longer.”

ECB President Lagarde said there's a "strong likelihood" of an ECB interest rate cut on June 6, saying, "I'm really confident that we have inflation under control.

ECB Governing Council member and Bundesbank President Nagel said, "Even if the ECB lowers rates for the first time in June, that does not mean we will cut rates further" in subsequent meetings.

US Stock Movers

Target (TGT) is down more than -8% to lead losers in the S&P 500 after reporting Q1 adjusted EPS of $2.03, weaker than the consensus of $2.05, and forecasting Q2 adjusted EPS of $1.95-$2.35, the midpoint below the consensus of $2.19. 

Lululemon Athletica (LULU) is down more than -6% to lead losers in the Nasdaq 100 after announcing chief product officer Sun Choe was leaving, prompting Raymond James to say the departure adds to the company’s “wall of worry” in the near term. 

Garmin Ltd (GRMN) is down more than -2% after Bank of America downgraded the stock to underperform from neutral with a price target of $150.

Tesla (TSLA) is down more than -2% after the European Automobile Manufacturers’ Association reported Tesla’s Apr Eurozone registrations fell -2.3% to 13,951 vehicles, a 15-month low. 

Viasat (VSAT) is down more than -14% after reporting an unexpected Q4 loss of -24 cents EPS versus expectations of a +48 cent EPS profit. 

Modine Manufacturing (MOD) is down more than -8% after reporting Q4 net sales of $603.5 million, below the consensus of $605.6 million, and forecasting 2025 adjusted EPS of $3.55-$3.85, the midpoint weaker than the consensus of $3.80.

Analog Devices (ADI) is up more than +6% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q2 revenue of $2.16 billion, higher than the consensus of $2.11 billion, and forecasting Q3 revenue of $2.26 billion-$2.28 billion, stronger than the consensus of $2.17 billion. 

Dycom Industries (DY) is up more than +8% after reporting Q1 adjusted Ebitda of $130.9 million, stronger than the consensus of $123.8 million.

TJX Cos (TJX) is up more than +6% after reporting Q1 net sales of $12.50 billion, better than the consensus of $12.46 billion, and raising its full-year EPS forecast to $4.03-$4.09 from a previous estimate of $3.94-$4.02. 

Prudential Financial (PRU) is up more than +1% after Jeffries upgraded the stock to buy from hold.

Stryker (SYK) is up more than +1% after Needham & Co upgraded the stock to buy from hold with a price target of $392.

Edwards Lifesciences (EW) is up more than +1% after Citigroup upgraded the stock to buy from neutral with a price target of $105. 

Earnings Reports (5/22/2024)

Analog Devices Inc (ADI), NVIDIA Corp (NVDA), Petco Health & Wellness Co Inc (WOOF), Snowflake Inc (SNOW), Synopsys Inc (SNPS), Target Corp (TGT), TJX Cos Inc/The (TJX), VF Corp (VFC), Williams-Sonoma Inc (WSM).

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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