The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.27%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.51%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.05%.
US stock indexes on Wednesday closed moderately lower, with the Dow Jones Industrials falling to a 1-week low. Rising global bond yields weighed on the broader market Wednesday. 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.
Stocks extended their losses Wednesday afternoon on the hawkish minutes of the Apr 30-May 1 FOMC meeting. The minutes stated, "Participants noted disappointing readings on inflation over the first quarter" and discussed "holding interest rates steady for longer. " The minutes also said "many" questioned whether policy was restrictive enough to bring inflation down to target, with "various" participants willing to tighten more if needed.
The Nasdaq 100 Wednesday initially climbed to a new record high after Analog Devices rallied more than +10% to push chip stocks higher after reporting stronger-than-expected Q2 revenue and forecasting Q3 revenue above consensus. The markets are eagerly awaiting earnings results from Nvidia after the close Wednesday and its outlook to gauge if AI spending is continuing at a robust pace.
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.
US weekly MBA mortgage applications rose +1.9% in the week ended May 17. The mortgage purchase sub-index fell -1.2%, and the refinancing mortgage sub-index rose +7.4%. The average 30-year fixed rate mortgage fell -0.07 bp to 7.01% from 7.08% in the prior week.
US Apr existing home sales unexpectedly fell -1.9% m/m to 4.14 million, versus expectations of an increase to 4.23 million.
The markets are discounting the chances for a -25 bp rate cut at 5% for the June 11-12 FOMC meeting and 21% for the following meeting on July 30-31.
Overseas stock markets Wednesday settled mixed. The Euro Stoxx 50 fell to a 1-1/2 week low and closed down -0.43%. 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) Wednesday closed down -6.5 ticks. The 10-year T-note yield rose +1.6 bp to 4.428%. June T-notes Wednesday fell to a 1-week low, and the 10-year T-note yield climbed to a 1-week high of 4.459%. Wednesday’s European economic news showed sticky UK consumer prices and rising wage pressures in Germany, which pushed European government bond yields higher and weighed on T-note prices. T-notes fell to their lows Wednesday afternoon after the hawkish minutes of the Apr 30-May 1 FOMC meeting showed “many” officials questioned whether Fed policy was restrictive enough to bring inflation down to target. In addition, slack demand for the Treasury’s $16 billion of 20-year T-bonds undercut T-notes as the auction had a bid-to-cover ratio of 2.51, well below the 10-auction average of 2.62.
European government bond yields Wednesday moved higher. The 10-year German bund yield rose to a 2-1/2 week high of 2.565% and finished up +3.6 bp at 2.534%. The 10-year UK gilt yield rose to a 2-1/2 week high of 4.253% and finished up +10.2 bp at 4.232%.
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) closed 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) closed down more than -7% 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) closed down more than -5% after Bank of America downgraded the stock to underperform from neutral with a price target of $150.
Homebuilding stocks retreated Wednesday after US Apr existing home sales unexpectedly declined. Toll Brothers (TOL) closed down more than -8%. Also, Lennar (LEN) closed down more than -4%. In addition, PulteGroup (PHM) and DR Horton (DHI) closed down more than -3%.
Tesla (TSLA) closed down more than -3% 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) closed down more than -16% after reporting an unexpected Q4 loss of -24 cents EPS versus expectations of a +48 cent EPS profit.
Modine Manufacturing (MOD) closed down more than -4% 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) closed up more than +10% 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) closed up more than +8% after reporting Q1 adjusted Ebitda of $130.9 million, stronger than the consensus of $123.8 million.
Electronic Arts (EA) closed up more than +4% after Bloomberg Intelligence said the company’s 2025 bookings could top consensus expectations on robust game EA Sports FC 24 sales and live-services spending.
TJX Cos (TJX) closed up more than +3% 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.
Ametek (AME) closed up more than +2% after Oppenheimer upgraded the stock to outperform from market perform with a price target of $200.
Stryker (SYK) closed up more than +1% after Needham & Co upgraded the stock to buy from hold with a price target of $392.
Prudential Financial (PRU) closed up more than +1% after Jeffries upgraded the stock to buy from hold.
Earnings Reports (5/23/2024)
BJ's Wholesale Club Holdings Inc (BJ), Deckers Outdoor Corp (DECK), Intuit Inc (INTU), Medtronic PLC (MDT), Ralph Lauren Corp (RL), Ross Stores Inc (ROST), Workday Inc (WDAY).
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.
