Stocks Recover Early Losses on Dovish Fed Comments

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.76%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.05%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.89%.

Stock indexes Thursday recovered from early losses and closed moderately higher.  Short covering emerged in stock indexes Thursday afternoon as interest rate concerns eased on comments from Atlanta Fed President Bostic, who said he favors raising interest rates 25 bp at this month's FOMC meeting and that the Fed could be in a position to pause rate hikes by mid to late summer.

Stocks on Thursday initially moved lower as rising bond yields weighed on the overall market.  The 10-year T-note yield climbed to a 3-1/2 month high of 4.089% Thursday after weekly jobless claims unexpectedly fell, signaling continued resilience in the labor market that could force the Fed to keep raising interest rates.  Moreover, T-note yields rose even higher after Thursday’s economic news showed U.S. Q4 nonfarm productivity was revised lower, and Q4 unit labor costs were revised higher, which has negative inflation implications.

Concerns that persistent inflation in the Eurozone could prompt a more hawkish response from the ECB pushed European government bond yields higher and weighed on stocks.  The German 10-year bund yield climbed to an 11-year high of 2.773% Thursday after Eurozone Feb CPI slowed less than expected, and core inflation unexpectedly accelerated to a record high.

Positive corporate news also gave the overall market a lift.  Salesforce closed up more than +11% after reporting stronger-than-expected Q4 revenue and forecasting 2024 revenue above the consensus.  Also, Dexcom closed up more than +9% after the Centers for Medicare and Medicaid Services (CMS) issued a final Local Coverage Decision that expands coverage of continuous glucose monitors to basal insulin patients.  In addition, Kroger closed up more than +5% after reporting stronger-than-expected Q4 identical-store sales ex-fuel and forecasting full-year adjusted EPS above the consensus.

On the negative side, Tesla closed down more than -5% after analysts said the company’s investor day was disappointing with a lack of details regarding the company’s financials and the timing of new vehicle models.  Also, Principle Financial Group closed down more than -5% after the company said that macroeconomic headwinds from 2022 are continuing in 2023.  In addition, Hormel Foods closed down more than -4% after reporting weaker-than-expected Q1 net sales, and Pure Storage is down more than -15% after the company forecasted 2024 revenue growth that was below the consensus.

U.S. weekly initial unemployment claims unexpectedly fell -2,000 to 190,000, showing a stronger labor market than expectations of an increase to 195,000. Also, weekly continuing claims unexpectedly fell -5,000 to 1.655 million, showing a stronger labor market than expectations of an increase to 1.669 million.

U.S. Q4 nonfarm productivity was revised lower to 1.7% from 3.0%, weaker than expectations of 2.5%.  Q4 unit labor costs were revised upward to 3.2% from 1.1%, stronger than expectations of 1.6%.

Fed comments Thursday from Boston Fed President Collins and Fed Governor Waller were hawkish for Fed policy and negative for stocks.  Collins said, "I do believe that we will need to do some additional rate increases, and exactly what the right amount is will be dependent on a holistic review of the information that we receive."  Also, Fed Governor Waller said inflation isn't coming down as fast as expected, and if data continue to come in hot, "we may need to raise interest rates even more."

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 closed up +0.59%.  China’s Shanghai Composite stock index closed down -0.05%, and Japan’s Nikkei Stock Index closed down -0.06%. 

Today’s stock movers…

Salesforce (CRM) closed up more than +11% to lead gainers in the S&P 500 and Dow Jones Industrials after reporting Q4 revenue of $8.38 billion, above the consensus of $8.00 billion and forecasting 2024 revenue of $34.5 billion-$34.7 billion, stronger than the consensus of $34.05 billion. 

Dexcom (DXCM) closed up more than +9% to lead gainers in the Nasdaq 100 after the Centers for Medicare and Medicaid Services (CMS) issued a final Local Coverage Decision that expands coverage of continuous glucose monitors to basal insulin patients.

Kroger (KR) closed up more than +5% after reporting Q4 identical-store sales ex-fuel was up +6.2%, stronger than expectations of +5.22% and forecasting full-year adjusted EPS of $4.45 to $4.60, well above the consensus of $4.17.

Okta (OKTA) closed up more than +13% after reporting Q4 revenue of $510 million, above the consensus of $489.8 million, and forecast 2024 revenue of $2.16 billion-$2.17 billion, stronger than the consensus of $2.16 billion. 

Illumina (ILMN) closed up more than +4% after it said it would expand a strategic partnership with Myriad Genetics to broaden access to and availability of HRD, or oncology homologous recombination deficiency testing in the U.S.

Macy’s (M) closed up more than +11% after reporting Q4 adjusted EPS of $1.88, well above the consensus of $1.58. 

Veeva Systems (VEEV) closed up more than +4% after reporting a Q4 adjusted EPS of $1.15, better than the consensus of $1.05. 

Tesla (TSLA) closed down more than -5% to lead losers in the S&P 500 and Nasdaq 100 after analysts said the company’s investor day lacked details regarding the company’s financials and the timing of new vehicle models. 

Principle Financial Group (PFG) closed down more than -5% after the company said that macroeconomic headwinds in 2022, which impacted assets under management and account values, are pressuring expected EPS growth in 2023. 

Hormel Foods (HRL) closed down more than -4% after reporting Q1 net sales of $2.97 billion, below the consensus of $3.07 billion.

Weakness in bank stocks weighed on the overall market after crypto-friendly Silvergate Capital (SI) plunged more than -57% on concerns about its viability. Likewise, Zions Bancorp (ZION) closed down more than -4%.  Also, Comerica (CMA) and Citizens Financial Group (CFG) closed down more than -3%.  In addition, Signature Bank of New York (SBNY), Huntington Bancshares (HBAN), SVB Financial Group (SIVB), and US Bancorp (USB) closed down more than -2%.  Finally, JPMorgan Chase (JPM) closed down more than -1% to lead losers in the Dow Jones Industrials.

Best Buy (BBY) closed down more than -2% after forecasting full-year revenue of $43.8 billion-$45.2 billion, weaker than the consensus of $45.74 billion.

Pure Storage (PSTG) closed down more than -15% after the company forecasted 2024 revenue growth of mid to single-high digits, well below the consensus of 13.5%.

Snowflake (SNOW) closed down more than -14% after reporting a Q4 loss per share of -64 cents, wider than the consensus of -43 cents, and forecast 2024 product revenue of $2.71 billion, weaker than the consensus of $2.83 billion.

Across the markets…

June 10-year T-notes (ZNM23) on Thursday closed down -16 ticks, and the 10-year T-note yield rose by +8.0 bp to 4.073%.  June 10-year T-notes Thursday sold off to a 3-3/4 month low, and the 10-year T-note yield rose to a 3-3/4 month high of 4.089%. T-notes opened lower Thursday as inflation pressures in the Eurozone pushed the 10-year German bund yield to an 11-year high of 2.773%, which weighed on T-note prices.  Losses in T-notes accelerated on Thursday’s U.S. economic news that showed weekly jobless claims unexpectedly fell, and Q4 unit labor costs were revised higher. 

Rising inflation expectations are bearish for T-notes after the 10-year breakeven inflation rate on Thursday climbed to a 3-3/4 month high of 2.499%.  Also, hawkish comments Thursday from Boston Fed President Collins and Fed Governor Waller undercut T-note prices.

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