Stocks Rally Despite Higher Initial Unemployment Claims

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.28%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.59%.

U.S. stock indexes are moderately higher.  Earlier this morning, stocks were under pressure as additional evidence that the U.S. labor market is softening.  Weekly initial unemployment claims rose more than expected, and continuing claims, which include people who have received unemployment benefits for a week or more and are a good indicator of how hard it is for the unemployed to find a new job, rose to a 15-month high of 1.823 million in the latest week.

U.S. weekly initial unemployment claims fell -18,000 to 228,000, showing a weaker labor market than expectations of 200,000. Also, weekly continuing claims rose +6,000 to a 15-month high of 1.823 million, showing a weaker labor market than expectations of 1.700 million.

On the negative side for equities, Costco Wholesale is down -2% after it reported March comparable sales ex-fuel dropped -11.6%.  Also, semiconductor stocks are falling and weighing on the overall market after Applied Materials and KLA Corp were downgraded.

On the positive side, bank stocks are moving higher today as they recover from recent losses.  Also, Lamb Weston Holdings is up +3% after reporting stronger-than-expected Q3 adjusted EPS and raising guidance on full-year adjusted EPS.

Today's report from the International Monetary Fund (IMF) warned that the outlook for global economic growth over the next five years is the weakest since 1990. 

St. Louis Fed President Bullard said incoming Q1 economic data is stronger than expected, and inflation has declined but remains too high.

Global bond yields this morning are moving lower after today’s weekly jobless claims were higher than expected, adding to evidence that the U.S. labor market was slowing.  The 10-year T-note yield dropped to a 6-3/4 month low of 3.248%.  Also, the 10-year German bund yield fell to a 1-1/2 week low of 2.120%, and the 10-year UK gilt yield fell to a 1-1/2 week low of 3.374%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 today is up +0.13%.  China’s Shanghai Composite closed unchanged, and Japan’s Nikkei Stock Index closed down -1.22%. 

Today’s stock movers…

Mosaic (MOS) is down more than -4% to lead losers in the S&P 500 after JPMorgan Chase downgraded the stock to neutral from overweight.

Costco Wholesale (COST) is down more than -3% after it reported March comparable sales ex-fuel dropped -11.6%. 

Levi Strauss (LEVI) is down more than -13% after reporting a Q1 gross margin of 55.8%, below the consensus of 56.9%. 

Lumentum (LITE) is down more than -9% after reporting preliminary Q3 net revenue of $380 million-$384 million, well below the consensus of $444.1 million. 

Applied Materials (AMAT) is down more than -2%, and KLA Corp (KLAC) is down more than -1% after BNP Paribas Exane downgraded both stocks to neutral from outperform.

Lamb Weston Holdings (LW) is up more than +4% to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $1.43, well above the consensus of 98 cents, and raised guidance on full-year adjusted EPS to $4.35-$4.50 from a prior view of $3.75-$4.00, stronger than the consensus of $3.94. 

Strength in bank stocks is supportive of the overall market.  KeyCorp (KEY) and Comerica (CMA) are up more than +3%.  Also, Fifth Third Bancorp (FITB), Zions Bancorp (ZION), Wells Fargo (WFC), US Bancorp (USB), Huntington Bancshares (HBAN), Citizens Financial Group (CFG), and Truist Financial (TFC) are up more than +2%

FedEx (FDX) is up more than +1% after Raymond James upgraded the stock to outperform from market perform.

United Rentals (URI) is up more than +1% after BNP Paribas Exane reinstated coverage of the stock with a recommendation of outperform and a price target of $535. 

Pool Corp (POOL) is up more than +1% after Loop Capital Markets upgraded the stock to buy from hold.

Across the markets…

June 10-year T-notes (ZNM23) today are up +3 ticks, and the 10-year T-note yield is down -2.2 bp at 3.288%.  June T-notes this morning matched Wednesday’s 1-1/2 week high, and the 10-year T-note yield slid to a 6-3/4 month low of 3.248%.  Additional evidence of U.S. labor market weakness gave T-note prices a boost today after weekly jobless claims were higher than expected.  Also, the weakness in stocks today has boosted some safe-haven demand for T-notes. 

The dollar index (DXY00) today is up by +0.19%.  The dollar today is moderately higher.  Weakness in stocks today has boosted the liquidity demand for the dollar.  Comments today from St. Louis Fed President Bullard also boosted the dollar when he said incoming Q1 economic data is stronger than expected.  Gains in the dollar were limited after the 10-year T-note yield dropped to a 6-3/4 month low.

EUR/USD (^EURUSD) today is down by -0.07%.  A stronger dollar today is undercutting the euro.  However, losses in the euro were contained after German Feb industrial production unexpectedly rose.   Also, hawkish comments today from ECB Chief Economist Lane were supportive of the euro when he said, "If the baseline we developed before the banking stress holds up, it will be appropriate to raise interest rates again in May." 

German Feb industrial production unexpectedly rose +2.0% m/m, stronger than expectations of a decline of -0.1% m/m.

ECB Chief Economist Lane said, "If the baseline we developed before the banking stress holds up, it will be appropriate to raise interest rates again in May."   He added that the Eurozone banking system "is in good shape and that "the European economy is performing relatively well and is expected to grow by around 1% this year."

USD/JPY (^USDJPY) today is up by +0.40%.  The yen today is moderately lower, its first decline this week.  Hawkish Fed comments today boosted the dollar and weakened the yen.  Also, a report today from the IMF pressured the yen as the report warned that the outlook for global economic growth over the next five years is the weakest since 1990. 

June gold (GCM3) this morning is down -17.2 (-0.84%), and May silver (SIK23) is down -0.252 (-1.01%).  Precious metals prices this morning are moderately lower.  A stronger dollar today is weighing on metals prices.  Silver prices are also under pressure on industrial demand concerns after the IMF warned that the outlook for global economic growth over the next five years is the weakest since 1990.  Losses in metals were limited due to weak stocks and a decline in global bond yields.   

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