Stocks Fall Back on Bank Stocks and Hawkish Bullard

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.16%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.42%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.08%.

U.S. stock indexes gave up early gains and are slightly lower on weakness in bank stocks and hawkish comments from St. Louis Fed President Bullard, who said he favors additional Fed rate hikes.

Stock indexes this morning initially moved higher, with the S&P 500 posting a 10-week high and the Nasdaq 100 posting a 2-week high on improved global economic prospects after news that China’s economy grew more than expected.  China's Q1 GDP rose +4.5% y/y, stronger than expectations of +4.0% y/y.  U.S. housing news today was mixed with Mar housing starts falling less than expected, but Mar building permits dropping more than expected.

On the negative side for stocks is weakness in bank stocks led by a -2% fall in Goldman Sachs after it reported Q1 FICC sales and trading revenue below consensus.  Also, Johnson & Johnson is down more than -2% despite reporting better-than-expected Q1 EPS after it described guidance for 2023 as “responsibly cautious.”  In addition, Southwest Airlines is down more than -2% after it said it was experiencing intermittent technology issues and requested that the FAA pause its departures.

On the positive side for stocks, Lockheed Martin is up more than +3% after reporting stronger-than-expected Q1 net sales. Also, homebuilding stocks are moving higher today after U.S. Mar housing starts fell less than expected.  In addition, Bellus Health is up more than +98% after GSK agreed to acquire the company for about $2 billion.

U.S. Mar housing starts fell -0.8% to 1.42 million, a smaller decline than expectations of 1.40 million.  Mar housing permits, a proxy for future construction, fell -8.8% m/m to 1.413 million, weaker than expectations of 1.450 million.

St. Louis Fed President Bullard said the Fed should keep raising interest rates after recent data showed inflation remains persistent.

Global bond yields are mixed.  The 10-year T-note yield is down -4.6 bp at 3.555%, and the 10-year German bund yield is down -1.4 bp at 2.460%.  However, the 10-year UK gilt yield rose to a 5-week high of 3.756% and is up +3.8 bp at 3.729%.

Overseas stock markets are higher.  The Euro Stoxx 50 is up +0.54%.  China’s Shanghai Composite closed up +0.23%, and Japan’s Nikkei Stock Index closed up +0.51%. 

Today’s stock movers…

Catalent (CTLT) is down more than -4% to lead losers in the S&P 500 on a report that Danaher is no longer considering a takeover offer for the company.

Regional bank stocks are under pressure today and are weighing on the overall market.  First Republic Bank (FRC) and Zions Bancorp (ZION) are down more than -3%.  Also, KeyCorp (KEY), Comerica (CMA), US Bancorp (USB), Lincoln National (LNC), and Truist Financial (TFC) are down more than -2%.

Goldman Sachs (GS) is down more than -2% after reporting Q1 FICC sales and trading revenue of $3.93 billion, weaker than the consensus of $4.19 billion.

Johnson & Johnson (JNJ) is down more than -2% to lead losers in the Dow Jones Industrials despite reporting better-than-expected Q1 EPS after it described guidance for 2023 as “responsibly cautious.” 

Southwest Airlines (LUV) is down more than -2% after it said it was experiencing intermittent technology issues and requested that the FAA pause its departures.

Valero Energy (VLO) and Marathon Petroleum (MPC) are down more than -1% after Wells Fargo Securities downgraded the stocks to equal weight from overweight. 

Tyler Technologies (TYL) is up more than +3% to lead gainers in the S&P 500 after Goldman Sachs upgraded the stock to buy from neutral with a price target of $424. 

Lockheed Martin (LMT) is up more than +3% after reporting Q1 net sales of $15.13 billion, better than the consensus of $15.04 billion.   

Homebuilding stocks are moving higher today after U.S. Mar housing starts fell less than expected.  PulteGroup (PHM) is up more than +2%.  Also, Lennar (LEN), DR Horton (DHI), and Toll Brothers (TOL) are up more than +1%.   

Nvidia (NVDA) climbed more than +2% in pre-market trading after HSBC upgraded the stock to buy from reduce with a price target of $355.   

Brown & Brown (BRO) is up more than +1% after Citigroup upgraded the stock to buy from neutral with a price target of $69. 

Bellus Health (BLU) is up more than +98% after GSK agreed to acquire the company for about $2 billion.

Across the markets…

June 10-year T-notes (ZNM23) today are up +8 ticks, and the 10-year T-note yield is down -4.6 bp at 3.555%.  June T-notes this morning are slightly higher. T-notes have some carry-over support from strength in 10-year German bunds that moved higher after the German Apr ZEW survey expectations of economic growth unexpectedly fell.  However, gains are limited by hawkish comments from St. Louis Fed President Bullard, who said the Fed should keep raising interest rates.

The dollar index (DXY00) today is down by -0.26% on the decline in T-note yields.  Also, strength in the Chinese yuan today is undercutting the dollar after China's Q1 GDP expanded more than forecast.

EUR/USD (^EURUSD) today is up by +0.33%.  Dollar weakness today has sparked short covering in the euro.  However, the upside in EUR/USD is limited today after Eurozone economic news showed the German Apr ZEW survey expectations of economic growth unexpectedly fell -8.9 to a 4-month low of 4.1, weaker than expectations of an increase to 15.6.

USD/JPY (^USDJPY) today is down by -0.20%.  The yen today recovered from a 1-month low against the dollar and is moderately higher.  A decline in T-note yields today is supporting moderate gains in the yen.  Also, comments today from BOJ Governor Ueda gave the yen a boost when he said we are “seeing good signs of growing in prices and wages.” 

June gold (GCM3) this morning is up +4.8 (+0.24%), and May silver (SIK23) is up +0.117 (+0.47%).  Precious metals prices this morning are moderately higher.  Dollar weakness today is supportive of metals prices.  Also, a decline in T-note yields is positive for metals. Silver garnered support today from news that showed China Q1 GDP expanded more than forecast, a positive factor for industrial metals demand.  Hawkish comments today from St. Louis Fed President Bullard limited gains in metals when he said the Fed should keep raising interest rates.

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