Stocks Close Slightly Higher Despite Bank Stock Weakness and Hawkish Fed Comments

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.09%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.03%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.03%.

The S&P 500 and Nasdaq 100 indexes Tuesday settled slightly higher, with the S&P 500 posting a 10-week high.  Stocks Tuesday opened higher on optimism about global economic growth after China’s economy expanded more than expected in Q1.  China's Q1 GDP rose +4.5% y/y, stronger than expectations of +4.0% y/y. 

However, losses in regional bank stocks and hawkish Fed comments Tuesday limited the upside in equities.  U.S. housing news Tuesday was mixed with Mar housing starts falling -0.8% m/m to 1.42 million, a smaller decline than expectations of 1.40 million. Conversely, Mar housing permits, a proxy for future construction, fell -8.8% m/m to 1.413 million, weaker than expectations of 1.450 million.

Hawkish Fed comments on Tuesday were bearish for stocks.  St. Louis Fed President Bullard said the Fed should keep raising interest rates after recent data showed inflation remains persistent.  Also, Atlanta Fed President Bostic said he favors going on hold after delivering one more rate hike and then holding rates above 5% for "quite some time."

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

On the negative side for stocks is weakness in bank stocks led by a -1% decline in Goldman Sachs after it reported Q1 FICC sales and trading revenue below consensus.  Also, Johnson & Johnson closed down more than -2% despite reporting better-than-expected Q1 EPS after it described guidance for 2023 as “responsibly cautious.” In addition, Catalent closed down more than -7% on a report that Danaher is no longer considering a takeover offer for the company.

Global bond yields on Tuesday were mixed.  The 10-year T-note yield fell -2.4 bp to 3.575%, and the 10-year German bund yield rose to a 1-month high of 2.504% and finished up +0.3 bp at 2.477%.  The 10-year UK gilt yield rose to a 5-week high of 3.756% and finished up +5.6 bp at 3.747%.

Overseas stock markets Tuesday settled higher.  The Euro Stoxx 50 closed up +0.60%.  China’s Shanghai Composite closed up +0.23%, and Japan’s Nikkei Stock Index closed up +0.51%. 

Today’s stock movers…

Homebuilding stocks moved higher Tuesday after U.S. Mar housing starts fell less than expected.  As a result, PulteGroup (PHM) closed up more than +3%. Also, Lennar (LEN), DR Horton (DHI), and Toll Brothers (TOL) closed up more than +2%. 

Tyler Technologies (TYL) closed 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. 

Nvidia (NVDA) closed up more than +2% after HSBC upgraded the stock to buy from reduce with a price target of $355. 

Lockheed Martin (LMT) closed up more than +2% after reporting Q1 net sales of $15.13 billion, better than the consensus of $15.04 billion.   

Travel stocks rose Tuesday after the Administrator of the Transportation Security Administration (TSA) said with disruptions to the air-travel network from Covid-19 fading, the TSA projects U.S. airline passenger levels this summer “comfortably above” pre-pandemic numbers.  As a result, Airbnb (ABNB), Expedia Group (EXPE), Delta Air Lines (DAL), and Marriott International (MAR) closed up more than +2%. Also, Las Vegas Sands (LVS), United Airlines Holdings (UAL), MGM Resorts International (MGM), and American Airlines Group (AAL) closed up more than +1%. 

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

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

Catalent (CTLT) closed down more than -7% 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 were under pressure Tuesday and weighed on the overall market.  First Republic Bank (FRC) closed down more than -4%. Also, Lincoln National (LNC) closed down more than -2%. In addition, Zions Bancorp (ZION), Regions Financial (RF), US Bancorp (USB), and Truist Financial (TFC) closed down more than -1%.

Johnson & Johnson (JNJ) closed 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.” 

Rivian Automotive (RIVN) closed down more than -2% after RBC Capital Markets downgraded the stock to sector perform from outperform.

Goldman Sachs (GS) closed down more than -1% after reporting Q1 FICC sales and trading revenue of $3.93 billion, weaker than the consensus of $4.19 billion.

Across the markets…

June 10-year T-notes (ZNM23) on Tuesday closed up +4 ticks, and the 10-year T-note yield fell by -2.4 bp to 3.576%.  June T-notes Tuesday posted modest gains. T-notes found support Tuesday on mixed U.S. housing news that showed Mar housing permits, a proxy for future construction, fell more than expected.  However, gains in T-notes were limited by hawkish comments from St. Louis Fed President Bullard and Atlanta Fed President Bostic, who expressed support for additional Fed rate hikes.

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