Stocks Retreat on Weakness in Tech and Soft Economic Reports

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.60%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.33%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.78%.

Stock indexes on Thursday posted moderate losses.  Weakness in technology stocks weighed on the overall market, with Tesla falling more than -9% after reporting weaker-than-expected Q1 earnings results. Also, U.S. economic concerns weighed on stocks after Thursday’s weaker-than-expected U.S. economic reports signaled the slowdown is broadening.

U.S. weekly initial unemployment claims rose +5,000 to 245,000, showing a weaker labor market than expectations of 240,000.  Likewise, weekly continuing claims rose +61,000 to a 16-month high of 1.865 million, showing a weaker labor market than expectations of 1.825 million.

The U.S. Apr Philadelphia Fed business outlook survey unexpectedly fell -8.1 to a nearly 3-year low of -31.3, weaker than expectations of an increase to -19.3.

U.S. Mar existing home sales fell -2.4% m/m to 4.44 million, weaker than expectations of 4.50 million.

U.S. Mar leading indicators fell -1.2% m/m, weaker than expectations of -0.7% m/m and the biggest decline in 2-3/4 years.

Comments Thursday from Cleveland Fed President Mester were hawkish for Fed policy and bearish for stocks when she said, "I anticipate that monetary policy will need to move somewhat further into restrictive territory this year, with the fed funds rate moving above 5% and the real fed funds rate staying in positive territory for some time."

Global bond yields declined in a positive factor for stocks.  The 10-year T-note yield fell -4.6 bp to 3.545%. Also, the 10-year German bund yield fell -7.0 bp at 2.445%.  The 10-year UK gilt yield fell -8.8 bp at 3.767%.

On the bearish side for stocks, Tesla closed down more than -9% after reporting weaker-than-expected Q1 adjusted EPS and Q1 gross margin that was below consensus.  Also, AT&T closed down more than -10% after reporting Q1 free cash flow which was well below consensus.  In addition, Seagate Technology Holdings Plc closed down more than -9% after reporting weaker-than-expected Q3 revenue and forecasting Q4 revenue below consensus.

On the positive side, Snap-On closed up more than +7% after reporting stronger-than-expected Q1 net sales.  Also, chip stocks rallied Thursday, led by a +7% increase in Lam Research after it reported Q3 adjusted EPS of $6.99, higher than the consensus of $6.50.  In addition, Also, homebuilders rose, led by a +5% increase in DR Horton after it reported better-than-expected Q2 revenue and forecasted full-year revenue that was above consensus.

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 closed down -0.20%.  China’s Shanghai Composite closed down -0.09%, and Japan’s Nikkei Stock Index closed up +0.18%. 

Today’s stock movers…

Tesla (TSLA) closed down more than -9% to lead losers in the Nasdaq 100 after reporting Q1 adjusted EPS of 85 cents, below the consensus of 86 cents, with Q1 gross margin of 19.3%, weaker than the consensus of 21.2%.  Tesla has recently been forced to cut its vehicle prices, thus putting downward pressure on earnings and margins, with negative implications for other EV companies. Lucid Group (LCID) closed down more than -7% and Rivian Automotive (RIVN) closed down more than -3%.

AT&T (T) closed down more than -10% to lead losers in the S&P 500 after reporting Q1 free cash flow of $1 billion, well below the consensus of $3.02 billion.

Seagate Technology Holdings Plc (STX) closed down more than -9% after reporting Q3 revenue of $1.86 billion, weaker than the consensus of $1.99 billion and forecasting Q4 revenue of $1.55 billion-$1.85 billion, well below the consensus of $2.08 billion.

Zions Bancorp (ZION) closed down more than -4% after reporting Q1 EPS of $1.33, weaker than the consensus of $1.53, and reporting Q1 deposits of $69.21 billion, below the consensus of $69.49 billion. 

NetApp (NTAP) closed down more than -4% after Bank of America downgraded the stock to underperform from neutral.

Crown Castle (CCI) closed down more than -4% after forecasting full-year AFFO/share of $7.58 to $7.68.  the midpoint below the consensus of $7.64. 

Truist Financial (TFC) closed down more than -3% after reporting Q1 total deposits of $408.46 billion, below the consensus of $410.70 billion.

US Bancorp (USB) closed down more than -3% after reporting Q1 total average deposits of $510.32 billion, below the consensus of $521.45 billion.

Snap-On (SNA) closed up more than +7% to lead gainers in the S&P 500 after reporting Q1 net sales of $1.18 billion, stronger than the consensus of $1.13 billion.

Chip stocks moved higher Thursday, led by a +7% increase in Lam Research (LRCX) to lead gainers in the Nasdaq 100 after reporting Q3 adjusted EPS of $6.99, higher than the consensus of $6.50.  Also, KLA Corp (KLAC) closed up +4%, and Applied Materials (AMAT) closed up more than +3%. In addition, Micron Technology (MU) and ASML Holding NV (ASML) closed up more than +1%.

Homebuilders rallied, with DR Horton (DHI) closing up more than +5% after reporting Q2 revenue of $7.97 billion, well above the consensus of $6.59 billion and forecast full-year revenue of $31.5 billion-$33.0 billion, stronger than the consensus of $28.19 billion.  Also, Lennar (LEN) closed up more than +4%, and PulteGroup (PHM) and Toll Brothers (TOL) closed up more than +1%.

Nucor (NUE) closed up more than +5% after reporting Q1 EPS of $4.5, well above the consensus of $3.85. 

Steel Dynamics (STLD) closed up more than +4% after reporting Q1 adjusted Ebitda of $949.7 million, stronger than the consensus of $932.7 million.

Marsh & McLennan Cos (MMC) closed up more than +3% after reporting Q1 adjusted operating income of $1.77 billion, better than the consensus of $1.72 billion. 

Las Vegas Sands (LVS) closed up more than +3% after reporting Q1 net revenue of $2.12 billion, above the consensus of $1.83 billion.

Across the markets…

June 10-year T-notes (ZNM23) on Thursday closed up +15 ticks, and the 10-year T-note yield fell by -4.6 bp to 3.545%.  June T-notes Thursday posted moderate gains. Signs of weakness in the U.S. economy pushed T-note prices higher after Thursday’s news showed weekly jobless claims rose more than expected.  Also, the Apr Philadelphia Fed business outlook survey unexpectedly contracted by the most in nearly three years, and Mar leading indicators fell by the most in 2-3/4 years.  Weakness in stocks Thursday also boosted safe-haven demand for T-notes.

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