Markets Today: Stock Indexes Modestly Higher as JPMorgan Acquires First Republic

Morning Markets

The S&P 500 Index ($SPX) (SPY) today is up +0.23%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.31%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.06%.

U.S. stock indexes this morning are modestly higher.  The markets are awaiting quarterly earnings results this week from Apple, Advanced Micro Devices, and Ford Motor to gauge the health of corporate profits.  Trading activity was muted in overnight trading, with markets in China closed for the Golden Week holidays, and markets closed in Europe and the UK for the Labor Day and May Day holidays. 

U.S. banking concerns eased slightly after it was announced that JPMorgan Chase won the bidding to acquire First Republic Bank in an emergency-led intervention.  JPMorgan Chase will make a payment to the Federal Deposit Insurance Corp (FDIC) of $10.6 billion to acquire the bank.  JPMorgan Chase will take over First Republic's assets, including about $173 billion of loans, $30 billion of securities, and $92 billion in deposits.  JPMorgan Chase and the FDIC agreed to share the burden of losses and any recoveries on First Republic's single-family and commercial loans.

There are signs of weakness in China’s economy that may weigh on global growth prospects after today’s news that China’s manufacturing and non-manufacturing activity in April slowed more than expected.

The markets are showing a 94% chance of a 25 bp rate hike by the Federal Reserve at the Tue/Wed FOMC meeting and have fully priced in a 25 bp rate hike by the ECB at Thursday’s ECB meeting.

U.S. bond yields are higher.  The 10-year T-note yield is up +5.1 bp at 3.473%.  German and UK government bonds did not trade today, with markets in Europe and the UK closed for holidays.

On the bearish side for stocks, First Republic Bank plunged -45% in pre-market trading, and trading was halted in the stock after it was taken over by the FDIC and JPMorgan Chase won the bidding to acquire First Republic’s assets and deposits.  Also, CMS Energy Corporation is down more than -3% after announcing it will offer $650 million of convertible senior notes due 2028.  In addition, energy stocks and energy service providers are under pressure in pre-market trading with WTI crude oil falling more than -2%. 

On the bullish side, JPMorgan Chase is up more than +2% in pre-market trading after saying it expects to recognize an upfront, one-time, post-tax gain of about $2.6 billion as a result of its acquisition of First Republic Bank.  Also, Iveric Bio Inc is up more than +18% after Japan’s Astellas Pharma Inc agreed to acquire the company for about $5.9 billion.  In addition, Norwegian Cruise Line Holdings is up more than +2% after reporting a smaller-than-expected Q1 adjusted loss.

Overseas stock markets are mixed.  The Euro Stoxx 50 is closed for the May Day holiday.  China’s Shanghai Composite is closed for the Golden Week holidays, and Japan’s Nikkei Stock Index closed up +1.92%. 

The Euro Stoxx 50 index is closed today for the Labor Day holiday.  The markets have fully priced in a 25 bp rate hike for Thursday’s policy meeting. However, a much larger-than-expected increase in Eurozone Apr CPI, due to be released Tuesday, could boost the chances of a 50 bp rate hike. 

China’s Shanghai Composite Stock Index was closed today for the Golden Week holidays.  China’s markets will remain closed through Wednesday for the holidays.  The markets may react negatively to today’s weaker-than-expected manufacturing and non-manufacturing PMI reports.

China’s Apr manufacturing PMI fell -2.7 to 49.2, weaker than expectations of 51.4 and the steepest pace of contraction in 4 months.  Also, the Apr non-manufacturing PMI fell -1.8 to 56.4, weaker than expectations of 57.0.

Japan’s Nikkei Stock Index today climbed to an 8-1/2 month high and closed moderately higher.  A larger-than-expected increase in Japan’s Apr consumer confidence index to a 14-month high lifted the overall market today.  Also, M&A activity boosted Japanese pharmaceutical stocks after Japan’s Astellas Pharm acquired U.S. drugmaker Iveric Bio for $5.9 billion. SoftBank Group rose more than +2% after the company’s semiconductor design unit, Arm Ltd, filed an application for an initial public offering.  In addition, Japanese exporter stocks rallied today after the yen fell to a 7-week low. On the negative side, Sony fell more than -4% today after the company’s profit guidance for the current fiscal year missed analyst estimates. 

The Japan Apr consumer confidence index rose +1.5 to a 14-month high of 35.4, stronger than expectations of 34.5.

Pre-Market U.S. Stock Movers

First Republic Bank (FRC) plunged -45% in pre-market trading, but trading was then halted in the stock after it was taken over by the FDIC and JPMorgan Chase won the bidding to acquire First Republic’s assets and deposits.

CMS Energy Corporation (CMS) dropped more than -3% in pre-market trading after announcing it will offer $650 million of convertible senior notes due 2028. 

Check Point Software (CHKP) slid more than -1% in pre-market trading after reporting Q1 revenue of $566.2 million, below the consensus of $568.5 million.

Energy stocks and energy service providers are under pressure in pre-market trading, with WTI crude oil falling more than -2%.  ConocoPhillips (COP), Devon Energy (DVN), Diamondback Energy (FANG), Exxon Mobil (XOM), Marathon Oil (MRO), Occidental Petroleum (OXY), and Valero Energy (VLO) are down more than -1%. 

Doximity Inc (DOCS) is down more than -2% in pre-market trading after Wells Fargo Securities downgraded the stock to equal weight from overweight. 

JPMorgan Chase (JPM) rose more than +2% in pre-market trading after saying it expects to recognize an upfront, one-time, post-tax gain of about $2.6 billion as a result of its acquisition of First Republic Bank.

Iveric Bio Inc (ISEE) surged more than +18% in pre-market trading after Japan’s Astellas Pharma Inc agreed to acquire the company for about $5.9 billion. 

Norwegian Cruise Line Holdings (NCLH) rose more than +2% in pre-market trading after reporting a Q1 adjusted loss of -30 cents, narrower than the consensus of -43 cents. 

General Motors (GM) climbed more than +2% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal weight.

Teradata (TDC) jumped more than +3% in pre-market trading after Guggenheim Securities upgraded the stock to buy from neutral with a price target of $62.

KBR Inc (KBR) gained more than +1% in pre-market trading after reporting Q1 revenue of $1.70 billion, stronger than the consensus of $1.65 billion.

U.S. casino stocks with exposure to Macau are climbing in pre-market trading after Macau gaming revenue in April soared +449.9% y/y to a 3-year high as Chinese tourists returned to the gambling hub following the ending of pandemic restrictions.  Las Vega Sands (LVS), MGM Resorts International (MGM), and Wynn Resorts (WYNN) are up +2% or more. 

Today’s U.S. Earnings Reports (5/1/2023)

Arista Networks Inc (ANET), Berkshire Hathaway Inc (BRK/A), CF Industries Holdings Inc (CF), Everest Re Group Ltd (RE), FMC Corp (FMC), Franklin Resources Inc (BEN), Global Payments Inc (GPN), Hologic Inc (HOLX), Invitation Homes Inc (INVH), Loews Corp (L), MGM Resorts International (MGM), Norwegian Cruise Line Holdings (NCLH), NXP Semiconductors NV (NXPI), ON Semiconductor Corp (ON), SBA Communications Corp (SBAC), Stryker Corp (SYK), Vertex Pharmaceuticals Inc (VRTX), VICI Properties Inc (VICI), WEC Energy Group Inc (WEC).

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