Stocks Mixed on Corporate Earnings and Economic Optimism

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.03%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.10%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.03%.

U.S. stock indexes are now mixed, with the S&P 50 earlier in the day hitting at a 2-3/4 month high and the Dow Jones Industrials at a 2-1/2 month high.  A slight easing of U.S. banking concerns supported stocks after it was announced that JPMorgan Chase won the bidding to acquire First Republic Bank in an emergency-led intervention.  Stocks also rose on optimism the U.S. economy may avoid a recession after today’s U.S. construction spending and ISM manufacturing reports were better than expected.

JPMorgan Chase will pay the Federal Deposit Insurance Corp (FDIC) $10.6 billion to acquire First Republic 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.  In addition, JPMorgan Chase and the FDIC agreed to share the burden of losses and any recoveries on First Republic's single-family and commercial loans.

In a negative factor for Chinese and global economic growth, today’s Chinese manufacturing and non-manufacturing reports were weaker than expected.  The China Apr manufacturing PMI fell -2.7 to 49.2, weaker than expectations of 51.4 and the weakest level in 4 months.  Also, the Apr non-manufacturing PMI fell -1.8 to 56.4, weaker than expectations of 57.0.

The markets are showing a 95% 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 +11.2 bp at 3.534%.  German and UK government bonds did not trade today, with markets in Europe and the UK closed for holidays.

The U.S. Apr ISM manufacturing index rose +0.8 to 46.1, stronger than expectations of 46.8.

U.S. Mar construction spending rose +0.3% m/m, stronger than expectations of +0.1% m/m and the largest increase in 4 months.

On the bullish side for stocks, ON Semiconductor is up more than +6% after reporting Q1 adjusted EPS above consensus.  Also, Norwegian Cruise Line Holdings is up more than +4% after reporting a smaller-than-expected Q1 adjusted loss. In addition, Iveric Bio Inc is up more than +14% after Japan’s Astellas Pharma Inc agreed to acquire the company for about $5.9 billion.

On the bearish side for stocks, Newell Brands is down more than -7% after CEO Peterson said the bankruptcy of Bed Bath & Beyond “is expected to be a slight headwind for Newell as they liquidate inventory and shoppers migrate to other retailers.”  Also, Check Point Software is down more than -4% after reporting Q1 revenue below consensus.  In addition, Franklin Resources is down more than -2% after reporting weaker-than-expected Q2 operating revenue.

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%. 

Today’s stock movers…

ON Semiconductor (ON) is up more than +6% to lead gainers in the S&P 500 after reporting Q1 adjusted EPS of $1.19, better than expectations of $1.09 billion.

Norwegian Cruise Line Holdings (NCLH) is up more than +4% after reporting a Q1 adjusted loss of -30 cents, narrower than the consensus of -43 cents. 

General Motors (GM) is up more than +2% after Morgan Stanley upgraded the stock to overweight from equal weight.

JPMorgan Chase (JPM) is up more than +2% to lead gainers in the Dow Jones Industrials 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.

Loews (L) is up more than +3% after reporting Q1 EPS of $1.61 versus $1.36 in Q1 of last year and reporting cash and investments balance was $3.1 billion as of March 31.

A O Smith (AOS) is up more than +2% after reporting Q1 EPS of 84 cents, better than the consensus of 78 cents, and raising guidance on full-year adjusted EPS to $3.30-$3.50 for a prior estimate of $3.15-$3.45, above the consensus of $3.33.

Iveric Bio Inc (ISEE) is up more than +14% after Japan’s Astellas Pharma Inc agreed to acquire the company for about $5.9 billion. 

U.S. casino stocks with exposure to Macau are climbing today 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 end of pandemic restrictions.  Caesars Entertainment (CZR) and Wynn Resorts (WYNN) are up more than +2%.  Also, Las Vega Sands (LVS) and MGM Resorts International (MGM) are up more than +1%. 

Newell Brands (NWL) is down more than -7% to lead losers in the S&P 500 after CEO Peterson said the bankruptcy of Bed Bath & Beyond “is expected to be a slight headwind for Newell as they liquidate inventory and shoppers migrate to other retailers.”

Global Payments (GPN) is down more than -6% after the company said CEO Sloan would step down on June 1 and will be replaced by current President and COO Bready.

Check Point Software (CHKP) is down more than -4% after reporting Q1 revenue of $566.2 million, below the consensus of $568.5 million.

Franklin Resources (BEN) is down more than -2% after reporting Q2 operating revenue of $1.93 billion, below the consensus of $1.96 billion.

Exxon Mobil (XOM) is down more than -2% after Goldman Sachs downgraded the stock to neutral from buy. 

EPAM Systems (EPAM) is down more than -2% after Citigroup cut its price target on the stock to $360 from $430. 

Across the markets…

June 10-year T-notes (ZNM23) today are down -14 ticks, and the 10-year T-note yield is up +11.2 bp at 3.534%.  Jun T-notes this morning are modestly lower as U.S. banking concerns eased slightly after JPMorgan Chase acquired troubled First Republic Bank.  T-note prices are also lower as a raft of new corporate bond deals are prompting bond dealers to hedge the new supply by shorting T-note futures, with ten companies lined up for new debt issuance, including Meta Platforms with a five-part offering aimed to raise around $7 billion.  Losses in T-notes accelerated to their lows on today’s stronger-than-expected U.S. construction spending and ISM manufacturing reports. 

The dollar index (DXY00) today is up by +0.37% and is modestly below last Friday’s 1-1/2 week high.  Higher T-note yields today are supportive of the dollar.  Also, expectations for the Fed to raise interest rates by 25 bp at Wednesday’s FOMC meeting are positive for the dollar.  In addition, weakness in the yen is lending support to the dollar after the yen today dropped to a 7-week low against the dollar.  Gains in the dollar accelerated on today’s stronger-than-expected U.S. construction spending and ISM manufacturing reports.

EUR/USD (^EURUSD) today is down by -0.42%.  Dollar strength today is undercutting the euro.  Losses in EUR/USD are limited by expectations for the ECB to raise interest rates by 25 bp at Thursday’s policy meeting.  Trading activity in the euro is subdued today, with European markets closed for the Labor Day holiday.   

USD/JPY (^USDJPY) today is up by +0.80%.  The yen today extended last Friday’s losses and posted a 7-week low against the dollar.  The yen is weighed down by carryover pressure from last Friday after the BOJ kept monetary policy unchanged and said it would “patiently” continue with monetary easing. Higher T-note yields today are also weighing on the yen.  On the other hand, a positive factor for the yen was the larger-than-expected increase in the Japan Apr consumer confidence index to a 14-month high.

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

June gold (GCM3) this morning is down -6.7 (-0.34%), and May silver (SIK23) is up +0.024 (+0.10%).  Precious metals prices this morning are mixed, with silver posting a 2-week high.  The ongoing U.S. banking turmoil has fueled an increase in the safe-haven buying of precious metals.  Silver prices also garnered support from today’s stronger-than-expected U.S. construction spending and ISM manufacturing reports.  Higher T-note yields today and a stronger dollar are weighing on gold and silver prices. 

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