Stocks Mixed Ahead of an Expected +25 bp Fed Rate Hike

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.05%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.24%.

U.S. stocks this morning are mixed.   The markets are awaiting the conclusion of the 2-day FOMC meeting later today to see if the Fed will provide clues as to when it will end its rate-hike campaign.  Fed Chair Powell will also deliver comments following today’s meeting.  Today’s U.S. economic reports were better than expected, which bolstered optimism in the U.S. economic outlook.

Weighing on stocks is the lack of clarity regarding the U.S. debt ceiling.  Treasury Secretary Yellen Monday said the Treasury Department may run out of cash as soon as June 1 unless the debt ceiling is raised.

U.S. Apr ADP employment rose +296,000, stronger than expectations of +150,000 and the biggest increase in 9 months.

The Apr ISM services index rose +0.7 to 51.9, slightly stronger than expectations of 51.8.

The markets are showing a 90% chance of a +25 bp rate hike by the Federal Reserve at the conclusion of today’s FOMC meeting.  After today’s expected +25 bp rate hike, the markets are expecting the Fed to stand pat at the next few meetings and then implement a -50 bp rate cut by the end of the year to address what is expected to be a weak U.S. economy.  The markets have fully priced in a 25 bp rate hike by the ECB at Thursday’s ECB meeting.

Global bond yields are mixed.  The 10-year T-note yield is down -5.3 bp at 3.371%.  The 10-year German bund yield fell to a 3-1/2 week low of 2.218% and is down -0.6 bp at 2.253%, and the UK 10-year gilt is up +2.5 bp at 3.694%.

On the bullish side for stocks, regional bank stocks are moving higher today, recovering some of their recent sharp losses.  Also, Generac Holdings is up more than +13% after reporting Q1 net sales above consensus.  In addition, Assurant is up more than +9% after reporting stronger-than-expected Q1 revenue.

On the bearish side, Estee Lauder is down more than -18% after forecasting full-year net sales will fall -10% to -12% and cutting guidance on its full-year adjusted EPS.  Also, Advanced Micro Devices is down more than -7% after forecasting Q2 revenue below consensus.  In addition, Starbucks is down more than -8% after it left guidance for fiscal year 2023 unchanged, despite reporting stronger-than-expected Q2 sales, a move that analysts said suggests growth will weaken in the second half of the year.

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.39%.  China’s Shanghai Composite remains closed for the Golden Week holidays, and Japan’s Nikkei Stock Index was closed for Constitution Memorial Day. Hong Kong’s Hang Seng Index closed down -1.18%. 

Today’s stock movers…

Regional bank stocks are moving higher today, recovering some of their recent sharp losses.  Zions Bancorp (ZION) and Lincoln National (LNC) are up more than +4%.  Also, KeyCorp (KEY) is up more than +3%, and Regions Financial Corp (RF) and M&T Bank (MTB) are up more than +2%.

Assurant (AIZ) is up more than +9% after reporting Q1 revenue of $2.64 billion, better than the consensus of $2.57 billion. 

Generac Holdings (GNRC) is up more than +13% to lead gainers in the S&P 500 after reporting Q1 net sales of $887.9 million, stronger than the consensus of $840 million.

 

Verisk Analytics (VRSK) is up more than +7% to lead gainers in the Nasdaq 100 after reporting Q1 adjusted EPS of $1.29, above the consensus of $1.20. 

Kraft Heinz (KHC) is up more than +4% after reporting Q1 adjusted EPS of 68 cents, better than the consensus of 60 cents, and raised guidance on its full-year adjusted EPS estimate to $2.83-$2.91 from a prior view of $2.67-$2.75, stronger than the consensus of $2.72.

Trimble (TRMB) is up more than +4% after reporting Q1 adjusted EPS of 72 cents, above the consensus of 67 cents. 

Emerson Electric (EMR) is up more than +4% after reporting Q2 adjusted EPS of $1.38, stronger than the consensus of 97 cents, and raised its full-year EPS estimate to $3.58-$3.68 from a prior estimate of $3.55-$3.70.

Eli Lilly (LLY) is up more than +3% after its donanemab drug for Alzheimer’s slowed the progress of the disease in a final-stage trial, paving the way for the company to apply for approval of the drug from the FDA.

Caesars Entertainment (CZR) is up more than +3% after reporting Q1 same-store adjusted Ebitda of $958 million, stronger than the consensus of $920.2 million. 

Estee Lauder (EL) is down more than -18% to lead losers in the S&P 500 after forecasting full-year net sales will fall -10% to -12% and cut guidance on its full-year adjusted EPS estimate to $3.29-$3.39 from a previous forecast of $4.87-$5.02.

Advanced Micro Devices (AMD) is down more than -7% to lead losers in the Nasdaq 100 after forecasting Q2 revenue of $5.0-$5.6 billion, the midpoint above the consensus of $5.51 billion. 

Starbucks (SBUX) is down more than -8% after it left guidance for the fiscal year 2023 unchanged, despite reporting stronger-than-expected Q2 sales, a move analysts said suggests growth will weaken in the year's second half.

MarketAxess Holdings (MKTX) is down more than -5% after reporting April trading volume of $27.84 billion, down -27% y/y.  Q1 revenue of $1.34 billion, below the consensus of $1.43 billion.

CVS Health (CVS) is down more than -2% after cutting guidance on full-year adjusted EOS to $8.50-$8.70 from a previous estimate of $8.70-$8.90,  Walgreens Boots Alliance (WBA) is also down more than -3% to lead losers in the Dow Jones Industrials on the news. 

Extra Space Storage (EXR) is down more than -2% after reporting Q1 core FFO/share of @.02, weaker than the consensus of $2.07.

Yum! Brands (YUM) is down more than -2% after reporting Q1 adjusted EPS of $1.06, below the consensus of $1.13.

Across the markets…

June 10-year T-notes (ZNM23) today are up +15 ticks, and the 10-year T-note yield is down -5.3 bp at 3.371%.  Jun T-notes this morning extended Monday’s rally to a 2-1/2 week high.  T-notes have carryover support today from a rally in 10-year German bunds to a 3-1/2 week high.  Also, a fall in inflation expectations is bullish for T-notes after the 10-year breakeven inflation rate today fell to a 6-week low of 2.177%.  In addition, short covering ahead of the results of the FOMC meeting later today is boosting T-notes. 

The dollar index (DXY00) today is down by -0.46%.  The dollar today is under pressure from lower T-note yields. Also, strength in stocks today has reduced the liquidity demand for the dollar.  In addition, the lack of clarity regarding the U.S. debt ceiling is undercutting the dollar as Treasury Secretary Yellen said the Treasury Department may run out of cash to pay its bills as soon as June 1 unless the debt ceiling is raised.

EUR/USD (^EURUSD) today is up by +0.46%.  Dollar weakness today is boosting the euro.  Also, signs of economic strength are bullish for the euro after today’s economic news showed the Eurozone Mar unemployment rate unexpectedly fell to a record low.

The Eurozone Mar unemployment rate unexpectedly fell -0.1 to a record low of 6.5%, showing a stronger labor market than expectations of no change at 6.6%.

USD/JPY (^USDJPY) today is down by -1.01%.  The yen today is moving higher on a slump in T-note yields. Also, the ongoing banking turmoil in the U.S. is fueling safe-haven demand for the yen.  In addition, the sell-off in crude prices today to a 5-week low is supportive of Japan’s energy-dependent economy.   

June gold (GCM3) this morning is up +4.1 (+0.20%), and July silver (SIN23) is up +0.086 (+0.34%).  Precious metals prices this morning are moderately higher, with gold climbing to a 2-1/2 week high.  A weaker dollar today is supportive of metals prices.  Also, today’s decline in global bond yields today is bullish for metals. In addition, precious metals have safe-haven support on concerns about the health of the U.S. banking system and as the U.S. government gets nearer to default without an extension of the debt ceiling. 

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