What you need to know…
The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.70%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.80%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.64%.
Stock indexes Wednesday gave up early gains and closed moderately lower after Fed Chair Powell said the Fed wouldn’t cut interest rates with inflation remaining high. Stocks Wednesday initially moved higher into the early afternoon after economic reports on ADP employment and ISM services were better than expected, which bolstered optimism in the U.S. economic outlook.
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 FOMC, as expected, voted unanimously to raise the federal funds rate target by 25 bp to 5.00%-5.25%. The FOMC omitted prior language that signaled more rate hikes ahead and instead said it would take into account various factors "in determining the extent to which additional policy firming may be appropriate."
The FOMC also maintained plans to shrink the balance sheet each month by as much as $60 billion for Treasuries and $35 billion for mortgage-backed securities.
Fed Chair Powell said banking conditions have "broadly improved" since March. He also said his forecast is for modest growth, not a recession, although it’s possible we’ll have what would be a mild recession. He added that the FOMC views inflation as coming down "not so quickly." And "in that world," it "would not be appropriate" to cut rates, and the Fed would not cut rates. "That's not our forecast."
After Wednesday’s +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.
The lack of clarity regarding the U.S. debt ceiling is a bearish factor for stocks. Treasury Secretary Yellen said the Treasury Department may run out of cash as soon as June 1 unless the debt ceiling is raised.
Global bond yields Wednesday were mixed. The 10-year T-note yield fell to a 3-week low of 3.351% and finished down -1.5 bp at 3.409%. The 10-year German bund yield dropped to a 3-1/2 week low of 2.218% and finished down -1.1 bp at 2.247%, and the UK 10-year gilt rose +2.6 bp at 3.699%.
On the bearish side for stocks, Estee Lauder closed down more than -17% after forecasting full-year net sales will fall -10% to -12% and cutting guidance on its full-year adjusted EPS. Also, Advanced Micro Devices closed down more than -9% after forecasting Q2 revenue below consensus. In addition, Starbucks closed down more than -9% 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.
On the bullish side, Generac Holdings closed up more than +11% after reporting Q1 net sales above consensus. Also, Assurant closed up more than +9% after reporting stronger-than-expected Q1 revenue. In addition, Verisk Analytics closed up more than +7% after reporting Q1 adjusted EPS above consensus.
Overseas stock markets Wednesday settled mixed. The Euro Stoxx 50 closed up +0.36%. 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…
Estee Lauder (EL) closed down more than -17% 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) closed down more than -9% to lead losers in the S&P 500 after forecasting Q2 revenue of $5.0-$5.6 billion, the midpoint above the consensus of $5.51 billion.
Starbucks (SBUX) closed down more than -9% to lead losers in the Nasdaq 100 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) closed down more than -6% 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) closed down more than -3% after cutting guidance on full-year adjusted EOS to $8.50-$8.70 from a previous estimate of $8.70-$8.90. On the CVS news, Walgreens Boots Alliance (WBA) closed down more than -4% to lead losers in the Dow Jones Industrials.
Weakness in regional bank stocks weighed on the overall market as sentiment on the sector remains negative following the collapse of First Republic Bank on Monday. Zions Bancorp (ZION) closed down more than -5%, and Comerica (CMA) closed down more than -4%. Also, Trust Financial (TFC) closed down more than- 3%, and US Bancorp (USB), Citizens Financial Group (CFG), M&T Bank (MTB), Huntington Bancshares (HBAN), and Regions Financial Corp (RF) closed down more than -2%.
Energy stocks and energy service providers retreated Wednesday after the price of WTI crude dropped more than -4% to a 5-week low. Marathon Petroleum (MPC) close down more than -5%, and Diamondback Energy (FANG) closed down more than -4%. Also, Devon Energy (DVN) and Valero Energy (VLO) closed down more than -3%. In addition, Halliburton (HAL), Marathon Oil (MRO), ConocoPhillips (COP), and Chevron (CVX) closed down more than -2%.
Yum! Brands (YUM) closed down more than -3% after reporting Q1 adjusted EPS of $1.06, below the consensus of $1.13.
Generac Holdings (GNRC) closed up more than +11% to lead gainers in the S&P 500 after reporting Q1 net sales of $887.9 million, stronger than the consensus of $840 million.
Assurant (AIZ) closed up more than +9% after reporting Q1 revenue of $2.64 billion, better than the consensus of $2.57 billion.
Verisk Analytics (VRSK) closed 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.
Eli Lilly (LLY) closed up more than +6% 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.
Clorox (CLX) closed up more than +4% after reporting Q3 adjusted EPS of $1.51, well above the consensus of $1.20, and forecast full-year organic sales up +3% to +4%, stronger than the consensus of +1.93%.
Trimble (TRMB) closed up more than +3% after reporting Q1 adjusted EPS of 72 cents, above the consensus of 67 cents.
Kraft Heinz (KHC) closed up more than +2% 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.
Across the markets…
June 10-year T-notes (ZNM23) on Wednesday closed up +11 ticks, and the 10-year T-note yield fell by -1.5 bp to 3.409%. June T-notes Wednesday rose to a 3-week high, and the 10-year T-note yield fell to a 3-week low of 3.351%. T-notes opened higher Wednesday on carryover support from a rally in 10-year German bunds to a 3-1/2 week high. Also, a decline in inflation expectations was bullish for T-notes after the 10-year breakeven inflation rate Wednesday fell to a 6-week low of 2.177%. T-notes extended their gains Wednesday afternoon when stocks gave up an early rally and moved lower, boosting safe-haven demand for T-notes.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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