Stocks Close Mildly Higher Despite Higher Bond Yields and Debt Ceiling

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.05%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.25%.

Stock indexes Monday settled mixed.  Higher bond yields on Monday weighed on the overall market along with the ongoing debt ceiling stalemate.  However, energy stocks moved higher after crude prices rallied by more than +2%, and cybersecurity stocks gained after Zscaler surged when it boosted its full-year outlook.

Clarity regarding the U.S. debt ceiling is a bearish factor for stocks.  Treasury Secretary Yellen said Sunday that there are “simply no good options” for solving the debt limit stalemate other than Congress lifting the debt ceiling cap. Yellen has said that the Treasury Department may run out of cash to pay its bills as soon as June 1 unless the debt ceiling is raised.  President Biden is scheduled to meet House Speaker McCarthy and other congressional leaders Tuesday to discuss the debt ceiling.

The Federal Reserve's Senior Loan Officer Opinion Survey was bearish for stocks as it reported tighter standards and weaker demand for commercial and industrial loans in Q1.  The proportion of U.S. banks tightening terms on loans for medium and large businesses rose to 46% from 44.8% in Q4 of 2022.  Also, the proportion of banks reporting stronger demand for commercial and industrial loans dropped by -55.6% in Q1, the sharpest decline since 2009.

Global bond yields Monday moved higher.  The 10-year T-note yield rose +7.5 bp to 3.512%.  The 10-year German bund yield rose +2.9 bp to 2.319%, and the UK 10-year gilt did not trade with markets closed Monday in the UK for the king’s coronation.

On the bullish side for stocks, cybersecurity stocks rallied Monday, led by a +21% surge in Zscaler after reporting preliminary Q3 revenue above consensus and raising its full-year revenue forecast.  Also, energy stocks moved higher as WTI crude prices climbed more than +2%.  In addition, Viatris closed up more than +6% after reporting stronger-than-expected Q1 adjusted Ebitda.

On the bearish side, Catalent closed down more than -25% after it said it expects to “significantly” reduce both fiscal 2023 net revenue and adjusted Ebitda guidance by over $400 million each, citing operational and productivity issues.  Also, Tyson Foods closed down more than -16% after reporting weaker-than-expected Q2 sales and cutting its full-year sales estimate.  In addition, AES Corp closed down more than -4% after forecasting full-year adjusted EPS below consensus.

Overseas stock markets Monday settled mixed.  The Euro Stoxx 50 closed up +0.19%.  China’s Shanghai Composite closed up +1.81%, and Japan’s Nikkei Stock Index closed down -0.71%. 

Today’s stock movers…

Zscaler (ZS) closed up more than +20% to lead cybersecurity stocks higher and lead gainers in the Nasdaq 100 after reporting preliminary Q3 revenue of $415 million-$419 million, stronger than the consensus of $398.6 million, and raising its full-year revenue forecast to $1.59 billion from a prior estimate of $.156 billion.   Also, Crowdstrike Holdings (CRWD) closed up more than +8%, Palo Alto Networks (PANW) closed up more than +4%, and Fortinet (FTNT) closed up more than +2% on the news.

Viatris (VTRS) closed up more than +5% after reporting Q1 adjusted Ebitda of $1.34 billion, better than the consensus of $1.23 billion. 

Advanced Micro Devices (AMD) closed up more than +5% as it rallied for the third consecutive session after Bloomberg News reported last Thursday that Microsoft is working with AMD on its exposure into artificial intelligence processors. 

American Airlines Group (AAL) closed up more than +3% after JPMorgan Chase upgraded the stock to overweight from neutral.

Boston Scientific (BSX) closed up more than +3% after Street Insider reported that talks have broken down on the company’s attempts to acquire Shockwave Medical.

Albemarle (ALB) closed up more than +3% after Bank of America Global Research upgraded the stock to neutral from underperform with a price target of $200. 

Catalent (CTLT) closed down more than -25% to lead losers in the S&P 500 after it said it expects to “significantly” reduce both fiscal 2023 net revenue and adjusted Ebitda guidance by over $400 million each, citing operational and productivity issues.

Tyson Foods (TSN) closed down more than -16% after reporting Q2 sales of $13.13 billion, weaker than the consensus of $13.60 billion, and cutting its full-year sales estimate to $53 billion-$54 billion from a previous estimate of $55 billion-$57 billion.

Atlassian (TEAM) closed down more than -4% to lead losers in the Nasdaq 100 as 12 analysts have cut their price targets on the stock by an average of -13% since it reported earnings last Thursday.

AES Corp (AES) closed down more than -4% after forecasting full-year adjusted EPS of $1.65-$1.72, the midpoint below the consensus of $1.72.

Epam Systems (EPAM) closed down more than -4% after Susquehanna Financial cut its price target on the stock to $350 from $410.

Bath & Body Works (BBWI) closed down more than -3% after Citigroup cut its price target on the stock to $37 from $44.

Across the markets…

June 10-year T-notes (ZNM23) on Monday closed down -17.6 ticks, and the 10-year T-note yield rose by +7.5 bp to 3.512%.  June T-notes Monday were weighed down by negative carryover from last Friday’s stronger-than-expected U.S. Apr payroll report, which was hawkish for Fed policy.  Also, supply pressures are weighing on T-notes, with multiple companies issuing debt this week totaling between $30 billion and $35 billion, including Apple, which announced a five-part debt offering.  In addition, bond dealers are preparing for this week’s May quarterly refunding, where the Treasury will auction $96 billion of T-notes and T-bonds, beginning with Tuesday’s $40 billion auction of 3-year T-notes. 

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