Stocks Settle Mixed as Tech Gains on Alphabet and Lower Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.17%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.66%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.31%.

Stock indexes Thursday settled mixed.  An -8% slump in Disney weighed on the overall market after it lost subscribers to its streaming service.  Also, concerns about the health of U.S. regional banks undercut the broader market. PacWest Bancorp closed down more than -22% and weighed on regional bank stocks lower after it said deposits fell -9.5% last week.

However, a +4% gain in Alphabet Thursday and a decline in T-note yields helped push technology stocks higher and keep the Nasdaq 100 in positive territory.

A decline in bond yields is positive for stocks after U.S. weekly initial unemployment claims rose more than expected to a 1-1/2 year high, and April producer prices eased to a 2-year low.  The weakness in the labor market and falling price pressures are dovish for Fed policy.   

U.S. weekly initial unemployment claims rose +22,000 to a 1-1/2 year high of 264,000, showing a weaker labor market than expectations of 245,000.

The U.S. Apr final-demand PPI eased to a 2-year low of +2.3% y/y from +2.7% in March, weaker than expectations of +2.5% y/y.  The Apr PPI ex-food and energy eased to a 2-year low of +3.2% y/y from +3.4% y/y in March, weaker than expectations of +3.3% y/y.

The Federal Reserve reported $92.4 billion in emergency bank loans outstanding to financial institutions through two backstop lending facilities in the week through May 10, up from $81.1 billion the previous week. 

The Bank of England (BOE), as expected, raised its official bank rate by +25 bp to 4.50% and said inflation persistence would require further tightening.  BOE Governor Bailey said, "Inflation remains too high," and the BOE "has to stay the course" to cut CPI to 2%.

U.S. debt ceiling talks Tuesday yielded little results, but White House officials and Republican leaders pledged additional negotiations. Friday’s meeting between President Biden and congressional leaders, including House Speaker McCarthy, was pushed to next week as staff continues to negotiate.  Treasury Secretary Yellen 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.

Global bond yields on Thursday moved lower.  The 10-year T-note yield fell -4.9 bp at 3.382%.  The 10-year German bund yield fell -6.3 bp to 2.225%, and the UK 10-year gilt yield fell -9.3 bp to 3.707%.

On the bearish side for stocks, regional bank stocks retreated, led by PacWest Bancorp, which closed down more than -22% after it said deposits fell -9.5% last week.  Also, Walt Disney closed down more than -8% after reporting fewer-than-expected Disney+ subscribers in Q2 and predicted the loss for streaming would increase by $100 million this quarter.  In addition, Also, PerkinElmer closed down more than -4% after cutting guidance on full-year adjusted EPS. 

On the positive side, Alphabet closed up more than +4% after it unveiled its latest artificial intelligence tools and launched the hardware at its annual developer conference.  Also, Steris Plc closed up more than +9% after reporting Q4 revenue above consensus. In addition, Tapestry closed up more than +8% after raising its full-year revenue forecast.

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 closed up +0.07%.  China’s Shanghai Composite closed down -0.29%, and Japan’s Nikkei Stock Index closed up +0.02%. 

Today’s stock movers…

Regional bank stocks retreated Thursday, with PacWest Bancorp (PACW) closing down more than -22% after it said deposits fell -9.5% last week.  Also, Comerica (CMA) closed down more than -6%, and Truist Financial (TFC) and Zions Bancorp (ZION) closed down more than -4%. In addition, Regions Financial (RF) and Huntington Bancshares (HBAN) closed down more than -3%. Finally, KeyCorp (KEY), Fifth Third Bancorp (FITB), and Citizens Financial Group (CFG) closed down more than -2%. 

Walt Disney (DIS) closed down more than -8% to lead losers in the S&P 500 and Dow Jones Industrials after reporting 158.8 million Disney+ subscribers in Q2, below the consensus of 163.1 million, and predicted the loss for streaming would increase by $100 million this quarter. Other streaming stocks also fell on the news.  Warner Bros Discovery (WBD) closed down more than -5% to lead losers in the Nasdaq 100, and Paramount Global (PARA) closed down more than -3%.

PerkinElmer (PKI) closed down more than -4% after cutting guidance on full-year adjusted EPS to $4.85-$5.05 from $5.05, below the consensus of $5.08.

Mining stocks sold off Thursday after copper prices plunged to a 5-1/2 month low and silver prices dropped to a 5-week low.  Freeport McMoRan (FCX) and Newmont (NEM) closed down more than -4%.

Hospitality and entertainment stocks moved lower Thursday on U.S. economic concerns after weekly jobless claims rose to a 1-1/2 year high.  Wynn Resorts (WYNN) closed down more than -4%. Also, Norwegian Cruise Line Holdings (NCLH), Host Hotels & Resorts (HST), Carnival (CCL), Caesars Entertainment (CZR), and Las Vegas Sands (LVS) closed down more than -2%

Steris Plc (STE) closed up more than +9% to lead gainers in the S&P 500 after reporting Q4 revenue of $1.38 billion, stronger than the consensus of $1.27 billion. 

Tapestry (TPR) closed up more than +8% after raising its full-year revenue forecast to $6.7 billion from a prior estimate of $6.6 billion, better than the consensus of $6.63 billion. 

Alphabet (GOOGL) closed up more than +4% after it unveiled its latest artificial intelligence tools and launched the hardware at its annual developer conference. 

JD.com (JD) closed up more than +7% to lead gainers in the Nasdaq 100 after reporting Q1 net revenue of 242.96 billion yuan, above the consensus of 240.49 billion yuan.

Axon Enterprise (AXON) closed up more than +6% after JPMorgan Chase upgraded the stock to overweight from neutral. 

Charles River Laboratories International (CRL) closed up more than +5% after reporting Q1 revenue of $1.03 billion, better than the consensus of $985.3 million, and as CFRA upgraded the stock to buy from hold with a price target of $233. 

Tesla (TSLA) closed up more than +2% after Elon Musk said he is transitioning his role at Twitter to executive chair and CTO and that he selected a new CEO for Twitter who will start in about six weeks. 

Across the markets…

June 10-year T-notes (ZNM23) on Thursday closed up +4.5 ticks, and the 10-year T-note yield fell by -4.9 bp to 3.394%.  June T-notes Thursday posted moderate gains after Thursday’s U.S economic reports showed an easing of producer prices and weakness in the labor market after weekly jobless claims jumped to a 1-1/2 year high.  Also, a decline in inflation expectations is supportive for T-notes after the 10-year breakeven inflation rate dropped to a 7-week low Thursday of 2.155%.  In addition, strong demand for the Treasury’s $21 billion 30-year T-bond auction was positive for T-note prices as the auction had a bid-to-cover ratio of 2.43, above the 10-auction average of 2.36.

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