Stocks Undercut as Little Progress is seen in U.S. Debt Ceiling Talks

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.63%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.01%, and the Nasdaq 100 Index ($IU) (QQQ) closed up +0.09%.

Stock indexes Tuesday settled mixed, with the Dow Jones Industrials falling to a 1-1/2 week low and the Nasdaq 100 climbing to a nearly 9-month high.  The broader market was under pressure as little progress was seen in the meeting Tuesday afternoon among President Biden and bipartisan Congressional leaders.  House Speaker McCarthy said after the meeting that the two sides are “far apart” but that talks would continue.  President Biden leaves Wednesday for the G7 meeting in Japan but the administration said his 7-day overseas trip would cut short due to the debt ceiling.  Treasury Secretary Yellen Monday reiterated that the Treasury risks running out of cash as soon as June 1 unless the debt ceiling is raised.

Strength in chip stocks Tuesday supported gains in the technology sector and kept the Nasdaq 100 in positive territory.  Mostly stronger-than-expected U.S. economic news Tuesday and hawkish Fed comments boosted bond yields, a negative factor for stocks. 

U.S. Apr retail sales rose +0.4% m/m, weaker than expectations of +0.8% m/m.  However, Apr retail sales ex-autos rose +0.4% m/m, right on expectations.

U.S. Apr manufacturing production rose +1.0% m/m, stronger than expectations of +0.1% m/m.

The U.S. May NAHB housing market index unexpectedly rose +5 to a 10-month high of 50, stronger than expectations of no change at 45.

Fed comments on Tuesday were hawkish for Fed policy and bearish for stocks.  Chicago Fed President Goolsbee said service inflation is more persistent than thought and it's "far too premature" to be talking about interest rate cuts.  Also, Richmond Fed President Barkin said he was still looking to be convinced that inflation has been defeated and that he would support raising interest rates further if needed.

Global bond yields are mixed.  The 10-year T-note yield jumped to a 2-week high of 3.572% and finished up +3.9 bp at 3.541%.  The 10-year German bund yield rose +4.4 bp to 2.353%, and the UK 10-year gilt yield fell -0.1 bp to 3.816%.

On the bearish side for stocks, Home Depot closed down more than -2% to lead consumer discretionary stocks lower after reporting below-consensus Q1 net sales and reducing guidance on its full-year comparable sales forecast. Also, Horizon Therapeutics closed down more than -16% after Bloomberg reported that federal regulators would challenge the company’s sale to Amgen.  In addition, RH closed down more than -8% after a 13F filing showed Berkshire Hathaway exited its position in the stock in Q1.

On the bullish side, semiconductor stocks moved higher Tuesday, led by a +4% advance in Advanced Micro Devices.  Also, Capital One Financial closed up more than +2% after a 13F filing showed Berkshire Hathaway added the stock to its portfolio in Q1. In addition, Amazon.com closed up more than +2% after it said it plans to add ChatGPT-style product search to its web store.

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 closed down -0.02%.  China’s Shanghai Composite closed down -0.60%, and Japan’s Nikkei Stock Index closed up +0.73%. 

Today’s stock movers…

Consumer discretionary stocks were under pressure Tuesday, with Home Depot (HD) closing down more than -2% after reporting Q1 net sales of $37.26 billion, below the consensus of $38.34 billion, and reducing guidance on its full-year comparable sales estimate to down -2% to -5% from a previous forecast of flat.  Other consumer discretionary stocks fell on the Home Depot news, with Caesars Entertainment (CZR) closing down more than -6% to lead losers in the S&P 500.  In addition, Etsy (ETSY) closed down by more than -4%, and Mohawk Industries (MHK) and Whirlpool (WHR) closed down by more than -2%.

Newell Brands (NWL) closed down more than -5% after cutting its quarterly dividend to 7 cents per share from 23 cents.

Seagen (SGEN) closed down more than -5% to lead losers in the Nasdaq 100 on concern Pfizer’s deal to buy the company could be challenged after U.S. regulators challenged Amgen’s deal to acquire Horizon Therapeutics.

Horizon Therapeutics (HZNP) closed down more than -14% after Bloomberg reported that federal regulators would challenge the company’s sale to Amgen.   

RH (RH) closed down more than -8% after a 13F filing showed Berkshire Hathaway exited its position in the stock in Q1.

Real estate investment stocks fell Tuesday after the 10-year T-note yield climbed to a 2-week high.  Digital Realty Trust (DLR) and Boston Properties (BXP) closed down more than -4%. Also, Federal Realty Investment Trust (FRT), Regency Centers (REG), Healthpeak Properties (PEAK), and Kimco Realty (KIM) closed down more than -3%. In addition, Simon Property Group (SPG), Alexandria Real Estate Equities (ARE), and Realty Income Corp (O) closed down more than -2%.

Semiconductor stocks moved higher Tuesday.  Advanced Micro Devices (AMD) closed up more than +4% to lead gainers in the S&P 500 and Nasdaq 100.  Also, Nvidia (NVDA), Lam Research (LRCX), and KLA Corp (KLAC) closed up more than +1%. 

GE Healthcare Technologies (GEHC) closed up more than +3% after Oppenheimer initiated coverage on the stock with an outperform rating and a price target of $97.

Novocure (NVCR) closed up more than +3% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $104. 

Amdocs Ltd (DOX) closed up more than +3% after Barclays upgraded the stock to overweight from equal weight with a price target of $115.

Capital One Financial (COF) closed up more than +2% after a 13F filing showed Berkshire Hathaway added the stock to its portfolio in Q1.

Amazon.com (AMZN) closed up nearly +2% after it said it plans to add ChatGPT-style product search to its web store. 

Homebuilding stocks rose Tuesday after the May NAHB housing market index unexpectedly rose to a 10-month high.  DR Horton (DHI) and PulteGroup (PHM) closed up more than +1%. Also, Lennar (LEN) closed up +0.7%, and Toll Brothers (TOL) closed up +0.5%.

Across the markets…

June 10-year T-notes (ZNM23) on Tuesday closed down -10 ticks, and the 10-year T-note yield rose by +3.9 bp to 3.541%.  June T-notes Tuesday dropped to a 2-week low, and the 10-year T-note yield rose to a 2-week high of 3.572%.  Jun T-notes posted moderate losses Tuesday after the U.S. manufacturing production and NAHB housing reports rose more than expected. Also, supply pressures prompted bond dealers to short T-note futures as a hedge against upcoming supply after Pfizer Tuesday launched a $31 billion 8-part debt offering.  T-notes maintained their losses on hawkish comments from Chicago Fed President Goolsbee and Richmond Fed President Barkin.

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