Stocks Climb as McCarthy Predicts a U.S. Debt-Limit Deal Next Week

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.39%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.05%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.95%.

U.S. stocks this morning are moderately higher, with the S&P 500 posting a 2-1/2 week high, the Dow Jones Industrials posting a 1-week high, and the Nasdaq 100 posting a 1-year high.  U.S. stock index futures this morning are climbing as optimism builds that the U.S. will raise its debt ceiling and avoid a default.  House Speaker McCarthy said today that negotiators are in a “much better place” now, and he sees a debt limit deal being considered on the House floor next week.

Limiting gains in stocks is the jump in bond yields on hawkish Fed comments and this morning’s economic news that showed weekly jobless claims fell more than expected, and the May Philadelphia Fed business outlook survey rose more than expected. 

U.S. weekly initial unemployment claims fell -22,000 to 242,000, showing a stronger labor market than expectations of 251,000.  Weekly continuing claims unexpectedly fell -8,000 to 1.799 million, showing a stronger labor market than expectations of an increase to 1.820 million.

The U.S. May Philadelphia Fed business outlook survey rose +20.9 to a 4-month high of -10.4, stronger than expectations of -20.0.

U.S. Apr existing home sales fell -3.4% m/m to 4.28 million, weaker than expectations of 4.30 million.

Hawkish comments today from Dallas Fed President Logan were negative for stocks when she said inflation is too high and the case for the Fed pausing interest rate increases at the June FOMC meeting isn't yet clear.

Global bond yields are higher.  The 10-year T-note yield jumped to a 4-week high of 3.640% and is up +6.8 bp at 3.632%.  The 10-year German bund yield rose to a 2-1/2 week high of 2.451% and is up +11.3 bp at 2.449%, and the UK 10-year gilt yield climbed to 6-1/2 month high of 3.962% and is up +11.4 bp at 3.951%.

On the bullish side for stocks, Take-Two Interactive Software is up more than +11% after reporting Q4 net bookings above consensus.  Also, Bath & Body Works is up more than +9% after reporting stronger-than-expected Q1 net sales.  In addition, Netflix is up more than +7% after it reported its new ad-supported subscription plan had 5 million monthly active users.

On the bearish side, Newmont is down more than -3% as mining stocks are under pressure from a decline in gold prices today to a 1-3/4 month low and silver prices to a 1-1/2 month low.  Also, Boot Barn is down more than -11% after reporting Q4 net sales below consensus and forecasting 2024 same-store sales well below consensus. In addition, StoneCo is down more than -6% after reporting a Q1 payment volume that was below consensus.

Overseas stock markets are higher.  The Euro Stoxx 50 is up +0.94%.  China’s Shanghai Composite closed down -0.21%, and Japan’s Nikkei Stock Index closed up +0.84%.

Today’s stock movers…

Take-Two Interactive Software (TTWO) is up more than +11% to lead gainers in the S&P 500 after reporting Q4 net bookings of $1.39 billion, above the consensus of $1.34 billion. 

Bath & Body Works (BBWI) is up more than +9% after reporting Q1 net sales of $1.40 billion, above the consensus of $1.39 billion. 

Netflix (NFLX) is up more than +7% to lead gainers in the Nasdaq 100 after it reported its new ad-supported subscription plan had 5 million monthly active users.

Synopsys (SNPS) is up more than +6% after reporting Q2 adjusted EPS of $2.54, better than the consensus of $2.46, and raised its full-year adjusted EPS forecast to $10.77-$10.84 from a previous estimate of $10.53-$10.60.

Micron Technology (MU) is up more than +4% after Bloomberg reported Japan is poised to provide about 200 billion yen ($1.5 billion) in incentives to help build a next-generation DRAM production plant in Hiroshima.   

Intel (INTC) is up more than +2% to lead gainers in the Dow Jones Industrials after Nikkei reported that the company would ally with Japan’s Riken in a quantum computing collaboration.

Walmart (WMT) is up more than +1% after reporting Q1 adjusted EPS of $1.47, above the consensus of $1.31, and raised its full-year adjusted EPS estimate to $6.10-$6.20 from a previous forecast of $5.90-$6.05, the mid-point above the consensus of $6.14.

Newmont (NEM) is down more than -3% to lead losers in the S&P 500 as mining stocks are under pressure from a decline in gold prices today to a 1-3/4 month low and silver prices to a 1-1/2 month low. 

U.S.-listed Chinese stocks are falling today, led by a -5% fall in Alibaba Group Holding Ltd (BABA) after reporting Q4 revenue of 208.20 billion yuan, weaker than the consensus of 209.19 billion yuan.  Also, PDD Holding (PDD) is down more than -3% to lead losers in the Nasdaq 100.  In addition, JD.com (JD) and Baidu (BIDU) are down more than -3%. 

Boot Barn (BOOT) is down more than -11% after reporting Q4 net sales of $425.7 million, below the consensus of $442.4 million and forecasting 2024 same-store sales down -4.5% to -6.5%, weaker than the consensus of a +1.27% increase. 

StoneCo (STNE) is down more than -6% after reporting Q1 payment volume that was below consensus.

Target (TGT) is down more than -1% after UBS cut its price target on the stock to $184 from $202.

Procter & Gamble (PG) is down more than -1% after Truist Securities downgraded the stock to hold from buy, citing valuation.

Across the markets…

June 10-year T-notes (ZNM23) today are down -15 ticks, and the 10-year T-note yield is up +6.8 bp at 3.632%.  Jun T-notes this morning tumbled to a 4-week low, and the 10-year T-note yield jumped to a 1-3/4 month high of 3.640%.  This morning’s stronger-than-expected U.S. economic reports on weekly jobless claims and the May Philadelphia Fed business outlook survey are weighing on T-note prices.  Also, optimism that the U.S. will raise its debt ceiling and avoid default has reduced the safe-haven demand for T-notes. 

The dollar index (DXY00) today is up +0.49% and climbed to a 1-3/4 month high. The dollar this morning is climbing on optimism that the U.S. will raise its debt ceiling.  Also, today’s stronger-than-expected U.S. economic reports on weekly jobless claims and the May Philadelphia Fed business outlook survey are hawkish for Fed policy.  In addition, the jump in the 10-year T-note yield today to a 4-week high strengthens the dollar’s interest rate differentials. 

EUR/USD (^EURUSD) today is down by -0.57% and dropped to a 1-1/2 month low.   Strength in the dollar today is undercutting the euro. Also, hawkish comments today from ECB Vice President Guindos bolstered concerns that the ECB will need to keep raising interest rates, which will curb economic growth in the Eurozone and is bearish for EUR/USD.   

ECB Vice President Guindos said inflation in services is most worrying for the ECB, and it is too soon to say where the ECB will pause its interest rate hikes.

USD/JPY (^USDJPY) today is up by +0.45%.  The yen today extended its streak to six consecutive sessions of losses and dropped to a 5-1/2 month low against the dollar.  A jump in T-note yields today is undercutting the yen. Also, today’s rally in the Nikkei Stock Index to a 20-month high has curbed the safe-haven demand for the yen. In addition, Japanese trade news today was weaker than expected and weighed on the yen.

Japanese trade news was weaker than expected after Japan's Apr exports rose +2.6% y/y, weaker than expectations of +3.0% y/y.  Also, Apr imports fell -2.3% y/y, weaker than expectations of -0.6% y/y and the biggest decline in 2-1/4 years.

June gold (GCM3) this morning is down -22.2 (-1.12%), and July silver (SIN23) is down -0.272 (-1.14%).  Precious metals prices this morning are moderately lower, with gold falling to a 1-3/4 month low and silver dropping to a 1-1/2 month low.  A rally in the dollar index today to a 1-3/4 month high is undercutting metals prices.  Also, optimism that U.S. lawmakers will soon agree to raise the debt ceiling has curbed the safe-haven demand for precious metals.  In addition, rising global bond yields today are bearish for metals.  Concerns about industrial metals demand are also pressuring silver prices after today’s U.S. housing news showed Apr existing home sales fell 3.4% m/m to 4.28 million, weaker than expectations of 4.30 million.

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