Stocks Settle Higher on Signs of Progress in Debt Ceiling Talks

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.94%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.34%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.81%.

Stock indexes Thursday extended this week’s rally, with the S&P 500 posting a 9-month high, the Dow Jones Industrials posting a 1-week high, and the Nasdaq 100 posting a 1-year high.  U.S. stock indexes rallied Thursday on ramped-up optimism the U.S. will raise its debt ceiling and avoid a default.  House Speaker McCarthy said Thursday that negotiators are in a “much better place” now, and he sees a debt limit deal being considered on the House floor next week.

A negative factor for stocks was the jump in bond yields on hawkish Fed comments, and Thursday’s economic news that showed weekly jobless claims fell more than expected, and the May Philadelphia Fed business outlook survey rose more than expected.  The markets have priced in a 33% chance the Fed will raise interest rates by +25 bp at the June 13-14 FOMC meeting.

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 Thursday 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 moved higher.  The 10-year T-note yield jumped to a 2-month high of 3.655% and finished up +8.4 bp at 3.648%.  The 10-year German bund yield rose to a 2-1/2 week high of 2.456% and finished up +11.0 bp at 2.446%, and the UK 10-year gilt yield climbed to 6-3/4 month high of 3.966% and finished up +12.1 bp at 3.957%.

On the bullish side for stocks, Take-Two Interactive Software closed up more than +11% after reporting Q4 net bookings above consensus. Also, Bath & Body Works closed up more than +10% after reporting stronger-than-expected Q1 net sales.  In addition, Netflix closed up more than +8% after it reported its new ad-supported subscription plan had 5 million monthly active users.

On the bearish side, Target close down more than -4% after Walmart reported comparable store sales in Q1 that bested Target’s Q1 sales.  Also, Newmont closed 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.  In addition, Boot Barn closed down more than -11% after reporting Q4 net sales below consensus and forecasting 2024 same-store sales well below consensus. 

Overseas stock markets Thursday settled higher.  The Euro Stoxx 50 closed up +1.02%.  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) closed 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) closed up more than +10% after reporting Q1 net sales of $1.40 billion, above the consensus of $1.39 billion. 

Netflix (NFLX) closed up more than +8% to lead gainers in the Nasdaq 100 after it reported its new ad-supported subscription plan had 5 million monthly active users.

Synopsys (SNPS) closed up more than +8% 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.

Copart (CPRT) closed up more than +7% after reporting Q3 revenue of $1,02 billion, above the consensus of $1.01 billion.

Micron Technology (MU) closed 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.   

Nvidia (NVDA) closed up more than +4% after Susquehanna Financial raised its target price on the stock to $350 from $310. 

Intel (INTC) closed 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.

Target (TGT) closed down more than -4% to lead losers in the S&P 500 after Walmart reported comparable store sales in Q1 that bested Target’s Q1 sales. 

Newmont (NEM) closed down more than -3% as mining stocks were under pressure from a decline in gold prices Thursday to a 1-3/4 month low and silver prices to a 1-1/2 month low. 

U.S.-listed Chinese stocks retreated Thursday, 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) closed down more than -7% to lead losers in the Nasdaq 100.  In addition, JD.com (JD) and Baidu (BIDU) closed down more than -4%. 

Boot Barn (BOOT) closed down more than -10% 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) closed down more than -6% after reporting Q1 payment volume that was below consensus.

Procter & Gamble (PG) closed 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) on Thursday closed down -21 ticks, and the 10-year T-note yield rose by +8.6 bp to 3.650%.  June T-notes Thursday dropped to a 1-3/4 month low, and the 10-year T-note yield jumped to a 2-month high of 3.655%.  Thursday’s stronger-than-expected U.S. economic reports on weekly jobless claims and the May Philadelphia Fed business outlook survey were hawkish for Fed policy and weighed 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.  In addition, rising inflation expectations weighed on T-note prices after the 10-year breakeven inflation rate Thursday rose to a 2-1/2 week high of 2.254%.

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