Markets Today: Stocks Mixed as Debt Ceiling Negotiations Continue

Morning Markets

U.S. stock indexes this morning are mixed.  The S&P 500 Index ($SPX) (SPY) is up +0.10%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.27%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.41%.

Chevron agreed to buy PDC Energy for about $6.3 billion, and Ironwood agreed to buy VectivBio for about $1 billion.  However, weakness in semiconductor stocks is limiting gains in the overall market, with Micron Technology down by more than -4% after China said the company failed to pass a cybersecurity review in the country.

President Biden and House Speaker McCarthy are scheduled to meet later today in a bid to iron out roadblocks for a debt ceiling increase.  The leaders' hand-picked negotiators met for more than two hours on Sunday ahead of today’s meeting.  Treasury Secretary Yellen said Sunday that the chances the U.S. can pay all its bills by mid-June are “quite low” without a debt ceiling increase.

Minneapolis Fed President Kashkari said he might support holding interest rates at current levels at the June FOMC meeting to give Fed officials more time to assess the effects of past rate hikes and the inflation outlook.

St. Louis Fed President Bullard said we will have to move interest rates higher to tame inflation, and he's thinking of "two more 25 bp rate hikes this year."

Global bond yields are higher.  The 10-year T-note yield is up +2.7 bp at 3.701%.  The 10-year German bund yield is up +2.3 bp at 2.450%, and the UK 10-year gilt yield is up +4.4 bp at 4.040%.

On the bullish side for stocks, Knight-Swift Transport and railroad stocks Norfolk Southern, CSX Corp, and Union Pacific are up more than +1% in pre-market trading after Citigroup upgraded them to buy from neutral. VectivBio is up more than +35% after agreeing to be purchased by Ironwood for $17 a share in a deal valued at about $1 billion.  In addition, PacWest Bancorp is up more than +4% after agreeing to sell a $2.6 billion portfolio of 74 real estate construction loans as part of its plan to shore up its liquidity.

On the bearish side, Micron Technology tumbled more than -4% in pre-market trading after China said the company’s products failed to pass a cybersecurity review in the country.  Also, Meta Platforms is down more than -2% after it was fined 1.2 billion euros ($1.3 billion) by the European Union for failure to protect personal information and given a deadline to stop shipping users’ data to the U.S. Apple is down more than -1% after Loop Capital Markets downgraded the stock to hold from buy.

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.38%.  China’s Shanghai Composite closed up +0.39%, and Japan’s Nikkei Stock Index closed up +0.90%. 

The Euro Stoxx 50 index today is slightly lower.  Concern about higher interest rates is weighing on European equities after ECB President Lagarde said, "We are not done yet" in raising interest rates.  Also, today’s economic news showed that Eurozone Mar construction output fell -2.4% m/m, the biggest decline in more than two years.  A rally in airline stocks is limiting losses in the overall market, with Ryanair Holdings Plc up more than +2% after predicting strong demand in the summer months will drive a 10% increase in passenger numbers and “modest year-on-year” profit growth in the coming year.  Also, Norvo Nordisk A/S jumped more than +3% to a record high to lead pharmaceuticals stocks higher after it reported that patients who took its diet drug Wegovy for a year had a reduced risk of heart disease. 

ECB President Lagarde said, "We are not done yet" in raising interest rates as the "inflation outlook is too high and for too long."

China’s Shanghai Composite Stock Index today closed moderately higher.  Chinese stocks garnered support today from comments from U.S. President Biden on expectations of improved Chinese relations with the U.S. when he said he expects ties with China to improve “very shortly” after a spat earlier this year over a spy balloon derailed relations.  Chinese chip stocks rallied today after China on Sunday warned operators of key infrastructure against buying chips made from Micron Technology, the top U.S. chip producer, saying it found “relatively serious” cybersecurity risks in Micron products sold in China.  The U.S. Commerce Department said China’s conclusion had “no basis in fact,” and the U.S. government will continue to try and limit industry disruptions with its allies.  Top Chinese energy stocks and energy providers also rallied today after the state planner issued two draft documents for local governments to step up efforts to deal with sudden surges in demand to ensure energy security. 

Japan’s Nikkei Stock Index today continued to push higher and posted a new 32-year high.  A rally in Japanese stocks related to childcare and education led the overall market higher after Kyodo News reported the government is considering a plan to budget an additional 3 trillion yen ($22 billion) a year from fiscal 2024 to 2026 for measures to address the declining birthrate.

Foreign investors continue to pile into Japanese stocks as overseas funds boosted their holdings of Japanese stocks by 2.2 trillion yen ($15.9 billion) in April, the most in more than five years.  EPRR data shows Japan equity funds lured $800 million in the week ended May 10, the most in seven weeks, while those in the U.S. and Europe saw outflows.  On the negative side, today’s economic news showed Japan's Mar core machine orders unexpectedly fell -3.9% m/m, weaker than expectations of a +0.4% m/m increase.

CLSA said it is “big on Japan” and sees the potential for Japanese stocks to rally another 7% from here in the next 12 months.  CLSA maintains a “positive stance” on the Japanese market due to factors such as the continued post-pandemic real sector recovery, Japan being a beneficiary of the higher global cost of debt, expectations of further gradual yen strength, cheap valuations, and the market not being over-exposed by foreign investors.

Pre-Market U.S. Stock Movers

Micron Technology (MU) tumbled more than -4% in pre-market trading after China said the company’s products failed to pass a cybersecurity review in the country. 

Meta Platforms (META) dropped more than -2% in pre-market trading after it was fined 1.2 billion euros ($1.3 billion) by the European Union for failure to protect personal information and given a deadline to stop shipping users’ data to the U.S. 

Apple (AAPL) fell more than -1% in pre-market trading after Loop Capital Markets downgraded the stock to hold from buy, saying it sees a material revenue downside risk.

Marvel Technology (MRVL) slid more than -1% in pre-market trading on signs of insider selling after a SEC filing showed the company’s EVP Worldwide Sales director Jarnac sold $270,000 worth of shares last Thursday. 

Global-e Online (GLBE) dropped more than -5 in pre-market trading after forecasting Q2 revenue of $125 million-$130 million, the midpoint below the consensus of $127.9 million. 

Nike (NKE) fell more than -1% in pre-market trading after Williams Trading downgraded the stock to sell from hold.

Catalent (CTLT) dropped more than -2% in pre-market trading after JPMorgan Chase downgraded the stock to neutral from overweight.

Foot Locker (FL) fell more than -2% in pre-market trading after Citigroup downgraded the stock to neutral from overweight. 

Knight-Swift Transport (KNX) and railroad stocks Norfolk Southern (NSC), CSX Corp (CSX), and Union Pacific (UNP) are up more than +1% in pre-market trading after Citigroup upgraded them to buy from neutral, saying transport fundamentals are running at or near lows for the current cycle.   

PacWest Bancorp (PACW) climbed more than +4% in pre-market trading after agreeing to sell a $2.6 billion portfolio of 74 real estate construction loans as part of its plan to shore up its liquidity.

VectivBio (VECT) surged more than +35% in pre-market trading after agreeing to be purchased by Ironwood for $17 a share in a deal valued at about $1 billion.

Zions Bancorp (ZION) rose more than +2% in pre-market trading after Hovde Group initiated coverage on the stock with an outperform rating, saying “misplaced fears” drove a discounted valuation.

DraftKings (DKNG) climbed more than +3% in pre-market trading after UBS upgraded the stock to buy from neutral with a price target of $30, citing stronger revenue growth and greater flow to Ebitda.

Today’s U.S. Earnings Reports (5/22/2023)

HEICO Corp (HEI), Nano-X Imaging Ltd (NNOX), Nordic American Tankers Ltd (NAT), Nordson Corp (NDSN), PetMed Express Inc (PETS), Transcat Inc (TRNS), Zoom Video Communications Inc (ZM).

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