Stocks Tread Water as Investors Await Debt-Ceiling Developments

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.02%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.42%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.34%.

Stock indexes Monday settled mixed, with the Nasdaq 100 climbing to a 13-month high.  The broader market was under pressure as U.S. debt-ceiling talks drag on.  Also, higher bond yields Monday weighed on stocks due to hawkish Fed comments.  The Nasdaq 100 closed moderately higher Monday as market uncertainty has prompted investors to park funds in mega-cap technology stocks as a safe haven.

President Biden and House Speaker McCarthy were scheduled to meet after the markets closed Monday 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 before Monday’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.

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."

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.

Comments Monday from Atlanta Fed President Bostic signal he favors the Fed pausing its interest rate hikes when he said the Fed had done a lot of tightening and monetary policy acts with a lag, so he is comfortable waiting a bit to see how things play out.

Global bond yields Monday moved higher.  The 10-year T-note yield climbed to a 2-1/4 month high of 3.726% and rose +4.4 bp to 3.717%.  The 10-year German bund yield is up +3.0 bp at 2.458%, and the UK 10-year gilt yield is up +6.1 bp at 4.057%.

On the bullish side for stocks, VectivBio closed up more than +36% after agreeing to be purchased by Ironwood for $17 a share in a deal valued at about $1 billion.  Also, PacWest Bancorp closed up more than +20% to lead a rally in regional bank stocks 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.  In addition, Pfizer closed up more than +5% after results from the company’s danuglipro weight loss pill showed “early promise.” 

On the bearish side, Micron Technology closed down more than -2% after China said the company’s products failed to pass a cybersecurity review in the country.  Also, higher bond yields on Monday weighed on homebuilding stocks.  In addition, Foot Locker and Nike closed down by more than -3% after Williams Trading downgraded the stocks to sell.   

Overseas stock markets Monday settled mixed.  The Euro Stoxx 50 closed down -0.22%.  China’s Shanghai Composite closed up +0.39%, and Japan’s Nikkei Stock Index closed up +0.90%. 

Today’s stock movers…

PacWest (PACW) closed up more than +20% to lead regional bank stocks higher 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.  Also, KeyCorp (KEY) and Lincoln National (LNC) closed up more than +4%.  In addition, Citizens Financial Group (CFG), Comerica (CMA), Regions Financial (RF), and Huntington Bancshares (HBAN) closed up more than +3%.  Finally, US Bancorp (USB) and Truist Financial (TFC) closed up more than +2%.

VectivBio (VECT) closed up more than +36% after agreeing to be purchased by Ironwood for $17 a share in a deal valued at about $1 billion.

Gen Digital (GEN) is up more than +2% on signs of insider buying after an SEC filing showed company President Vlcek bought 300,000 shares last Wednesday.

Pfizer (PFE) closed up more than +5% after results from the company’s danuglipro weight loss pill showed “early promise.” 

Zions Bancorp (ZION) closed up more than +5% after Hovde Group initiated coverage on the stock with an outperform rating, saying “misplaced fears” drove a discounted valuation.

Albemarle (ALB) closed up more than +1% after the company signed an agreement to supply Ford Motor with more than 100,000 MT of battery-grade lithium hydroxide from 2026 through 2030.

Nike (NKE) closed down more than -3% to lead losers in the S&P 500 and Dow Jones Industrials after Williams Trading downgraded the stock to sell from hold with a price target of $95. 

Consumer staple stocks retreated Monday.  Procter & Gamble (PG), Yum!  Brands (YUM), Pepsi Co (PEP), General Mills (GIS), Clorox (CLX), Cocoa-Cola (KO), and Campbell Soup (CPB) closed down more than -2%.  Also, Colgate-Palmolive (CL), Kellogg (K), Hershey Co (HSY), Hormel Foods (HRL), Conagra Brands (CAG), and JM Smucker (SJM) closed down more than -1%. 

Micron Technology (MU) closed down more than -2% to lead losers in the Nasdaq 100 after China said the company’s products failed to pass a cybersecurity review in the country. 

Higher bond yields Monday weighed on homebuilding stocks.  As a result, Lennar (LEN), PulteGroup (PHM), and Toll Brothers (TOL) closed down more than -2%.  Also, DR Horton (DHI) closed down more than -1%. 

Foot Locker (FL) closed down more than -8% and added to last Friday’s -27% plunge after Williams Trading downgraded the stock to sell from hold with a price target of $25. 

Global-e Online (GLBE) closed down more than -2% after forecasting Q2 revenue of $125 million-$130 million, the midpoint below the consensus of $127.9 million. 

Across the markets…

June 10-year T-notes (ZNM23) on Monday closed down -3 ticks, and the 10-year T-note yield rose by +4.0 bp to 3.713%.  June T-notes Monday dropped to a 2-1/4 month low, and the 10-year T-note yield rose to a 2-1/4 month high of 3.726%.  T-notes were under pressure Monday on negative carryover from a fall in European government bonds after ECB President Lagarde said, "We are not done yet" in raising interest rates.  Also, hawkish comments Monday from St. Louis Fed President Bullard undercut T-note prices when he said he's thinking of "two more 25 bp rate hikes this year."  T-notes recovered from their worst levels after Atlanta Fed President Bostic said he favors the Fed pausing its interest rate hikes.

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