Stocks Fall with U.S. Debt Ceiling Talks at an Impasse

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.90%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.74%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.08%.

U.S. stocks this morning are moderately lower, with the S&P 500 falling to a 1-1/2 week low and the Dow Jones Industrials dropping to a 1-3/4 month low.  Stocks are under pressure as U.S. debt ceiling talks stall.  Republican negotiators said the White House is showing little urgency in negotiations, and Democratic negotiators said House Republican leader McCarthy is refusing to offer compromises.  Negotiators are working on resuming talks amid the stalemate. 

U.S. stocks were also weighed down by negative carryover from a slide in the Euro Stoxx 50 to a 1-3/4 month low on inflation concerns after UK Apr consumer prices rose more than expected. 

Global bond yields are mixed.  The 10-year T-note yield is up +0.6 bp at 3.698%.  The 10-year German bund yield is down -1.4 bp at 2.455%. The UK 10-year gilt jumped to a 7-1/4 month high of 4.368% and is up +4.7 bp at 4.205%.

On the bearish side for stocks, Agilent is down more than -10% after cutting its full-year revenue forecast.  Also, chip stocks are under pressure, with Analog Devices down more than -7% after forecasting Q3 adjusted EPS below consensus.  In addition, Inuit is down more than -5% after reporting Q3 net revenue below consensus.

On the bullish side, Palo Alto Networks is up more than +7% after reporting Q3 billings above consensus and raising its full-year revenue forecast.  Also, Kohl’s is up more than +9% after reporting Q1 net sales above consensus. In addition, O’Reilly Automotive is up more than +1% after it boosted its stock buyback authorization by $2 billion to $23.75 billion.

Overseas stock markets are lower.  The Euro Stoxx 50 is down -1.82%.  China’s Shanghai Composite closed down -1.28%, and Japan’s Nikkei Stock Index closed down -0.89%. 

Today’s stock movers…

Agilent (A) is down more than -10% to lead losers in the S&P 500 after cutting its full-year revenue forecast to $6.93 billion-$7.03 billion from a previous forecast of $7.03 billion-$7.10 billion, weaker than the consensus of $7.09 billion. 

Chip stocks are under pressure today, led by a -7% drop in Analog Devices (ADI) to lead losers in the Nasdaq 100 after it forecasted Q3 adjusted EPS of $2.42-$2.62, weaker than the consensus of $2.64.  Other chip stocks fell on the news, with Microchip Technology (MCHP) and NXP Semiconductors NV (NXPI) down more than -4%.  Also, Globalfoundries (GFS) is down more than -3%, and Nvidia (NVDA), Applied Materials (AMAT), Marvel Technology (MRVL), and ASML Holding NV (ASML) are down more than -2%. 

Inuit (INTU) is down more than -7% after reporting Q3 net revenue of $6.02 billion, weaker than the consensus of $6.09 billion. 

Electric vehicle makers are falling today, led by an -11% slide in Xpeng (XPEV) after it reported Q1 revenue of 4.03 billion yuan, well below the consensus of 4.22 billion yuan as the price war sparked by Tesla weighs on earnings.  Also, Tesla (TSLA) is down more than -3%, and Lucid Group (LCID) and Rivian Automotive (RIVN) are down more than -2%.

Children’s Place (PLCE) is down more than -24% after reporting a Q1 adjusted loss of -$2.00 per share, a larger loss than expectations of -$1.82, and forecast full-year adjusted EPS of $1.00 to $1.50, well below the consensus o $2.24.

PTC Therapeutics (PTCT) is down more than -23% after saying a trial of its vatiquinone for the treatment of a rare neuromuscular disorder failed to meet its main endpoint.

Corning Incorporated (GLW) is up more than +3% to lead gainers in the S&P 500 after it announced a 20% increase in display glass substrate prices.

Palo Alto Networks (PANW) is up more than +7% to lead gainers in the Nasdaq 100 after reporting Q3 billings of $2.26 billion, above the consensus of $2.23 billion and raised its full-year revenue forecast to $6.88 billion-$6.91 billion from a previous forecast of $6.85 billion-$691 billion, stronger than the consensus of $6.89 billion. 

Kohl’s (KSS) is up more than +9% after reporting Q1 net sales of $3.36 billion, stronger than the consensus of $3.34 billion.

Netflix (NFLX) is up more than +1% after Oppenheimer raised its price target on the stock to $450 from $415.

O’Reilly Automotive (ORLY) is up more than +1% after it boosted its stock buyback authorization by $2 billion to $23.75 billion. 

Homebuilding stocks are climbing today as Toll Brothers (TOL) rose more than +1% after reporting Q2 revenue of $2.51 billion, well above the consensus and raising its full-year delivery forecast to 8,900-9,500 from a prior forecast of 8,000-9,000, above the consensus of 8,565.  Also, Lennar (LEN) and DR Horton (DHI) are up more than +1%. 

Energy stocks and energy service providers are moving higher today, with WTI crude rising more than +2% to a 3-week high.  Marathon Oil (MRO), Exxon Mobil (XOM), Devon Energy (DVN), Diamondback Energy (FANG), Phillips 66 (PSX), and Valero Energy (VLO) are up more than +1%.  Also, Chevron (CVX) is up +0.8% to lead gainers in the Dow Jones Industrials.

Across the markets…

June 10-year T-notes (ZNM23) today are down -2 ticks, and the 10-year T-note yield is up +0.6 bp at 3.698%.  Jun T-notes this morning gave up an early advance and are slightly lower.  A jump in crude prices today to a 3-week high has boosted inflation expectations and undercut T-note prices.  T-note prices are also being undercut by negative carryover from a plunge in 10-year UK gilt prices to a 7-1/4 month low after UK Apr CPI rose more than expected. Finally, supply pressures are weighing on T-notes as the Treasury later today will auction $22 billion 2-year floating-rate notes and $43 billion 5-year T-notes as part of this week’s $142 billion auction package of T-notes and floating-rate notes.  Losses in T-notes are limited as a slump in stocks today has boosted some safe-haven demand for T-notes.

The dollar index (DXY00) today is up +0.23% and climbed to a 2-month high. Weakness in GBP/USD today is supportive for the dollar as the pound fell to a 1-month low on concerns the UK economy may suffer as the stronger-than-expected UK Apr CPI will prompt the BOE to raise interest rates higher and for longer.  However, gains in the dollar were limited by the ongoing U.S. debt ceiling impasse. 

EUR/USD (^EURUSD) today is down by -0.08%.  Dollar strength today has pushed EUR/USD down to a 1-3/4 month low. The euro is also under pressure after today’s economic news showed that German May IFO business confidence fell more than expected.  Losses in EUR/USD are limited on hawkish comments today from ECB Governing Council member and Bundesbank President Nagel, who said, "Several rate hikes will still be necessary to reach a sufficiently restrictive level.”

The German May IFO business climate index fell -1.7 to 91.7, weaker than expectations of 93.0.

ECB Governing Council member and Bundesbank President Nagel said, "Several rate hikes will still be necessary to reach a sufficiently restrictive level.  And we will then have to maintain this level for a sufficiently long time until inflation has come down." 

USD/JPY (^USDJPY) today is up by +0.27%.  The yen today dropped to a 5-3/4 month low against the dollar. Strength in the dollar and higher T-note yields are weighing on the yen.  However, losses in the yen are limited as the ongoing U.S. debt ceiling impasse has boosted some safe-haven demand for the yen. 

June gold (GCM3) this morning is down -1.8 (-0.08%), and July silver (SIN23) is down -0.279 (-1.18%).  Precious metals prices this morning are mixed.   A stronger dollar today is bearish for metals prices.  Also, hawkish comments from ECB Governing Council member and Bundesbank President Nagel weighed on metals prices when he said several more rate hikes by the ECB are still needed.   Silver also has negative carryover from a slump in copper prices today to a 5-3/4 month low. 

However, losses in metals prices are limited as the ongoing U.S. debt-ceiling impasse has sparked safe-haven demand for precious metals.  Also, today’s news that showed a larger-than-expected increase in UK Apr CPI has fueled demand for gold as an inflation hedge. 

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