Stocks Climb on Signs of Progress in Debt-Limit Talks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +1.12%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +1.01%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.92%.

U.S. stocks this morning are moderately higher, with the Nasdaq 100 posting a new 13-month high.  Stocks are pushing higher today on signs that U.S. lawmakers are making progress on a deal to raise the debt ceiling.

Stocks are moving higher today despite stronger-than-expected U.S. economic reports that pushed bond yields higher and bolstered the outlook for the Fed to keep raising interest rates.  As a result, market expectations for a 25 bp Fed rate hike at the June 13-14 FOMC meeting have risen to 54%.

Bloomberg reported that Republican and White House negotiators are moving closer to an agreement to raise the debt limit and cap federal spending for two years, although the terms are tentative, and a final accord is still not in hand.

U.S. Apr personal spending rose +0.8% m/m, stronger than expectations of +0.5% m/m.  Apr personal income rose +0.4% m/m, right on expectations.

The U.S. Apr PCE core deflator, the Fed's preferred inflation gauge, rose +0.4% m/m and +4.7% y/y, stronger than expectations of +0.3% m/m and +4.6% y/y.

U.S. Apr capital goods orders nondefense ex-aircraft and parts, a proxy for capital spending, unexpectedly rose +1.4% m/m, stronger than expectations of a decline of -0.1% m/m and the biggest increase in 16 months.

The University of Michigan U.S. May consumer sentiment index was revised upward by +1.5 to 59.2, stronger than expectations of 58.0.

Global bond yields are mixed.  The 10-year T-note yield rose to a 2-1/2 month high of 3.839% and is up +2.2 bp at 3.839%.  The 10-year German bund yield climbed to a 2-1/2 month high of 2.557% and is up +1.6 bp at 2.538%, and the UK 10-year gilt yield is down -1.8 bp at 4.356%.

On the bullish side for stocks, chip stocks are rallying today, led by a +27% surge in Marvell Technology after it reported Q1 net revenue above consensus and projecting fiscal 2024 artificial intelligence (AI) revenue to “a least double” from a year ago.  Also, Workday is up more than +10% after reporting Q1 subscription revenue above consensus and raising the lower end of its 2024 subscription revenue estimate.  In addition, Ford Motor is up more than +7% after announcing that it entered into a pact with Tesla that will allow Ford electric vehicle customers to access more than 12,000 Tesla Superchargers across the U.S. and Canada starting in spring 2024.

On the bearish side, Ulta Beauty is down more than -11% after forecasting 2024 comparable sales below consensus.  Also, utility stocks are under pressure today after the stronger-than-expected U.S. Apr core PCE deflator bolsters the outlook for the Fed to keep raising interest rates.  In addition, Big Lots is down more than -12% after reporting a larger-than-expected Q1 adjusted loss per share. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +1.62%.  China’s Shanghai Composite closed up +0.35%, and Japan’s Nikkei Stock Index closed up +0.37%. 

Today’s stock movers…

Chip stocks are moving higher today, led by a +27% surge in Marvell Technology (MRVL) to lead the Nasdaq 100 higher after reporting Q1 net revenue of $1.32 billion, stronger than the consensus of $1.30 billion, and projecting fiscal 2024 artificial intelligence (AI) revenue to “a least double” from a year ago.  Other chip stocks are climbing on the news, with Globalfoundries (GFS) up more than +4% and Micron Technology (MU) up more than +3%.  Also, Qualcomm (QCOM), Microchip Technology (MCHP), Texas Instruments (TXN), NXP Semiconductors NV (NXPI), and ASML Holding NV (ASML) are up more than +2%.

Workday (WDAY) is up more than +10% after reporting Q1 subscription revenue of $1.53 billion, above the consensus of $1.52 billion and raising the lower-end of its 2024 subscription revenue estimate to $6.55 billion-$6.58 billion from a previous estimate of $6.53 billion-$6.58 billion, with the midpoint above the consensus of $6.56 billion.

Ford Motor (F) is up more than +7% after announcing that it entered into a pact with Tesla to allow Ford electric vehicle customers to access more than 12,000 Tesla Superchargers across the U.S. and Canada starting in spring 2024.

Paramount Global (PARA) is up more than +6% after Loop Capital Markets upgraded the stock to hold from sell. 

Broadcom (AVGO) is up more than +5% after Oppenheimer raised its price target on the stock to $800 from $720. 

PDD Holdings (PDD) is up more than +18% after reporting Q1 revenue of 37.64 billion yuan, well above the consensus of 32.32 billion yuan. 

RingCentral (RNG) is up more than +3% after Needham upgraded the stock to buy from hold with a price target of $42. 

Ulta Beauty (ULTA) is down more than -11% to lead losers in the S&P 500 after forecasting 2024 comparable sales up +4% to +5%, weaker than the consensus of +5.18%. 

Utility stocks are under pressure today after the stronger-than-expected U.S. Apr core PCE deflator bolsters the outlook for the Fed to keep raising interest rates.  Eversource Energy (ES) is down more than -2%.  Also, Alliant Energy (LNT), American Electric Power (AEP), Duke Energy (DUK), Dominion Energy (D), Edison International (EIX), Entergy (ETR), Evergy (EVRG), Public Service Enterprise Group (PEG), and Exelon (EXC) are down -0.5% or more.

Homebuilders are falling today after the 10-year T-note yield rose to a 2-1/2 month high, pushing mortgage rates higher.  Lennar (LEN), PulteGroup (PHM), DR Horton (DHI), and Toll Brothers (TOL) are down -0.5% or more.

Big Lots (BIG) is down more than -12% after reporting a Q1 adjusted loss per share of -$3.40, much wider than the consensus of -$1.74 per share. 

Advance Auto Parts (AAP) is down more than -1% after Wedbush cut its price target on the stock to $115 from $145.

Across the markets…

June 10-year T-notes (ZNM23) today are down -9 ticks, and the 10-year T-note yield is up +2.2 bp at 3.839%.  Jun T-notes this morning fell to a 2-1/2 month low, and the 10-year T-note yield rose to a 2-1/2 month high of 3.839%.  T-notes are under pressure today from stronger-than-expected U.S. news on consumer spending and inflation, which was hawkish for Fed policy.  Also, strength in stocks today on signs that U.S. lawmakers are making progress on a deal to raise the debt ceiling has reduced safe-haven demand for T-notes. 

The dollar index (DXY00) today is down by -0.11%.  A rally in stocks today has reduced the liquidity demand for the dollar.  Losses in the dollar are limited as today’s stronger-than-expected U.S. news on consumer spending and inflation boosted the 10-year T-note yield t a 2-1/2 month high. Also, weakness in the yen is positive for the dollar after the yen tumbled to a 6-month low against the dollar today. 

EUR/USD (^EURUSD) today is up by +0.07%.  Moderate weakness in the dollar today is supportive of the euro. Also, hawkish comments from ECB Governing Council member Vujcic gave EUR/USD a boost when he said, "Inflation momentum in the Eurozone is still persistent, especially the core and food components."  However, gains in the euro were contained after a gauge of economic sentiment in Italy fell to a 5-month low. 

ECB Governing Council member Vujcic said, "Inflation momentum in the Eurozone is still persistent, especially the core and food components."

The Italy May economic sentiment index fell -1.7 to a 5-month low of 108.7.

USD/JPY (^USDJPY) today is up by +0.19%.  The yen today is falling for a third straight session and dropped to a 6-month low against the dollar.  Rising T-note yields today are undercutting the yen.  Also, signs of progress on raising the U.S. debt ceiling have boosted stocks and curbed the safe-haven demand for the yen.

Japanese price reports today were hawkish for BOJ policy and bullish for the yen.  Japan Apr PPI services prices eased to +1.6% y/y from +1.7% y/y in Mar, but were stronger than expectations of +1.4% y/y.  Also, Japan's Tokyo May CPI ex-fresh food and energy rose +3.9% y/y, the largest increase in 41 years.

June gold (GCM3) this morning is up +5.8 (+0.30%), and July silver (SIN23) is up +0.420 (+1.83%).  Precious metals prices this morning are moderately higher.  A weaker dollar today is boosting metals prices.  Also, signs of persistent inflation in the U.S. have boosted demand for precious metals as a hedge against inflation after the U.S. Apr core PCE deflator rose more than expected.  However, gains in metals were limited as signs that U.S lawmakers were close to a deal to raise the debt ceiling boosted stocks and reduced the safe-haven demand for precious metals prices.  Also, higher global bond yields today are undercutting metals. 

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