Stocks Rally as U.S. Default Concerns Recede and Wage Pressures Ease

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.99%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +1.35%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.47%.

U.S. stocks this morning are moderately higher, with the S&P 500 posting a 9-1/2 month high and the Dow Jones Industrials posting a 2-week high.  Stocks opened higher after the Senate late Thursday night passed legislation to suspend the debt ceiling.  Stocks maintained their gains despite a larger-than-expected increase in U.S. May nonfarm payrolls as wage pressures unexpectedly eased.  Market expectations for a +25 bp rate hike at the June 13-14 FOMC meeting rose to 35% from 24% Thursday.

The Senate late Thursday passed the legislation to suspend the U.S. debt ceiling in a 63-36 vote.  The bill now goes to President Biden to sign and become law.

U.S. May nonfarm payrolls rose +339,000, stronger than expectations of +195,000 and the largest increase in 4 months.  Also, Apr was revised higher to +294,000 from the initially reported +253,000.  The May unemployment rate rose +0.3 to 3.7%, above expectations of 3.5%.

U.S. May average hourly earnings eased to +4.3% y/y from +4.4% in Apr, more dovish than expectations of no change at 4.4%.

Global bond yields are higher.  The 10-year T-note yield is up +6.3 bp at 3.658%.  The 10-year German bund yield is up +5.8 bp at 2.307%, and the UK 10-year gilt yield is up +3.8 bp at 4.154%.

On the bullish side for stocks, DISH Network is up more than +19% after Amazon said it is in talks to offer mobile phone service to its U.S. prime members, which would boost sales at Dish as it is already partnered with Amazon to run core elements of the 5G network now under development.  Also, DuPont de Nemours is up more than +7% after announcing that it reached an agreement in principle to comprehensively resolve all claims related to per-and poly-fluoroalkyl substances in drinking water.

On the bearish side, telecom companies are falling today after Amazon.com said it is in talks to offer mobile services to its U.S. Prime members.  Also, SentinelOne is down more than -37% after reporting weaker-than-expected Q1 revenue and cutting its 2024 revenue forecast. 

Overseas stock markets are higher.  The Euro Stoxx 50 is up +1.44%.  China’s Shanghai Composite closed up +0.79%, and Japan’s Nikkei Stock Index closed up +1.21%. 

Today’s stock movers…

DISH Network (DISH) is up more than +18% to lead gainers in the S&P 500 after Amazon said it is in talks to offer mobile phone service to its U.S. prime members, which would boost sales at Dish as it is already partnered with Amazon to run core elements of the 5G network now under development. 

Caterpillar (CAT) is up more than +4% to lead gainers in the Dow Jones Industrials after Tigress Financial raised its price target on the stock to $282 from $266.

Lululemon Athletica (LULU) surged more than +14% in pre-market trading after reporting Q1 net revenue of $2.00 billion, stronger than the consensus of $1.93 billion, and raising its 2024 net revenue forecast to $9.44 billion-$9.51 billion from a previous forecast of $9.30 billion-$9.41 billion, above the consensus of $9.36 billion. 

DuPont de Nemours (DD) is up more than +7% after announcing that it reached an agreement in principle to comprehensively resolve all claims related to per-and poly-fluoroalkyl substances in drinking water.

Zscaler (ZS) is up more than +8% after reporting Q3 revenue of $418.8 million, better than the consensus of $417.1 million, and forecast full-year revenue of $1.59 billion, above the consensus of $1.58 billion.

U.S.-listed Chinese stocks moved higher in pre-market trading after Bloomberg News reported that regulators are considering a new basket of measures to boost the property market.  Trip.com (TCOM) is up more than +5%, and JD.com (JD) is up more than +3%.  Also, Baidu (BIDU) and Baba Group Holding (BABA) are up more than +2%, and PDD Holdings (PDD) is up more than +1%. 

MongoDB (MDB) is up more than +32% after reporting Q1 adjusted EPS of 56 cents, well above the consensus of 18 cents, and boosted guidance on 2024 adjusted EPS to $1.42-$1.56 from a prior view of 96 cents to $1.10, stronger than the consensus of $1.03.

Trade Desk (TTD) is up more than +4% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $90.

Telecom companies are falling today after Amazon.com said it is in talks to offer mobile services to its U.S. Prime members.  T-Mobile U.S. (TMUS) is down more than -9% to lead losers in the S&P 500 and Nasdaq 100.  Also, AT&T (T) is down more than -5% and Verizon Communications (VZ) is down more than -4% to lead losers in the Dow Jones Industrials. 

SentinelOne (S) is down more than -37% after reporting Q1 revenue of $133.4 million, weaker than expectations of $134.7 million, and cutting its 2024 revenue forecast to $590 million-$600 million from a previous forecast of $631 million-$640 million, well below the consensus of $636.4 million. 

Xcel Energy (XEL) is down more than -1% after JPMorgan Chase downgraded the stock to neutral from overweight.

Across the markets…

September 10-year T-notes (ZNU23) today are down -18 ticks, and the 10-year T-note yield is up +6.3 bp at 3.658%.  Sep T-notes this morning are under pressure from reduced safe-haven demand as the S&P 500 rallied to a 9-1/2 month high after Congress passed legislation to raise the debt ceiling.  T-notes extended their losses after U.S. May nonfarm payrolls rose more than expected.  However, losses were contained by slower wage pressures after U.S. May average hourly earnings rose less than expected.   

The dollar index (DXY00) this morning is up +0.29% and recovered from a 1-week low.  The dollar recovered its overnight losses and moved higher after U.S May nonfarm payrolls rose more than expected, a hawkish factor for Fed policy.  The dollar initially fell to a 1-week low in overnight trade after the Senate Thursday night passed the bill lifting the debt limit, which sparked a rally in stocks that curbed the liquidity demand for the dollar.

EUR/USD (^EURUSD) today is down by -0.29%.   The euro fell back from a 1-week high and retreated after the dollar rebounded from overnight losses and moved higher.  EUR/USD today initially climbed to a 1-week high on hawkish comments from ECB Governing Council members Vasle and Makhlouf, who said more ECB rate hikes are needed to tame inflation. 

French Apr manufacturing production rose +0.7% m/m, stronger than expectations of +0.1% m/m.

ECB Governing Council member Vasle said "further ECB interest rate hikes are needed" to tame inflation and reach our 2% goal as "core inflation remains high and persistent."

ECB Governing Council member Makhlouf said the ECB will likely raise interest rates in June and July as "we need to see and be confident that we're seeing inflation actually on a trajectory that it's going to achieve our 2% target."

USD/JPY (^USDJPY) today is up by +0.48%.  The yen is under pressure today on dovish comments from BOJ Governor Ueda as he signaled the BOJ would maintain stimulus measures when he said “it will take some time” to reach the BOJ’s 2% price goal.  The yen is also weighed down today by higher T-note yields. In addition, a rally in global equity markets today has reduced the safe-haven demand for the yen.

August gold (GCQ3) this morning is down -13.0 (-0.64%), and July silver (SIN23) is down -0.117 (-0.49%).  Precious metals prices this morning are moderately higher.  The action by Congress to pass legislation to raise the debt ceiling has sparked a rally in stocks that are reducing safe-haven demand for precious metals. Also, a stronger dollar and higher global bond yields today weigh on metals prices.  The downside in silver is limited on carryover support from a rally in copper prices to a 3-week high today on signs that China may boost stimulus measures to revive its property market, which is supportive of industrial metals demand. 

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