Stocks End Sharply Higher as Default Risks Subside and Wage Pressures Ease

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed up +1.45%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +2.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.73%.

Stock indexes Friday moved higher the entire day, with the S&P 500 posting a 9-1/2 month high, the Dow Jones Industrials posting a 4-week high, and the Nasdaq 100 posting a 13-1/2 month high.  Stocks opened higher Friday 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 slightly to 28% Friday from 24% Thursday.

The Senate late Thursday passed the legislation to suspend the U.S. debt ceiling in a 63-36 vote.  President Biden said he would sign the bill into law on Saturday.

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 Friday moved higher.  The 10-year T-note yield rose +9.6 bp at 3.691%.  The 10-year German bund yield rose +6.3 bp to 2.312%, and the UK 10-year gilt yield rose +4.0 bp to 4.156%.

On the bullish side for stocks, DISH Network closed up more than +16% 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, Lululemon Athletica closed up more than +11% after reporting Q1 net revenue above consensus and raising its 2024 net revenue forecast.  In addition, 3M Co closed up more than +8% after the company struck a tentative settlement of at least $10 billion with numerous U.S. cities and towns to resolve water pollution claims tied to “forever chemicals” the company made for decades.

On the bearish side, telecom companies retreated after Amazon.com said it is in talks to offer mobile services to its U.S. Prime members.  Also, a jump in T-note yields on Friday weighed on chip stocks.  In addition, SentinelOne closed down more than -35% after reporting weaker-than-expected Q1 revenue and cutting its 2024 revenue forecast.  

Overseas stock markets Friday settled higher.  The Euro Stoxx 50 closed up +1.55%.  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) closed up more than +16% 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. 

3M Co (MMM) closed up more than +8% after the company struck a tentative settlement of at least $10 billion with numerous U.S. cities and towns to resolve water pollution claims tied to “forever chemicals” the company made for decades. 

Lululemon Athletica (LULU) closed up more than +11% to lead gainers in the Nasdaq 100 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. 

Caterpillar (CAT) closed up more than +8% to lead gainers in the Dow Jones Industrials as machinery stocks rallied on reduced recession concerns after U.S. May nonfarm payrolls rose more than expected.  Also, United Rentals (URI) closed up more than +6%, and Stanley Black & Decker (SWK) and Cummins (CMI) closed up more than +5%.    

MongoDB (MDB) closed up more than +27% 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.

DuPont de Nemours (DD) closed 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) closed up more than +5% 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.

Telecom companies retreated Friday after Amazon.com said it is in talks to offer mobile services to its U.S. Prime members.  As a result, T-Mobile U.S. (TMUS) closed down more than -5% to lead losers in the S&P 500 and Nasdaq 100.  Also, AT&T (T) closed down more than -3%, and Verizon Communications (VZ) closed down more than -3% to lead losers in the Dow Jones Industrials. 

A jump in T-note yields on Friday weighed on chip stocks.  As a result, Nvidia (NVDA), Advanced Micro Devices (AMD), Lam Research (LRCX), ON Semiconductor (ON), and Marvell Technology (MRVL) closed down more than -1%.

SentinelOne (S) closed down more than -35% 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. 

Cooper Cos (COO) closed down more than -3% after analysts said the company’s Q2 earnings beat and raised guidance fell short of heightened expectations.

Across the markets…

September 10-year T-notes (ZNU23) on Friday closed down -28.5 ticks, and the 10-year T-note yield rose by +9.6 bp to 3.691%.  Sep T-notes Friday opened lower on reduced safe-haven demand after the Senate Thursday night passed legislation to raise the debt ceiling.  T-notes extended their losses Friday morning after U.S. May nonfarm payrolls rose more than expected, and prices fell even further Friday afternoon when the S&P 500 rallied to a 9-1/2 month high.  An easing of wage pressure was a supportive factor for T-notes after U.S. May average hourly earnings rose less than expected.   

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