Stocks Settle Mixed on Weak U.S. Economic Reports

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed down -0.205%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.59%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.07%.

Stock indexes Monday settled mixed, with the Nasdaq 100 posting a 13-3/4 month high.  Monday’s weaker-than-expected U.S. economic reports on May ISM services and Apr factory orders raised economic concerns and pressured the broader market.  On the positive side, the weaker reports knocked T-note yields lower.

Energy stocks Monday initially led the overall market higher after Saudi Arabia said it would make an extra 1 million bpd cut in its crude production.  However, crude prices slipped from their best levels on energy demand concerns, and gains in energy stocks faded.   

U.S. Apr factory orders rose +0.4% m/m, weaker than expectations of +0.8% m/m.

U.S. May ISM services index unexpectedly fell -1.6 to a 5-month low of 50.3, weaker than expectations of an increase to 52.4. Also, the May ISM services prices paid sub-index fell -3.4 to 56.2, the slowest pace of increase in 3 years.

Morgan Stanley said, "We think that the downside risk to U.S. earnings is now," with earnings per share for the S&P 500 set to drop -16% this year.  "While a deteriorating liquidity backdrop is likely to put downward pressure on equity valuations over the next three months, we also see EPS disappointment ahead as revenue growth slows and margins contract further."

Global bond yields on Monday were mixed.  The 10-year T-note yield fell -0.6 bp to 3.685%.  The 10-year German bund yield rose +6.8 bp to 2.381%, and the UK 10-year gilt yield rose +5.2 bp to 4.208%.

On the bearish side of stocks, weakness in chip stocks weighed on the technology sector.  Also, Epam Systems closed down more than -21% after cutting its Q2 adjusted EPS estimate. In addition, trucking stocks fell back Monday on U.S. economic concerns due to the weaker-than-expected U.S. reports on May ISM services and Apr factory orders.    

On the bullish side, Palo Alto Networks closed up more than +4% after S&P Dow Jones Indices said the company would replace Dish Network in the S&P 500 before the opening of trade on June 20.  Also, cybersecurity stocks moved higher Monday.  In addition, ImmunGen closed up more than +6% after the company reported results of its Elahere drug in a late-stage trial for the treatment of ovarian cancer showed the drug is superior to chemotherapy.

Overseas stock markets Monday settled mixed.  The Euro Stoxx 50 closed down -0.70%.  China’s Shanghai Composite closed up +0.07%, and Japan’s Nikkei Stock Index closed up +2.20%. 

Today’s stock movers…

Chip stocks led losses in technology stocks Monday.  Intel (INTC) closed down more than -4% to lead losers in the Dow Jones Industrials and Nasdaq 100.  Also, Globalfoundries (GFS) and Marvell Technology (MRVL) closed down more than -3%.  In addition, Qualcomm (QCOM), Microchip Technology (MCHP), Micron Technology (MU), NXP Semiconductors NV (NXPI), and Texas Instruments (TXN) closed down more than -2%.  Finally, Broadcom (AVGO) and Lam Research (LRCX) closed down more than -1%. 

Epam Systems (EPAM) closed down more than -21% to lead losers in the S&P 500 after cutting its estimate for Q2 adjusted EPS to $2.33-$2.40 from a prior estimate of $2.38-$2.46. 

Trucking stocks fell back Monday on U.S. economic concerns due to the weaker-than-expected U.S. reports on May ISM services and Apr factory orders.   CH Robinson Worldwide (CHRW) closed down more than -6%.  Also, Knight-Swift Transportation Holdings (KNX), Marten Transport Ltd (MRTN), and Heartland Express (HTLD) closed down more than -2%.   

Dollar General (DG) closed down more than -4% after Morgan Stanley downgraded the stock to equal weight from overweight. 

Airbnb (ABNB) closed down more than -2% on signs of insider selling after an SEC filing showed director Gebbia sold $37 million of stock on May 31. 

Bath & Body Works (BBWI) closed up more than +5% to lead gainers in the S&P 500, adding to last Friday’s +4% advance after Goldman Sachs added the stock to its “Conviction” buy list. 

Palo Alto Networks (PANW) closed up more than +4% after S&P Dow Jones Indices said the company would replace Dish Network in the S&P 500 before the opening of trade on June 20. 

Cybersecurity stocks moved higher Monday.  Fortinet (FTNT) closed up more than +4% to lead gainers in the Nasdaq 100.  Also, Zscaler (ZS) closed up more than +3%, and Crowdstrike Holdings (CRWD) closed up more than +1%.   

ImmunGen (IMGN) closed up more than +6% after the company reported results of its Elahere drug in a late-stage trial for the treatment of ovarian cancer showed the drug is superior to chemotherapy.

Tesla (TSLA) closed up more than +1% after it reported its total China May deliveries of vehicles rose +2.5% m/m to 77,695 units.

Across the markets…

September 10-year T-notes (ZNU23) on Monday closed up +1.5 ticks, and the 10-year T-note yield fell by -0.6 bp to 3.685%.  Sep T-notes Monday recovered from overnight losses and closed slightly higher after weaker-than-expected U.S. economic reports on May ISM services and Apr factory orders sparked short covering in T-notes. A jump in crude prices to a 1-month high Monday boosted inflation expectations and was bearish for T-notes. Also, higher European government bond yields Monday undercut T-note prices. 

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