Stocks Moderately Lower After a Stellar Week of Gains

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.23%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.5%.

U.S. stocks are lower, after the S&P 500 reached a 13-3/4 month high, the Dow Jones Industrials reached a 6-month high, and the Nasdaq 100 reached a 16-3/4 month high earlier this morning.

Since the open on Monday, the S&P 500 has experienced an impressive rally, gaining almost 3%.  

Asian markets rallied after the BOJ maintained its ultra-loose monetary policy and China considers additional stimulus measures.  

This morning the University of Michigan’s U.S. June 1-year inflation expectations declined to a 2-year low.

Positive comments today from Fed Governor Waller supported stocks when he said the U.S. economy “is still ripping along for the most part,” and everything seems to be calm in the banking system now.

Gains in the Nasdaq 100 are limited as higher bond yields pressure technology stocks.  Bond yields are climbing on hawkish comments today from Richmond Fed President Barkin, who said inflation is "too high and stubbornly persistent," and he's comfortable tightening monetary policy further to reduce inflation and slow a resilient U.S. economy and labor market.

Market volatility may increase today as June stock futures and options contracts expire in the quarterly event known as Triple Witching.

The University of Michigan U.S. June consumer sentiment index rose +4.7 to a 4-month high of 63.9, stronger than expectations of 60.0. The University of Michigan's June 1-year inflation expectations fell to 3.3% from 4.2% in May, better than expectations of 4.1% and the lowest in 2 years.  Also, 5-10 year inflation expectations fell to 3.0% from 3.1% in May, right on expectations.

Market odds for the Fed to raise the fed funds target range by +25 bp at the July 25-26 FOMC meeting stand at 72%. 

Global bond yields are mixed.  The 10-year T-note yield is up +4.1 bp at 3.758%.  The 10-year German bund yield fell back from a 3-week high of 2.550% and is down -3.7 bp at 2.467%, and the UK 10-year gilt yield is up +2.0 bp at 4.404%.

On the bullish side for stocks, Adobe is up more than +2% after reporting Q2 revenue above consensus and raising its full-year revenue forecast.  Also, Nvidia is up more than +2% after Morgan Stanley made the stock its top pick in the U.S. semiconductor sector.  iRobot Corp is up more than +20% after the UK Competition and Markets Authority cleared Amazon’s $1.7 billion acquisition of the company.   

On the bearish side, Steel Dynamics is down more than -3% after forecasting Q2 adjusted EPS below consensus.  Also, regional bank stocks are moving lower today after Zions Bancorp was downgraded Thursday to neutral by Janney Montgomery Scott, citing rising funding costs.  In addition, Humana is down more than -2% after it said it sees higher-than-anticipated medical costs persisting through 2023.

Overseas stock markets are higher.  The Euro Stoxx 50 is up +0.86%.  China’s Shanghai Composite closed up +0.63%, and Japan’s Nikkei Stock Index closed up +0.66%. 

Today’s stock movers…

Domino’s Pizza (DPZ) is up more than +3% to lead gainers in the S&P 500, adding to Thursday’s +6% gain after Stifel upgraded the stock to buy from hold with a price target of $350. 

Rivian Automotive (RIVN) is up more than +3% to lead gainers in the Nasdaq 100 after the CFO said the company is on track to double its vehicle production this quarter. 

Tesla (TSLA) is up more than +2% after it started offering three months of free fast-charging to U.S. buyers of the Model 3 sedan and offered cash subsidies to Chinese buyers of the sedan if they buy auto insurance from designated vendors and delivery is made before June 30. 

Adobe (ADBE) is up more than +2% after reporting Q2 revenue of $4.82 billion, above the consensus of $4.77 billion, and raised its full-year revenue forecast to $19.25 billion-$19.35 billion from a previous forecast of $19.1 billion-$19.3 billion.

Nvidia (NVDA) is up more than +2% after Morgan Stanley made the stock its top pick in the U.S. semiconductor sector. 

iRobot Corp (IRBT) is up more than +20% after the UK Competition and Markets Authority cleared Amazon’s $1.7 billion acquisition of the company.   

Coherent (COHR) is up more than +8%, extending gains for a fifth session after it unveiled new laser processing heads aimed at electric vehicle manufacturing.

Steel Dynamics (STLD) is down more than -3% to lead losers in the S&P 500 after forecasting Q2 adjusted EPS of $4.78-$4.82, weaker than the consensus of $4.98.

Regional bank stocks are moving lower today after Zions Bancorp was downgraded Thursday to neutral by Janney Montgomery Scott, citing rising funding costs.  As a result, Zions Bancorp (ZION) is down more than -2%.  Also, Truist Financial (TFC), KeyCorp (KEY), Comerica (CMA), Synchrony Financial (SYF), M&T Bank (MTB), Northern Trust (NTRS), and Regions Financial (RF) are down more than-1%.

Humana (HUM) is down more than -2% after it said it sees higher-than-anticipated medical costs persisting through 2023.

Micron Technology (MU) is down more than -1% after it said that about half of its China customer revenue is at risk of being impacted due to curbs placed on its products by the China Cybersecurity Administration.

Walt Disney (DIS) is down more than -1% to lead losers in the Dow Jones Industrials after the company said CFO McCarthy is stepping down on medical leave.

Millicom International Cellular SA (TIGO) is down more than -4% after it said it terminated discussions with Apollo Global Management and Claure Group regarding a potential acquisition. 

Across the markets…

September 10-year T-notes (ZNU23) today are down -12 ticks, and the 10-year T-note yield is up +4.1 bp at 3.758%.  T-note prices this morning are moderately lower on strength in stocks and hawkish Fed comments.   Fed Governor Waller said the U.S. economy “is still ripping along for the most part,” and Richmond Fed President Barkin said inflation is "too high and stubbornly persistent."

The dollar index (DXY00) this morning is up +0.05%.  The dollar index today recovered from a 5-week low and is slightly higher.  Hawkish Fed comments today pushed bond yields higher and sparked short covering in the dollar.  Also, the stronger-than-expected University of Michigan U.S. Jun consumer sentiment index supported the dollar.

EUR/USD (^EURUSD) today is up by +0.03% and climbed to a 5-week high.  Hawkish ECB comments today gave the euro a boost after ECB Governing Council members Muller and Nagel both said the ECB needs to keep raising interest rates.  EUR/USD fell back from its best levels after the dollar recovered from early losses and moved higher.

Eurozone Q1 labor costs eased to +5.0% y/y from +5.6% y/y in Q4.

ECB Governing Council member and Bundesbank President Nagel said, "We may need to keep raising rates after the summer break" to contain inflation.

ECB Governing Council member Muller said, "Interest rate hikes by the ECB are probably not over yet on the expectation that price increases in the Eurozone will remain clearly faster than the ECB's target of 2% for more than a year." 

USD/JPY (^USDJPY) today is up by +0.69%.  The yen today is moderately lower and just above Thursday’s 7-1/2 month low against the dollar.  The yen retreated after the BOJ maintained its ultra-loose monetary policy and kept its target for 10-year JGB yields unchanged.  Also, BOJ Governor Ueda said Japan hasn't yet achieved sustainable and stable 2% inflation, signaling the BOJ will keep it stimulus measures in place, a bearish factor for the yen.

The BOJ, as expected, voted 9-0 to maintain the policy balance rate at -0.1% and keep the 10-year JGB yield target at about 0%.

BOJ Governor Ueda said Japan hasn't yet achieved sustainable and stable 2% inflation and that an inflation forecast of 2% may not necessarily lead to a shift in BOJ policy.

August gold (GCQ3) this morning is up +3.7 (+0.19%), and July silver (SIN23) is up +0.248 (+1.04%).  Precious metals prices this morning are moderately higher.  Precious metals garnered support today after the BOJ maintained its stimulus measures and record-low interest rates.  Silver also rose on the expectations of additional stimulus measures from China, which could boost economic growth and industrial metals demand. A stronger dollar today and higher T-note yields are limiting the upside in metals prices.

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