Stocks Pressured by Middle East Tensions

The S&P 500 Index ($SPX) (SPY) this morning is down -0.09%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.29%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.60%. 

US stock indexes this morning are mixed, with the S&P 500 falling to a 1-3/4 month low and the Nasdaq 100 dropping to a 2-1/2 month low.  Negative corporate news and escalating geopolitical risks are undercutting stocks. Netflix is down more than -5% after forecasting Q2 revenue below consensus. Also, Jabil is down more than -3% after CEO Wilson was placed on paid leave pending completion of an investigation related to corporate policies.  Procter & Gamble is down more than -1% after reporting weaker-than-expected Q3 net sales. 

An escalation of tensions in the Middle East is bearish for stocks after US officials said Israel launched retaliatory strikes on Iran today following last week’s missile and drone attack from Iran.  However, Israel’s attacks were limited to military sites in Syria and Iran, and an Iranian military official downplayed the severity of the incidents.  Crude prices gave up a $3 a barrel rally in overnight trade and turned lower, and stock index futures recovered nearly all of an initial spike lower. 

On the positive side, Paramount Global is up more than +9% after Bloomberg Intelligence said Apollo Global Management and Sony Group are considering a joint offer for the company. Also, American Express is up more than +3% after reporting Q1 adjusted EPS above consensus.  In addition, Fifth Third Bank is up more than +3% after reporting better-than-expected Q1 net interest income.

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 19% for the following meeting on June 11-12.

Overseas stock markets today are lower.  The Euro Stoxx 50 fell to a 7-week low and is down -0.29%. China's Shanghai Composite closed down -0.29%.  Japan's Nikkei Stock Index fell to a 2-1/4 month low and closed down -2.66%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are up +6 ticks.  The 10-year T-note yield is down -3.5 bp at 4.598%.  June T-notes are moderately higher today on increased safe-haven demand from geopolitical risks after Israel launched retaliatory air strikes on Iran.  A drop in inflation expectations is also supportive of T-note prices after the 10-year breakeven inflation rate fell to a 1-month low today at 2.289%. 

However, T-notes fell back from their best levels after the stock index futures recovered most of their sharp overnight losses in hopes that the conflict between Israel and Iran would be contained.  T-notes also have a negative carryover from today’s jump in the 10-year German bund yield to a 4-1/2 month high. 

European government bond yields today are mixed.  The 10-year German bund yield rose to a 4-1/2 month high of 2.518% and is up +0.7 bp at 2.503%.  The 10-year UK gilt yield is down -1.1 bp to 4.261%.

German Mar PPI rose +0.2% m/m and fell -2.9% y/y, stronger than expectations of +0.1% m/m and -3.3% y/y.

ECB President Lagarde said the disinflation process in the Eurozone has continued, and growth prospects remain subpar by historical standards.

ECB Governing Council member Simkus said the Eurozone can afford a "less restrictive monetary policy stance, and I think three rate cuts by the ECB this year is consistent with the baseline.  Whether we'll have four will depend on the data."

US Stock Movers

Netflix (NFLX) is down more than -7% to lead losers in the S&P 500 and Nasdaq 100 after forecasting Q2 revenue of $9.49 billion, below the consensus of $9.51 billion.   

Jabil (JBL) is down more than -3% after CEO Wilson was placed on paid leave pending the completion of an investigation related to corporate policies.

Ulta Beauty (ULTA) is down more than -2% after Jeffries downgraded the stock to hold from buy.

Pure Storage (PSTG) is down more than -2% after Raymond James downgraded the stock to outperform from strong buy. 

Procter & Gamble (PG) is down more than -1% to lead losers in the Dow Jones Industrials after reporting Q3 net sales of $20.20 billion, weaker than the consensus of $20.43 billion.

Regions Financial (RF) is down more than -1% after forecasting Q2 net interest income to be flat to down -2% versus Q1. 

Paramount Global (PARA) is up more than +9% to lead gainers in the S&P 500 after Bloomberg Intelligence said Apollo Global Management and Sony Group are considering a joint offer for the company. 

Fifth Third Bank (FITB) is up more than +3% after reporting Q1 net interest income of $1.39 billion, better than the consensus of $1.38 billion.

American Express (AXP) is up more than +3% to lead gainers in the Dow Jones Industrials after reporting Q1 adjusted EPS of $3.33, stronger than the consensus of $2.96.

Bank of America (BAC) is up more than +2% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $42.

KeyCorp (KEY) is up more than +2% after reporting Q1 revenue of $1.53 billion, better than the consensus of $1.52 billion.

Shopify (SHOP) is up more than +1% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $85.

Earnings Reports (4/19/2024)

American Express Co (AXP), Fifth Third Bancorp (FITB), Huntington Bancshares Inc/OH (HBAN), Procter & Gamble Co/The (PG), Regions Financial Corp (RF), Schlumberger NV (SLB).

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