Stocks Climb on Strength in Chips Stocks and Fed Rate Cut Optimism

The S&P 500 Index ($SPX) (SPY) this morning is up +0.61%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.25%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.60%. 

US stock indexes this morning are moderately higher, with the S&P 500 and Nasdaq 100 posting 3-week highs and the Dow Jones Industrials posting a 3-1/2 week high.  Stocks have support today from strength in chip stocks and carryover support from last Friday’s Fed-friendly US payroll report that bolstered expectations for the Fed to cut interest rates this year. 

M&A activity is bullish for stocks after the Financial Times today reported that Global Infrastructure Partners and CPP Investments are nearing a deal to buy Allete Inc. for about $5 billion or $67 per share in cash.  Also, EQT Corp agreed to acquire Perficient for about $3 billion or $76 per share in cash.  Paramount Global is up more than +4% after Sony Group Corp and Apollo Global Management made a $26 billion nonbinding offer to buy the company. 

Some positive corporate news today is underpinning stocks.   Micron Technology is up more than +4% after Baird upgraded the stock to outperform from neutral.  Also, Ingersoll Rand is up more than +2% after Fitch Ratings upgraded the company’s long-term issuer default rating to BBB from BBB- and raised the outlook to positive from watch positive.

On the negative side, Tyson Foods is down more than -7% after reporting weaker-than-expected Q2 sales. Also, defensive drug makers and pharmaceutical stocks are under pressure today with a rally in the broader market. 

The markets are discounting the chances for a -25 bp rate cut at 10% for the June 11-12 FOMC meeting and 40% for the following meeting on July 30-31.

Overseas stock markets today are higher.  The Euro Stoxx 50 is up +0.46%.  China's Shanghai Composite climbed to a 7-3/4 month high and closed up +1.16%.  Japan's Nikkei Stock Index was closed for the Children’s Day holiday. 

Interest Rates

June 10-year T-notes (ZNM24) this morning are down -2 ticks.  The 10-year T-note yield is up +0.2 bp at 4.509%.  June T-notes today are slightly lower.  Supply pressures are weighing on T-notes as the Treasury auctions $125 billion of T-notes and T-bonds this week for the quarterly May refunding.  Losses in T-notes are limited by carryover support from last Friday’s weaker-than-expected April payroll and April ISM services reports, which bolstered the outlook for the Fed to begin cutting interest rates.  Also, a rally in 10-year German bunds today to a 2-week high has provided carryover support to T-notes. 

German government bond yields today are moving lower.  The 10-year German bund yield fell to a 2-week low of 2.439% and is down -2.2 bp at 2.473%.  10-year UK gilts are not trading today, with markets in the UK closed for the May Day holiday.

ECB Chief Economist Lane said recent Eurozone data have made him more certain that inflation is returning to the ECB's 2% goal, raising the likelihood of a first interest rate cut in June.

ECB Governing Council member Simkus said he expects the ECB to cut interest rates three times this year, starting with a planned move in June.

The Eurozone May Sentix investor confidence index rose +2.3 to a 2-1/4 year high of -3.6, stronger than expectations of -5.0. 

Eurozone Mar PPI fell -7.8% y/y, weaker than expectations of -7.7% y/y.

The Eurozone Apr S&P composite PMI was revised upward by +0.3 to 51.7 from the previously reported 51.4, the fastest pace of expansion in 11 months.

US Stock Movers

Micron Technology (MU) is up more than +4% to lead gainers in the S&P 500 in the Nasdaq 100 after Baird upgraded the stock to outperform from neutral with a price target of $150. 

The strength of chip sticks is supportive of the overall market. Nvidia (NVDA) and Advanced Micro Devices (AMD) are up more than +3%.  Also, GlobalFoundries (GFS) and KLA Corp (KLAC) are up more than +2%.  In addition, Lam Research (LRCX), Microchip Technology (MCHP), ASML Holding NV (ASML), and Marvell Technology (MRVL) are up more than +1%. 

Paramount Global (PARA) is up more than +3% after Sony Group Corp and Apollo Global Management made a $26 billion nonbinding offer to buy the company. 

Ingersoll Rand (IR) is up more than +2% after Fitch Ratings upgraded the company’s long-term issuer default rating to BBB from BBB- and raised the outlook to positive from watch positive.

Freshpet (FRPT) is up more than +8% after reporting Q1 net sales of $223.8 million, above the consensus of $216.4 million. 

Perficient (PRFT) is up more than +52% after EQT Corp agreed to acquire the company for about $3 billion or $76 per share in cash.

Glaukos (GKOS) is up more than +1% after Jeffries upgraded the stock to buy from hold with a price target of $125.   

Tyson Foods (TSN) is down more than -7% to lead losers in the S&P 500 after reporting Q2 sales of $13.07 billion, weaker than the consensus of $13.15 billion. 

Defensive drug makers and pharmaceutical stocks are under pressure today with a rally in the broader market. As a result, Amgen (AMGN) is down more than -4% to lead losers in the Dow Jones Industrials and Nasdaq 100.  Also, Moderna (MRNA) is down more than -3%.  In addition, AbbVie (ABBV) and Baxter International (BAX) are down more than -1%. 

Fastenal (FAST) is down more than -2% after Bloomberg Intelligence said the company’s Q2 earnings estimates may be under pressure after Fastenal reported its daily sales growth in April fell to 0.7%, the slowest pace in 3 years. 

Meritage Homes (MTH) is down more than -1% after announcing it will offer $500 million of convertible senior notes due 2028. 

EyePoint Pharmaceuticals (EYPT) is down more than -37% after reporting a mid-stage study of its investigative therapy for a diabetes complication that affects the eyes, which did not meet its main goal. 

Earnings Reports (5/6/2024)

Axon Enterprise Inc (AXON), Fidelity National Information (FIS), FMC Corp (FMC), International Flavors & Fragrances (IFF), Loews Corp (L), Microchip Technology Inc (MCHP), Realty Income Corp (O), Simon Property Group Inc (SPG), Tyson Foods Inc (TSN), Vertex Pharmaceuticals Inc (VRTX), Williams Cos Inc/The (WMB).

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