Stocks See Support on Lower Bond Yields and Strong Earnings

The S&P 500 Index ($SPX) (SPY) this morning is up +0.22%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.26%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.14%. 

US stock indexes this morning are mildly higher, with the S&P 500 and Nasdaq 100 climbing to 3-week highs and the Dow Jones Industrials posting a 4-week high.  A decline in the 10-year T-note yield today to a 3-1/2 week low is supporting stocks.  Also, expectations that the Fed will start cutting interest rates this year are positive for stocks. 

Corporate news today is mixed for stocks.  On the positive side, FMC Corp is up more than +8% after forecasting full-year revenue above consensus.  Also, GlobalFoundries is up more than +9% after reporting Q1 adjusted EPS above consensus.  In addition, International Paper is up more than +7% after Reuters reported that Suzano approached International Paper with an offer to buy the company for about $15 billion or $42 per share. 

On the negative side, Builders FirstSource is down more than -15% after forecasting full-year adjusted Ebitda below consensus.  Also, Walt Disney is down more than -9% after reporting fewer-than-expected Q2 Disney+ subscribers.  In addition, Datadog is down more than -9% after announcing that President Agarwal will step down at the end of this year.

Q1 earnings results have been mostly better than expected, a supportive factor for stocks.  Q1 earnings are now expected to climb +6.5% y/y, well above the pre-earnings season estimate of +3.8%.  According to data compiled by Bloomberg Intelligence, about 81% of reporting S&P 500 companies have beaten Q1 earnings estimates. 

Comments today from Minneapolis Fed President Kashkari were slightly hawkish when he said that given recent inflation data, he questions whether Fed policy is restrictive enough to return price growth to the Fed's 2% target.

The markets are discounting the chances for a -25 bp rate cut at 15% for the June 11-12 FOMC meeting and 37% for the following meeting on July 30-31.

Overseas stock markets today are higher.  The Euro Stoxx 50 rose to a 1-week high and is up +1.02%. China's Shanghai Composite climbed to a 7-3/4 month high and closed up +0.22%.  Japan's Nikkei Stock Index rose to a 3-week high and closed up +1.57%. 

Interest Rates

June 10-year T-notes (ZNM24) this morning are up +10 ticks.  The 10-year T-note yield is down -5.5 bp at 4.433%.  The 10-year T-note yield today fell to a 3-1/2 week low of 4.429%.  T-notes today are moderately higher and have carryover support from strength in European government bonds.  Gains are limited by supply pressures as the Treasury today will auction $58 billion of 3-year T-notes this afternoon as part of this week’s May quarterly refunding, where the Treasury will auction $125 billion of T-notes and T-bonds.

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 3-week low of 2.419% and is down -4.4 bp at 2.425%.  10-year UK gilt yield fell to a 3-week low of 4.128% and is down -8.5 bp at 4.136%.

Eurozone Mar retail sales rose +0.8% m/m, stronger than expectations of +0.7% m/m and the largest increase in 1-1/2 years.

German Mar factory orders unexpectedly fell -0.4% m/m, weaker than expectations of +0.4% m/m.

German trade news was better than expected as Mar exports rose +0.9 %m/m, stronger than expectations of +0.3% m/m.  Also, Mar imports unexpectedly rose +0.3% m/m, stronger than expectations of -1.0% m/m.

ECB Governing Council member de Cos said, "If these inflation prospects are maintained, from my point of view, it would be advisable for the ECB to begin reducing the current level of monetary restriction in June."

US Stock Movers

FMC Corp (FMC) is up more than +8% to lead gainers in the S&P 500 after forecasting full-year revenue of $4.50 billion-$4.70 billion, with the midpoint above the consensus of $4.53 billion.

Fidelity National Information Services (FIS) is up more than +5% after raising its full-year adjusted EPS forecast to $4.88-$4.98 from a previous forecast of $4.66-$4.76. 

Kenvue (KVUE) is up more than +5% after reporting Q1 net sales of $3.89 billion, above the consensus of $3.79 billion.

International Paper (IP) is up more than +3% after Reuters reported that Suzano approached International Paper with an offer to buy the company for about $15 billion or $42 per share. 

GlobalFoundries (GFS) is up more than +9% to lead gainers in the Nasdaq 100 after reporting Q1 adjusted EPS of 31 cents, higher than the consensus of 21 cents. 

International Flavors and Fragrances (IFF) is up more than +3% after reporting Q1 net sales of $2.90 billion, stronger than the consensus of $2.78 billion. 

Symbotic (SYM) is up more than +2% after reporting Q2 total revenue of $424.3 million, better than the consensus of $412.9 million, and forecasting Q3 total revenue of $450 million-$470 million, stronger than the consensus of $447.1 million. 

The Gap (GPS) is up more than +2% after Citigroup upgraded the stock to buy from neutral with a price target of $28. 

Builders FirstSource (BLDR) is down more than -15% to lead losers in the S&P 500 after forecasting full-year adjusted Ebitda of $2.4 billion-$2.8 billion, the midpoint of which is below the consensus of $2.64 billion. 

Walt Disney (DIS) is down more than -9% to lead losers in the Dow Jones Industrials after reporting Q2 Disney+ subscribers of 153.60 million, well below the consensus of 155.66 million.     

Datadog (DDOG) is down more than -9% to lead losers in the Nasdaq 100 after announcing that President Agarwal will step down at the end of this year. 

Jacobs Solutions (J) is down more than -4% after forecasting full-year adjusted EPS of $7.80-$8.10, the midpoint below the consensus of $8.05.

Palantir (PLTR) is down more than -14% despite boosting its revenue forecast after William Blair noted the company’s US commercial revenue growth in Q1 decelerated to 40% from 70% in Q4. 

TransDigm (TDG) is down more than -3% after reporting Q2 Ebitda of $919 million, below the consensus of $932.5 million.

Tesla (TSLA) is down more than -2% after reporting Apr China vehicle shipments fell -30% m/m and -18% y/y to 62,167 units. 

DoorDash (DASH) is down more than -1% after Instacart partnered with Uber Technologies to offer restaurant deliveries through the Instacart app, competing directly with DoorDash. 

Earnings Reports (5/7/2024)

Arista Networks Inc (ANET), Assurant Inc (AIZ), Bio-Rad Laboratories Inc (BIO), Builders FirstSource Inc (BLDR), Duke Energy Corp (DUK), Electronic Arts Inc (EA), Expeditors International of Washington (EXPD), Henry Schein Inc (HSIC), Jack Henry & Associates Inc (JKHY), Jacobs Solutions Inc (J), Kenvue Inc (KVUE), MarketAxess Holdings Inc (MKTX), Match Group Inc (MTCH), McKesson Corp (MCK), NRG Energy Inc (NRG), Occidental Petroleum Corp (OXY), Rockwell Automation Inc (ROK), Sempra (SRE), TransDigm Group Inc (TDG), Walt Disney Co/The (DIS), Waters Corp (WAT), Wynn Resorts Ltd (WYNN).

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