Stocks Close Higher on Fed Rate Cut Optimism

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.51%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.85%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.16%. 

US stock indexes on Thursday settled higher, with the S&P 500 climbing to a 1-month high and the Dow Jones Industrials posting a 5-week high.  Stock index futures found support Thursday as bond yields fell after US weekly initial unemployment claims rose more than expected to an 8-1/2 month high, bolstering hopes that the Fed will soon cut interest rates.

Corporate news Thursday was mixed.  Equinix rose more than +11% after reporting stronger-than-expected Q1 adjusted Ebitda. Steris Plc closed up more than +7% after reporting Q4 revenue above consensus.  AppLovin closed up more than +14% after reporting stronger-than-expected Q1 revenue.

On the negative side for corporate news, EPAM Systems closed down more than -26% after cutting its full-year adjusted EPS estimate.  Also, Airbnb closed down more than -6% after forecasting Q2 revenue below consensus. Viatris closed down -5% after cutting its full-year revenue forecast.

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. 

US weekly initial unemployment claims rose +22,000 to an 8-1/2 month high of 231,000, showing a weaker labor market than expectations of 212,000.

Hawkish comments Thursday from San Francisco Fed President Daly were negative for stocks when she said interest rates are currently restraining the economy, but it may take "more time" to return inflation to the Fed's goal.

A supportive factor for global growth prospects is better than expected Chinese trade data as China Apr exports rose +1.5% y/y, stronger than expectations of +1.3% y/y.  Also, Apr imports rose +8.4% y/y, stronger than expectations of +4.7% y/y.

The markets are discounting the chances for a -25 bp rate cut at 10% for the June 11-12 FOMC meeting and 38% for the following meeting on July 30-31.

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 rose to a 5-week high and closed up +0.32%.  China's Shanghai Composite rose to an 8-month high and closed up +0.83%.  Japan's Nikkei Stock Index closed down -0.34%. 

Interest Rates

June 10-year T-notes (ZNM24) on Thursday closed up +8.5 ticks.  The 10-year T-note yield fell -3.9 bp to 4.455%.  T-note prices Thursday recovered from overnight losses and rallied after US weekly jobless claims rose more than expected to an 8-1/2 month high, a dovish factor for Fed policy.  T-notes raced to their highs Thursday afternoon on strong demand for the Treasury’s $25 billion 30-year T-bond auction that had a bid-to-cover ratio of 2.41, above the 10-auction average of 1.39.  T-notes fell back from their best levels after San Francisco Fed President Daly said it may take "more time" to return inflation to the Fed's goal.

European government bond yields on Thursday moved higher. The 10-year German bund yield rose +3.3 bp at 2.495%.  10-year UK gilt yield rose +0.2 bp at 4.142%.

As expected, the Bank of England (BOE) kept the key bank rate unchanged at 5.25% for the sixth straight meeting and said risks from inflation persistence are receding. 

BOE Governor Baily said, "It's likely that we will need to cut the bank rate over the coming quarters and make monetary policy less restrictive over the forecast period, possibly more so than currently priced into market rates." He added that a change in the bank rate in June "is neither ruled out nor a fait accompli."   

US Stock Movers

Equinix (EQIX) closed up more than +11% to lead gainers in the S&P 500 after reporting Q1 adjusted Ebitda of $992 million, above the consensus of $976.9 million,

Steris Plc (STE) closed up more than +7% after reporting Q4 revenue of $1.50 billion, stronger than the consensus of $1.43 billion.

AppLovin (APP) closed up more than +14% after reporting Q1 revenue of $1.06 billion, well above the consensus of $973.7 million. 

Affirm Holdings (AFRM) closed up more than +9% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $43.

Cheesecake Factory (CAKE) closed up more than +5% after reporting Q1 adjusted EPS of 73 cents, stronger than the consensus of 64 cents.

SharkNinja (SN) closed up more than +5% after reporting Q1 net sales of $1.07 billion, stronger than the consensus of $950 million. 

Tapestry (TPR) closed up more than +3% after reporting Q3 gross margin of 74.7%, better than the consensus of 73.7%. 

News Corp (NWS) closed up more than +2% after reporting Q3 Ebitda of $322 million, above the consensus of $321.3 million. 

EPAM Systems (EPAM) closed down more than -26% to lead losers in the S&P 500 after cutting its full-year adjusted EPS estimate to $10.00-$10.30 from a previous estimate of $10.00-$10.40.

Airbnb (ABNB) closed down more than -6% to lead losers in the Nasdaq 100 after forecasting Q2 revenue of $2.68 billion-$2.74 billion, weaker than the consensus of $2.74 billion.

Corpay (CPAY) closed down more than -6% after reporting Q1 revenue of $935.3 million, weaker than the consensus of $938.9 million, and cutting its full-year revenue forecast to $3.96 billion-$4.04 billion from a previous forecast of $4.04 billion-$4.12 billion.

Exact Sciences (EXAS) closed down more than -9% after reporting a Q1 loss per share of -60 cents, which is wider than the consensus of -46 cents. 

Viatris (VTRS) closed down -5% after cutting its full-year revenue forecast to $14.98 billion-$15.48 billion from a previous forecast of $15.25 billion-$15.75 billion. 

Norfolk Southern (NSC) closed down more than -2% after investors voted to keep ten of the company’s 13 board of director candidates that activists had tried to unseat. 

Micron Technology (MU) closed down more than -1% on signs of insider selling after an SEC filing showed EVP Bhatia sold $6.35 million of shares on Monday.

Salesforce (CRM) closed down more than -1% on signs of insider selling after an SEC filing showed CEO Benioff sold $4.16 million of shares on Tuesday.

Earnings Reports (5/10/2024)

4D Molecular Therapeutics Inc (FDMT), AirSculpt Technologies Inc (AIRS), Alpine Immune Sciences Inc (ALPN), AlTi Global Inc (ALTI), ALX Oncology Holdings Inc (ALXO), AMC Networks Inc (AMCX), American Realty Investors Inc (ARL), AnaptysBio Inc (ANAB), ANI Pharmaceuticals Inc (ANIP), Astria Therapeutics Inc (ATXS), Cabaletta Bio Inc (CABA), CareMax Inc (CMAX), Carrols Restaurant Group Inc (TAST), CBL & Associates Properties In (CBL), Construction Partners Inc (ROAD), Consumer Portfolio Services In (CPSS), Contango ORE Inc (CTGO), Costamare Inc (CMRE), Cullinan Therapeutics Inc (CGEM), DigitalOcean Holdings Inc (DOCN), Dillard's Inc (DDS), DNOW Inc (DNOW), Enliven Therapeutics Inc (ELVN), EVI Industries Inc (EVI), Eyenovia Inc (EYEN), FTC Solar Inc (FTCI), Generation Bio Co (GBIO), Hawaiian Electric Industries Inc (HE), Humacyte Inc (HUMA), I3 Verticals Inc (IIIV), ImmunityBio Inc (IBRX), Inspired Entertainment Inc (INSE), iTeos Therapeutics Inc (ITOS), Kezar Life Sciences Inc (KZR), Lazydays Holdings Inc (GORV), Li-Cycle Holdings Corp (LICY), Lightwave Logic Inc (LWLG), Luna Innovations Inc (LUNA), MarketWise Inc (MKTW), Maui Land & Pineapple Co Inc (MLP), Mitek Systems Inc (MITK), Mondee Holdings Inc (MOND), NextDecade Corp (NEXT), Nkarta Inc (NKTX), Novavax Inc (NVAX), Overseas Shipholding Group Inc (OSG), Park Aerospace Corp (PKE), PepGen Inc (PEPG), Prime Medicine Inc (PRME), ProKidney Corp (PROK), Protalix BioTherapeutics Inc (PLX), Sphere Entertainment Co (SPHR), Star Holdings (STHO), Sylvamo Corp (SLVM), Tenaya Therapeutics Inc (TNYA), Third Harmonic Bio Inc (THRD), Transcontinental Realty Invest (TCI), TruBridge Inc (TBRG), United Homes Group Inc (UHG), Vor BioPharma Inc (VOR).

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