Stock Indexes Post Record Highs as Economic Reports Bolster Rate Cut Hopes

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +1.17%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.88%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.49%. 

US stock indexes Wednesday rallied, with the S&P 500, Dow Jones Industrials, and the Nasdaq 100 posting all-time highs. Stocks gained as bond yields fell after US consumer prices eased as expected.  Also, the US retail sales, Empire manufacturing, and NAHB housing index reports were weaker than expected, bolstering the outlook for the Fed to cut interest rates this year.

US Apr CPI eased to +3.4% y/y from +3.5% y/y in March, right on expectations.  Apr CPI ex-food and energy eased to +3.6% y/y from +3.8% y/y in March, right on expectations and the smallest increase in 3 years.

US Apr retail sales were unchanged m/m, weaker than expectations of +0.4% m/m.  However, Apr retail sales ex-autos rose +0.2% m/m, right on expectations.

The US May Empire manufacturing survey general business conditions index unexpectedly fell -1.3 to -15.6, weaker than expectations of an increase to -10.0.

The US May NAHB housing market index fell -6 to a 4-month low of 45, weaker than expectations of 50.

Hawkish comments Tuesday evening from Kansas City Fed President Schmid were negative for stocks when he said interest rates could remain high "for some time" as policymakers await evidence that price pressures are easing.

Minneapolis Fed President Kashkari said it is "unknown" how much downward pressure monetary policy is putting on the economy, so the Fed will likely need to keep interest rates at current levels for "a while longer until we figure out where underlying inflation is headed before we jump to any conclusions."

Generally positive Q1 earnings results are supportive of stocks.  Q1 earnings are 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. 

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 Wednesday settled mixed.  The Euro Stoxx 50 rose to a 6-week high and closed up +0.417%.  China's Shanghai Composite fell to a 2-week low and closed down -0.82%.  Japan's Nikkei Stock Index rose to a 1-week high and closed up +0.08%. 

Interest Rates

June 10-year T-notes (ZNM24) Wednesday closed up +20 ticks.  The 10-year T-note yield fell -8.7 bp to 4.352%.  June T-notes Wednesday rallied to a 5-week high, and the 10-year T-note yield fell to a 5-week low of 4.336%.  T-note prices pushed higher Wednesday after several Fed-friendly US economic reports bolstered the outlook for the Fed to cut interest rates this year.  Also, a decline in inflation expectations is bullish for T-notes after the 10-year breakeven inflation expectations rate Wednesday fell to a 3-1/2 week low of 2.308%.   

On the negative side, Kansas City Fed President Schmid and Minneapolis Fed President Kashkari said the Fed will likely need to keep interest rates at current levels for "a while longer."

European government bond yields Wednesday moved lower.  The 10-year German bund yield fell to a 1-week low of 2.418% and finished down -12.5 bp at 2.422%.  The 10-year UK gilt yield fell to a 5-week low of 4.057% and finished down -10.8 bp at 4.066%.

Eurozone Mar industrial production rose +0.6% m/m, stronger than expectations of +0.4% m/m.

The European Commission forecasted Eurozone 2024 GDP growth at +0.8%, unchanged from a February estimate, and reduced its Eurozone 2024 inflation forecast to 2.5% from February’s 2.7% forecast.

ECB Governing Council member Villeroy de Galhau said Eurozone inflation data for April give the ECB confidence to begin cutting interest rates in June before continuing to loosen monetary policy at a pragmatic pace.

US Stock Movers

Homebuilder stocks rallied Wednesday after the 10-year T-note yield fell to a 5-week low, a supportive factor for housing demand.  DR Horton (DHI) closed up more than +6%, and Lennar (LEN), PulteGroup (PHM), and Toll Brothers (TOL) closed up more than +5%.

A rally in chip stocks Wednesday was supportive of the overall market. Advanced Micro Devices (AMD), KLA Corp (KLAC), and Broadcom (AVGO) closed up more than +4%.  Also, Nvidia (NVDA), Marvell Technology (MRVL), Lam Research (LRCX), and Applied Materials (AMAT) closed up more than +3%.  In addition, Qualcomm (QCOM), Micron Technology (MU), and Texas Instruments (TXN) closed up more than +2%. 

Trade Desk (TTD) closed up more than +4% following the news that it entered into an advertising pact with Netflix and will help facilitate automated ad purchases on the Netflix platform.

Monday.com (MNDY) closed up more than +20% after reporting Q1 revenue of $216.9 million, better than the consensus of $210.5 million. 

NU Holdings Ltd (NU) closed up more than +4% after reporting Q1 net income of $378.8 million, well above the consensus of $336.1 million. 

Shift4 Payments (FOUR) closed up more than +10% on signs of insider buying after an SEC filing showed CEO Isaacman purchased $5.76 million of stocks on Tuesday. 

Arista Networks (ANET) closed up more than +3% after Willian O’Neil & Co. reinstated coverage of the stock with a buy recommendation. 

Teradyne (TER) closed up more than +3% after a 13F filing with the SEC showed Aspex Management HK reported a new 1.1% position in the company. 

Solventum (SOLV) closed down more than -4% after Spin-Off Research downgraded the stock to hold from buy.

FMC Corp (FMC) closed down more than -3% after it said it won’t reinstate share buybacks until late 2025 but more likely 2026 as it seeks to cut its leverage.

Walt Disney (DIS) closed down more than -2% to lead losers in the Dow Jones Industrials after CEO Iger said marketing expenses at Disney + are too high and the company is “dramatically” reducing content spending in linear television.

Boeing (BA) closed down more than -2% as the company faces possible criminal prosecution after the US Justice Department found Boeing violated a deferred-prosecution agreement tied to two fatal crashes five years ago. 

Dlocal (DLO) closed down more than -26% after reporting Q1 revenue from continuing operations of $184.4 million, weaker than the consensus of $191.9 million. 

Six Flags Entertainment (SIX) closed down more than -1% after Deutsche Bank downgraded the stock to hold from buy. 

Earnings Reports (5/16/2024)

Advanced Drainage Systems Inc (WMS), Applied Materials Inc (AMAT), Copart Inc (CPRT), Deere & Co (DE), Doximity Inc (DOCS), DXC Technology Co (DXC), Flowers Foods Inc (FLO), Globant SA (GLOB), Take-Two Interactive Software (TTWO), Under Armour Inc (UAA), Walmart Inc (WMT).

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