Stocks Settle Mixed on Hawkish Fed Comments

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.09%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.49%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.69%. 

US stock indexes Monday settled mixed, with the Nasdaq 100 posting a new record high.  Strength in chip stocks supported the broader market and pushed the Nasdaq 100 to a new record high.  Also, cruise line operators rallied Monday after Norwegian Cruise Line Holdings boosted its full-year adjusted EPS estimate.  A -4% slump in JPMorgan Chase weighed on the Dow Jones Industrials.  Also, hawkish Fed comments on Monday pushed bond yields higher and limited stock gains. 

Cleveland Fed President Mester said she doesn't think inflation will come down quickly and doesn't believe three rate cuts in 2024 are still appropriate. 

Atlanta Fed President Bostic said "nothing has changed" regarding his view that maybe only one rate cut will be appropriate in 2024. 

San Francisco Fed President Daly said she's "not yet confident" inflation is coming down sustainably to 2%.

Fed Vice Chair Jefferson said the US April inflation data were "encouraging," but "it is too early to tell whether the recent slowdown in the disinflationary process will be long lasting."

The markets will look ahead to Wednesday’s April 30-May 1 FOMC meeting minutes to see how close the Fed is to cutting interest rates.  Also, earnings results from Nvidia and Analog Devices will be examined on Wednesday to gauge the demand for semiconductor chips.  In addition, earnings results from big-box retailer Target will be scoured on Wednesday for clues to consumer spending.

Generally positive Q1 earnings results are supportive of stocks.  Q1 earnings are expected to climb +7.1% 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 5% for the June 11-12 FOMC meeting and 25% for the following meeting on July 30-31.

Overseas stock markets on Monday settled higher.  The Euro Stoxx 50 closed up +0.20%.  China's Shanghai Composite rose to an 8-1/2 month high and closed up +0.54%.  Japan's Nikkei Stock Index rose to a 5-week high and closed up +0.73%. 

Interest Rates

June 10-year T-notes (ZNM24) Monday closed down -3 ticks.  The 10-year T-note yield rose +1.6 bp to 4.436%.  June T-notes were under pressure Monday from weakness in European government bonds.  Also, hawkish comments from several Fed Presidents weighed on T-notes when they said they favored maintaining the current restrictive Fed policy until inflation comes down sustainably to 2%.  In addition, supply pressures are undercutting T-notes.  As many as 13 corporations are expected to issue as much as $25 billion to $30 billion in debt this week, prompting bond managers to short T-notes as a hedge against the new supply. 

European government bond yields on Monday moved higher.  The 10-year German bund yield rose +1.4 bp to 2.529%.  The 10-year UK gilt yield rose +4.2 bp to 4.169%.

ECB Governing Council member Kazaks said, "June seems the right moment to start lowering borrowing costs, but decisions on any subsequent steps are best determined by incoming data."

US Stock Movers

Cruise line operators rallied Monday after Norwegian Cruise Line Holdings boosted its full-year adjusted EPS estimate to $1.42 from a prior view of $1.32. As a result, Norwegian Cruise Line Holdings (NCLH) closed up more than +7% to lead gainers in the S&P 500.  Also, Carnival (CCL) closed up more than +7%, and Royal Caribbean Cruises (RCL) closed up more than +3%. 

Jabil (JBL) closed up more than +5 after reiterating its previously provided fiscal Q3 projections for profit and revenue and appointed Michael Dastoor, who has been serving as CFO to CEO.

Teradyne (TER) closed up more than +5% after Goldman Sach upgraded the stock to buy from neutral with a price target of $161.

Chip stocks rallied Monday and supported gains in the broader market.  Applied Materials (AMAT),  Marvell Technology (MRVL), and Lam Research (LRCX) closed up more than +3%.  Also, Nvidia (NVDA), Micron Technology (MU), NXP Semiconductors NV (NXPI), Microchip Technology (MCHP), Texas Instruments (TXN), and Qualcomm (QCOM) closed up more than +2%. 

Johnson Controls International (JCI) closed up more than +2% after Bloomberg reported that Elliot Investment Management has built up a position in the company worth more than $1 billion. 

Hims & Hers Health (HIMS) closed up more than +27% after it said it added GLP-1 injections to its weight loss portfolio that will be 85% cheaper than the treatments from Eli Lilly and Novo Nordisk A/S.

Wix.com (WIX) closed up more than +23% after raising the lower-end of its full-year revenue forecast to $1.74 billion-$1.76 billion from a previous forecast of $1.73 billion-$1.76 billion. 

JPMorgan Chase (JPM) closed down more than -4% to lead losers in the S&P 50 and Dow Joines Industrials after CEO Dimon said the bank will be more aggressive about repurchases when its stock prices decline and “will not buy back a lot of stock at these prices.”  He added that his bank is “well on the way” with its succession plans for when he retires. 

Ulta Beauty (ULTA) closed down more than +3% after Piper Sandler cut its price target on the stock to $505 from $595. 

Tesla (TSLA) closed down more than -1% after Bloomberg reported Tesla will continue with rolling job cuts through at least June.

Target (TGT) closed down more than -2% after it said it plans to reduce prices on approximately 5,000 items, a move that Barclays says points to “more challenges ahead.”

Travelers Cos (TRV) closed down more than -1% after a federal appeals court ruled the company’s insurance unit must pay Dexon Computer’s legal fees in an underlying trademark dispute.

Phillips 66 (PSX) closed down more than -1% after it acquired Pinnacle Midstream from Energy Spectrum Capital for $550 million in cash. 

Earnings Reports (5/21/2024)

AutoZone Inc (AZO), Eagle Materials Inc (EXP), Lowe's Cos Inc (LOW), Macy's Inc (M), Toll Brothers Inc (TOL), Viasat Inc (VSAT), XP Inc (XP).

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