Stocks Rebound as Consumers Temper Inflation Expectations

The S&P 500 Index ($SPX) (SPY) today is up +0.44%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.24%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.71%. 

US stock indexes today are moderately higher. Some positive corporate news is boosting stocks today.  Deckers Outdoor is up more than +12% after reporting Q4 net sales well above consensus.  Also, Ross Stores is up more than +8% after reporting better-than-expected Q1 EPS and raising its 2025 EPS forecast.  In addition, International Paper is up more than +3% after Bloomberg reported that Suzano SA is in talks with banks on financing a potential bid for the company.

Stocks extended their gains when bond yields gave up an early advance and turned lower as consumers tempered their inflation expectations after the University of Michigan May inflation expectations were revised lower.

On the negative side was today’s US economic news that showed Apr capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +0.3% m/m, stronger than expectations of +0.1% m/m and a hawkish factor for Fed policy.

Fed Governor Waller said, "The US is on an unsustainable fiscal path.  If the growth in the supply of US Treasuries begins to outstrip demand, then this will mean lower prices and higher yields, which will put pressure on the neutral rate." 

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 0% for the June 11-12 FOMC meeting and 10% for the following meeting on July 30-31.

Overseas stock markets today are lower.  The Euro Stoxx 50 fell to a 2-1/2 week low and is down -0.28%.  China's Shanghai Composite fell to a 3-1/2 week low and closed down -0.88%.  Japan's Nikkei Stock Index fell to a 1-week low and closed down -1.17%. 

Interest Rates

June 10-year T-notes (ZNM24) today are up +1 tick.  The 10-year T-note yield is down -0.4 bp at 4.473%.  June T-notes today recovered from a 1-1/2 week low and are slightly higher, and the 10-year T-note yield fell back from a 1-1/2 week high of 4.500%.  T-note recovered from early losses after short covering emerged when the University of Michigan’s US May inflation expectations were revised lower, a dovish factor for Fed policy. 

T-notes today initially moved lower on negative carryover from a fall in 10-year German bunds to a 4-week low.  T-notes were also under pressure after today’s economic news showed that Apr capital goods, new orders, nondefense ex-aircraft, and parts rose more than expected, a hawkish factor for Fed policy. 

European government bond yields today gave up early gains and turned lower.  The 10-year German bund yield fell back from a 4-week high of 2.624% and is down -1.0 bp at 2.586%.  The 10-year UK gilt yield fell back from a 3-week high of 4.286% and is down -0.1 bp at 4.258%.

ECB Executive Board member Schnabel said the ECB shouldn't lower borrowing costs too rapidly as some elements of inflation "are proving persistent, especially domestic inflation and services in particular."

ECB Governing Council member and Bundesbank President Nagel said he's confident that wage growth will slow in coming months and the likelihood of a June rate cut by the ECB is "winning traction."

US Stock Movers

Deckers Outdoor (DECK) is up more than +12% to lead gainers in the S&P 500 after reporting Q4 net sales of $959.8 million, well above the consensus of $884.4 million.

Ross Stores (ROST) is up more than +8% to lead gainers in the Nasdaq 100 after reporting Q1 EPS of $1.46, better than the consensus of $1.35, and raising its 2025 EPS forecast to $5.79-$5.98 from a previous forecast of $5.64-$5.89.

Dell Technologies (DELL) is up more than +6%, adding to Thursday’s+4% gain after Evercore ISI added the stock to its tactical outperform list with a price target of $165.

International Paper (IP) is up more than +3% after Bloomberg reported that Suzano SA is in talks with banks on financing a potential bid for International Paper.

Booz Allen Hamilton Holding (BAH) is up more than +3% after reporting Q4 adjusted EPS of $1.33, stronger than the consensus of $1.23, and forecasting 2025 adjusted EPS of $5.80-$6.05, the midpoint above the consensus of $5.92. 

DuPont de Nemours (DD) is up more than +2% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $103. 

Apple (AAPL) is up more than +1% after Wedbush raised its price target on the stock to $275 from $250.   

Microchip Technology (MCHP) is up more than +1% after Mizuho Securities upgraded the stock to buy from neutral with a price target of $115. 

Intuit (INTU) is down more than -7% to lead losers in the S&P 500 after forecasting Q4 adjusted EPS of $1.80-$1.85, weaker than the consensus of $1.93. 

Salesforce (CRM) is down more than -2% to lead losers in the Dow Jones Industrials on signs of insider selling after an SEC filing showed CEO Benioff sold $4.28 million of shares on Wednesday.

Workday (WDAY) is down more than -13% to lead losers in the Nasdaq 100 after cutting its full-year subscription sales forecast to $7.73 billion from a previous estimate of $7.78 billion. 

Exact Sciences (EXAS) is down more than -3% after rival Guardant Health’s Shield blood test to screen for colorectal cancer received the support of an FDA advisory panel. 

Cintas (CTAS) is down more than -1% after Citigroup downgraded the stock to sell from neutral with a price target of $570.   

Earnings Reports (5/24/2024)

Autodesk Inc (ADSK), Booz Allen Hamilton Holding Co (BAH), Buckle Inc/The (BKE), Children's Place Inc/The (PLCE), Guess?  Inc (GES), Luna Innovations Inc (LUNA), Ocean Biomedical Inc (OCEA), Park Aerospace Corp (PKE), RH (RH).

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