Stocks Pull Back on Concern the Fed Will Keep Rates Higher for Longer

The S&P 500 Index ($SPX) (SPY) today is down -0.48%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.01%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.73%. 

US stock indexes today are under pressure, with the S&P 500 falling to a 2-week low and the Dow Jones Industrials falling to a 4-week low.  Stocks are sliding because of concern that the Fed will keep interest rates higher for longer, causing a risk-off sentiment in asset markets.  Stock indexes found some support after bond yields declined on today’s dovish US economic reports.

US weekly initial unemployment claims rose +3,000 to 219,000, showing a slightly weaker labor market than expectations of 217,000.

US Q1 GDP was revised downward to +1.3% (q/q annualized) from +1.6%, right on expectations.  The Q1 core PCE price index was unexpectedly revised lower to +3.6% (q/q annualized), weaker than expectations of no change at +3.7%.

US Apr pending home sales fell -7.7% m/m, weaker than expectations of -1.0% m/m and the biggest decline in over three years.

The markets are awaiting this Friday’s April PCE core deflator, the Fed’s preferred inflation gauge, for clues as to when the Fed might begin cutting interest rates.  Expectations are for the Apr PCE core deflator to remain unchanged from March at +2.8% y/y. 

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. 

Comments Wednesday evening from Atlanta Fed President Bostic were dovish and supportive for stocks when he said many of the different measures of inflation he looks at on his dashboard "are moving back into the target range" and he's "looking at the end of the year, the fourth quarter, as the time where we might actually think about and be prepared to reduce interest rates."

The markets are discounting the chances for a -25 bp rate cut at 0% for the June 11-12 FOMC meeting and 12% for the following meeting on July 30-31.

Overseas stock markets today are mixed.  The Euro Stoxx 50 recovered from a 3-1/2 week low and is up +0.30%.  China's Shanghai Composite fell to a 1-month low and closed down -0.62%.  Japan's Nikkei Stock Index fell to a 1-month low and closed down -1.30%. 

Interest Rates

June 10-year T-notes (ZNM24) today are up +13 ticks.  The 10-year T-note yield is down -5.2 bp at 4.560%.  June T-notes are climbing today on Fed-friendly US economic reports that included weekly jobless claims, the Q1 core PCE price index, and Apr pending home sales.  Also, bond dealer short covering is lifting T-note prices as dealers unwind short hedges put on this week ahead of the now-completed $183 billion slate of T-note auctions. 

European government bond yields today are moving lower.  The 10-year German bund yield fell back from a 6-1/2 month high of 2.704% and is down -1.9 bp at 2.671%.  The 10-year UK gilt yield is down -2.5 bp at 4.375%.

Eurozone May economic confidence rose +0.4 to 96.0, slightly weaker than expectations of 96.1.

The Eurozone Apr unemployment rate unexpectedly fell -0.1 to a record low 6.4%, showing a stronger labor market than expectations of no change at 6.5%.   

Spain's May CPI (EU harmonized) rose +3.8% y/y, stronger than expectations of +3.7% y/y, and the largest increase in 13 months.

US Stock Movers

Salesforce (CRM) is down more than -20% to lead losers in the S&P 500 and Dow Jones Industrials after reporting Q1 revenue of $9.13 billion, below the consensus of $9.15 billion, and forecasting 2025 revenue of $37.7 billion-$38.0 billion, weaker than the consensus of $38.01 billion. Other stocks across the software sector are also falling on the news, with ServiceNow (NOW) down more than -9% and Intuit (INTU), Adobe (ADBE), and MongoDB (MDB) down more than -4%.  Also, Oracle (ORCL) is down more than -3%, and Workday (WDAY) and Microsoft (MSFT) are down more than -2%.

Kohl’s (KSS) is down more than -26% after reporting Q1 net sales of $3.18 billion, weaker than the consensus of $3.34 billion, and cutting its full-year net sales forecast to -2% to -4% from a previous forecast of -1% to +1%. 

UiPath (PATH) is down more than -34% after forecasting 2025 revenue of $1.405 billion-$1.410 billion, well below the consensus of $1.56 billion.

Hormel Foods (HRL) is down more than -9% after reporting Q2 net sales of $2.89 billion, weaker than the consensus of $2.97 billion.

Agilent (A) is down more than -8% after reporting Q2 net revenue of $1.57 billion, weaker than the consensus of $1.58 billion, and cutting its full-year revenue estimate to $6.42 billion-$6.50 billion from a previous forecast of $6.71 billion-$6.81 billion, well below the consensus of $6.76 billion. 

Nutanix (NTNX) is down more than -17% after forecasting Q4 revenue of $530 million-$540 million, below the consensus of $546.1 million.

American Eagle Outfitters (AEO) is down more than -5% after reporting Q1 net revenue of $1.14 billion, below the consensus of $1.15 billion. 

Centene (CNC) is down more than -2% after it said its early read of May claims receipts indicate continued medical costs higher than expected in Medicaid. 

HP Inc (HPQ) is up more than +13% to lead gainers in the S&P 500 after reporting Q2 net revenue of $12.80 billion, stronger than the consensus of $12.60 billion. 

Best Buy (BBY) is up more than +10% after reporting Q1 adjusted EPS of $1.20, stronger than the consensus of $1.08. 

Foot Locker (FL) is up more than +26% after reporting Q1 net sales fell -1.80%, a smaller decline than expectations of -1.93%, and forecasting full-year comparable sales to climb +1% to +3%, the midpoint above the consensus of +1.51%.

Dollar General (DG) is up more than +2% after reporting Q1 net sales of $9.91 billion, above the consensus of $9.88 billion.

PayPal Holdings (PYPL) is up more than +2% to lead gainers in the Nasdaq 100 after Mizuho Securities upgraded the stock to buy from neutral with a price target of $90.

Intuitive Surgical (ISRG) is up more than +2% after Goldman Sachs initiated coverage of the stock with a buy recommendation.

Insulet (PODD) is up more than +2% after Redburn initiated coverage of the stock with a buy recommendation and a price target of $235.

Earnings Reports (5/30/2024)

Best Buy Co Inc (BBY), Birkenstock Holding Plc (BIRK), Burlington Stores Inc (BURL), Cooper Cos Inc/The (COO), Costco Wholesale Corp (COST), Dollar General Corp (DG), Elastic NV (ESTC), Gap Inc/The (GPS), HashiCorp Inc (HCP), Hormel Foods Corp (HRL), Kohl's Corp (KSS), Marvell Technology Inc (MRVL), MongoDB Inc (MDB), NetApp Inc (NTAP), Nordstrom Inc (JWN), Roivant Sciences Ltd (ROIV), SentinelOne Inc (S), Ulta Beauty Inc (ULTA), Veeva Systems Inc (VEEV), Zscaler Inc (ZS).

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