Stocks Under Pressure on Weak Energy Stocks and Economic Concerns

The S&P 500 Index ($SPX) (SPY) today is down -0.24%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.05%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.27%.

Stocks today are mostly lower, led by losses in energy stocks. Slumping crude prices are weighing on energy stocks, with WTI crude down more than -1% to a 3-3/4 month low on concern that OPEC+’s plan to return crude production to the market earlier than expected will lead to a glut in global oil supplies.  Lower bond yields are a positive factor for stocks as the 10-year T-note yield fell to a 2-week low today.

A risk-off tone is weighing on equity markets today after Monday’s weaker-than-expected May ISM manufacturing activity report.  The markets are awaiting reports later this morning on Apr JOLTS job openings and Apr factory orders for clues on the state of the economy.

The markets are looking ahead to Thursday’s ECB meeting, with the ECB expected to cut its main refinancing rate by 25 bp to 4.25%.  In addition, Friday’s monthly US payroll report for May will be scoured for clues to the labor market's strength that could decide when the Fed can begin cutting interest rates.  The consensus is for May nonfarm payrolls to increase by +190,000 and for the May unemployment rate to remain unchanged at 3.9%.

The markets are discounting the chances for a -25 bp rate cut at 1% for the June 11-12 FOMC meeting and 17% for the following meeting on July 30-31.

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. 

Overseas stock markets today are mixed.  The Euro Stoxx 50 fell to a 4-week low and is down -0.39%. China's Shanghai Composite closed up +0.41%.  Japan's Nikkei Stock 225 Index closed down -0.22%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +8 ticks.  The 10-year T-note yield is down -3.7 bp to 4.351%.  Sep T-notes today climbed to a 2-week high, and the 10-year T-note yield fell to a 2-week low of 4.349%.  T-notes today extended Monday’s gains on carryover support from gains in European government bonds.  Also, falling inflation expectations support T-notes as the 10-year breakeven inflation rate fell to a 1-week low today of 2.320%. 

Eurozone government bond yields today are moving lower.  The 10-year German bund yield fell to a 1-1/2 week low of 2.521% and is down -5.7 bp at 2.524%.  The 10-year UK gilt yield fell to a 2-week low of 4.176% and is down -4.3 bp at 4.178%. 

The German May unemployment change rose by +25,000, the largest increase in 7 months, showing a weaker labor market than expectations of +7,000.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 98% for Thursday’s meeting.  If the ECB cuts rates by -25 bp on Thursday as expected, then the markets are expecting a 0% chance of another rate cut at the following meeting on July 18 and a 64% chance of a -25 bp rate cut at the September 12 meeting.

US Stock Movers

Bath & Body Works (BBWI) is down more than -6% to lead losers in the S&P 500 after forecasting Q2 EPS of 31 cents-36 cents, weaker than the consensus of 39 cents. 

Energy stocks and energy service providers are under pressure today, with the price of WTI crude down more than -1% to a 3-3/4 month low.  As a result, Exxon Mobil (XOM), Haliburton (HAL), Diamondback Energy (FANG), and Occidental Petroleum (OXY) are down more than -2%.  Also, Schlumberger (SLB), Devon Energy (DVN), Marathon Oil (MRO), Phillips 66 (PSX), Hess Corp (HES), and ConocoPhillips (COP) are down more than -1%.  Finally, Chevron (CVX) is down more than -2% to lead losers in the Dow Jones Industrials.

Mining stocks are falling today, with the price of copper down more than -2% to a 4-week low.  As a result, AngloGold Ashanti Plc (AU) is down more than -5%.  Also, Freeport McMoRan (FCX) and Southern Copper (SCCO) are down more than -4%.  In addition, ArcelorMittal (MT) and Newmont (NEM) are down more than -3%. 

Designer Brands (DBI) is down more than -17% after reporting Q1 comparable sales unexpectedly fell -2.5% versus expectations of a +0.59% increase. 

Gitlab (GTLB) is down more than -1% after forecasting Q2 revenue of $176 million to $177 million, below the consensus of $177.1 million. 

Cruise line operators are climbing today after Peel Hunt upgraded Carnival to buy from hold.  As a result, Carnival (CCL) and Royal Caribbean Cruises (RCL) are up more than +2%.  Also, Norwegian Cruise Line Holdings (NCLH) are up more than +1%. 

Trucking companies and airline stocks are moving higher today after crude prices fell to a 3-3/4 month low, which should lower fuel costs and boost earnings.  As a result, Old Dominion Freight Line (ODFL) is up more than +5% to lead gainers in the S&P 500 and Nasdaq 100.  Also, United Airlines Holdings (UAL), American Air Lines Group (AAL), and JB Hunt Transport Services (JBHT) are up more than +1%. 

HealthEquity (HQY) is up more than +2% after reporting Q1 adjusted EPS of 80 cents, stronger than the consensus of 66 cents, and raising its full-year adjusted EPS forecast to $2.93-$3.10 from a previous forecast of $2.79-$2.96, above the consensus of $2.89. 

Donaldson (DCI) is up more than +1% after reporting Q3 net sales of $927.9 million, better than the consensus of $915.8 million, and raising its full-year EOS estimate to $3.33-$3.39 from a previous estimate of $3.24-$3.32, stronger than the consensus of $3.27. 

Earnings Reports (6/4/2024)

Bath & Body Works Inc (BBWI), Core & Main Inc (CNM), Crowdstrike Holdings Inc (CRWD), Donaldson Co Inc (DCI), Ferguson PLC (FERG), Guidewire Software Inc (GWRE), Hewlett Packard Enterprise Co (HPE), PVH Corp (PVH).

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