Stocks See Support from Tech Stocks

The S&P 500 Index ($SPX) (SPY) today is up +0.48%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.12%.

Stock indexes today are mostly higher, with the S&P 500 and Nasdaq 100 posting 1-1/2 week highs.  The strength of chip stocks today is leading technology stocks higher and is positive for the broader market.  Also, some positive corporate news today is supportive for technology stocks after Hewlett Packard Enterprise reported stronger-than-expected Q2 revenue and CrowdStrike Holdings reported better-than-expected Q1 EPS.  A -3% fall in Cisco Systems weighs on the Dow Jones Industrials.

Today’s US economic news was mixed for bonds and stocks.  The May ADP employment report rose less than expected, signaling a slowdown in the US labor market that was dovish for Fed policy.  However, the May ISM services index expanded more than expected, a hawkish factor for Fed policy. 

US MBA mortgage applications fell -5.2% in the week ended May 31.  The purchase mortgage sub-index fell -4.4%, and the refinancing mortgage sub-index fell -6.8%.  The average 30-year fixed rate mortgage rose +0.02 bp to 7.07% from 7.05% in the prior week.

The US May ADP employment change rose +152,000, weaker than expectations of +175,000.

The US May ISM services index rose +4.4 to 53.8, stronger than expectations of 51.0 and the highest level in 9 months.  The May ISM prices paid sub-index fell -1.1 to 58.2, weaker than expectations of 59.0.

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 16% 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 rose to a 1-week high and is up +1.53%. China's Shanghai Composite closed down -0.83%.  Japan's Nikkei Stock 225 Index closed down -0.89%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +3 ticks.  The 10-year T-note yield is down -1.4 bp at 4.312%.  Sep T-notes today rose to a 3-week high, and the 10-year T-note yield fell to a 2-month low of 4.307%.  T-notes recovered from overnight losses after the US May ADP employment change rose less than expected, a sign of a slowdown in the labor market that is dovish for Fed policy.  T-notes fell back from their best levels today after the May ISM services index rose more than expected. 

European government bond yields today are mixed.  The 10-year German bund yield fell to a 2-week low of 2.501% and is down -2.7 bp at 2.507%.  The 10-year UK gilt yield is up +1.4 bp at 4.192%.

Eurozone Apr PPI fell -1.0% m/m and -5.7% y/y, weaker than expectations of -0.7% m/m and -5.3% y/y.

The Eurozone May S&P composite PMI was revised downward by -0.1 to 52.2 from the previously reported 52.3.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% 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 65% chance of a -25 bp rate cut at the September 12 meeting.

US Stock Movers

The strength of chip stocks today is leading technology stocks higher and is positive for the broader market.  Lam Research (LRCX) is up more than +4%, and Marvell Technology (MRVL) and Broadcom (AVGO) are up more than +3%.  Also, Nvidia (NVDA), Micron Technology (MU), Qualcomm (QCOM), and NXP Semiconductors NV (NXPI)  are up more than +2%.

Hewlett Packard Enterprise (HPE) is up more than +12% to lead gainers in the S&P 500 after reporting Q2 net revenue of $7.20 billion, well above the consensus of $6.89 billion, and forecasting Q2 net revenue of $7.4 billion-$7.8 billion, with the midpoint being above the consensus of $7.45 billion. 

ASML Holding NV (ASML) is up more than +7% to lead gainers in the Nasdaq 100 after saying it will ship its latest high-NA extreme ultraviolet chipmaking machine to Taiwan Semiconductor Manufacturing Co and Intel by the end of this year. 

Crowdstrike Holdings (CRWD) is up more than +7% after reporting Q1 adjusted EPS of 93 cents, better than the consensus of 90 cents, and raising its 2025 adjusted EPS forecast to $3.93-$4.03 from a previous forecast of $3.77-$3.97, stronger than the consensus of $3.94.

Applied Materials (AMAT) is up more than +4%, and KLA Corp (KLAC) is up more than +3% after Barclays upgraded the stocks to equal weight from underweight. 

Illumina (ILMN) is up more than +2% after Nephron Research LLC upgraded the stock to hold from sell.

Meta Platforms (META) is up more than +2% after Raymond James raised its price target on the stock to $550 from $525.

Intel (INTC) is up more than +1% to lead gainers in the Dow Jones Industrials after it said Apollo will acquire a 49% equity interest in a joint venture entity related to Intel’s Fab 34 for $11 billion. 

Dollar Tree (DLTR) is down more than -6% to lead losers in the S&P 500 and Nasdaq 100 after reporting Q1 net sales of $4.17 billion, weaker than the consensus of $4.24 billion. 

Brown-Forman (BF/B) is down more than -4% after reporting Q4 net sales of $964 million, weaker than the consensus of $1.03 billion. 

Cisco Systems (CSCO) is down more than -3% to lead losers in the Dow Jones Industrials after it held an investor event, and Citigroup said, “The company’s outlook suggests little acceleration in the core business.”

Campbell Soup (CPB) is down more than -1% after it cut its full-year adjusted EPS estimate to $3.07-$3.10 from a previous forecast of $3.09-$3.15. 

American Express (AXP) is down more than -1% after Bloomberg reported that eBay will drop American Express cards as a payment option because of “unacceptably high fees.”

Earnings Reports (6/5/2024)

Brown-Forman Corp (BF/B), Campbell Soup Co (CPB), ChargePoint Holdings Inc (CHPT), Dollar Tree Inc (DLTR), Five Below Inc (FIVE), Lululemon Athletica Inc (LULU), Ollie's Bargain Outlet Holding (OLLI), Smartsheet Inc (SMAR), Thor Industries Inc (THO), Victoria's Secret & Co (VSCO).

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