The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.02%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.07%.
Stock indexes on Thursday settled little changed. Stock indexes Thursday morning initially moved higher, with the S&P 500 and Nasdaq 100 posting new record highs and the Dow Jones Industrials posting a 1-week high. Thursday’s US economic news was Fed-friendly and supportive for stocks after weekly initial unemployment claims rose more than expected, and Q1 nonfarm productivity was stronger than expected. Also, Q1 unit labor costs were unexpectedly revised lower. However, stock gains were limited after the US trade deficit in April widened by the most in 1-1/2 years, a negative factor for GDP.
Higher bond yields Thursday also weighed on stocks. Bond yields rose since the ECB raised its inflation forecasts in conjunction with its expected -25 bp rate cut.
US weekly initial unemployment claims rose +8,000 to 229,000, showing a weaker labor market than expectations of 220,000.
US Q1 nonfarm productivity was revised downward to +0.2% from the previously reported +0.3%, better than expectations of 0.0%. Q1 unit labor costs were unexpectedly revised lower to +4.0% from the previously reported +4.7% versus expectations of an increase to +4.9%.
The US Apr trade deficit widened to -$74.6 billion from -$69.4 billion in March, the largest deficit in 1-1/2 years and a negative factor for GDP.
The markets are looking ahead to Friday’s monthly US payroll report for May, which 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 +180,000 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 4% for the June 11-12 FOMC meeting and 18% 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 Thursday settled mixed. The Euro Stoxx 50 rose to a 3-week high and closed up +0.66%. China's Shanghai Composite fell to a 6-week low and closed down -0.54%. Japan's Nikkei Stock 225 Index closed up +0.55%.
Interest Rates
September 10-year T-notes (ZNU24) Thursday closed up +2 ticks. The 10-year T-note yield rose +0.1 bp to 4.277%. Sep T-notes Thursday were under early pressure from negative carryover to a slide in 10-year German bunds. T-notes found support Thursday after weekly US jobless claims rose more than expected and Q1 unit labor costs were unexpectedly revised lower, dovish factors for Fed policy. T-notes also recovered from early losses after inflation expectations declined when Thursday's 10-year breakeven inflation rate fell to a 2-1/2 month low of 2.283%.
European government bond yields on Thursday were mixed. The 10-year German bund yield rose +3.7 bp to 2.549%. The 10-year UK gilt yield fell -1.0 bp to 4.174%.
As expected, the ECB cut its main refinancing rate by -25 bp to 4.25% and said, "The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction."
The ECB raised its 2024 Eurozone GDP forecast to +0.9% from +0.6% and raised its 2024 Eurozone inflation forecast ex-food and energy to +2.8% from +2.6%.
ECB President Lagarde said the ECB "will keep policy rates sufficiently restrictive for as long as necessary," and the ECB "is not pre-committing" to a particular rate path.
Eurozone Apr retail sales fell -0.5% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 4 months.
German Apr factory orders unexpectedly fell -0.2% m/m versus expectations of a +0.6% m/m increase.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 39% for the July 18 meeting and 57% for the September 12 meeting.
US Stock Movers
Power-linked stocks retreated Thursday on speculation that power demand fueled by AI and data centers may be overly optimistic. As a result, Vistra Corp (VST) closed down more than -6% to lead losers in the S&P 500. Also, NRG Energy (NRG), Hubbell (HUBB), and Eaton Corp Plc (ETN) closed down more than -4%.
Old Dominion Freight Line (ODFL) closed down more than -3% to lead losers in the Nasdaq 100 after reporting May revenue/day rose +5.6% y/y, a deceleration from April when revenue/day rose +6/3% y/y.
Five Below (FIVE) closed down more than 10% after reporting Q1 net sales of $811.9 million, below the consensus of $836.2 million, and cutting its 2025 net sales forecast to $3.79 billion-$3.97 billion from a previous forecast of $3.97 billion-$4.07 billion, weaker than the consensus of $4.03 billion.
ZIM Integrated Shipping Services (ZIM) closed down more than -18% after Citigroup downgraded the stock to sell for neutral on risks from freight rates.
CarMax (KMX) closed down more than -3% after Evercore ISI added the stock to its Tactical Underperform list.
Fastenal (FAST) closed down more than -1% after Bloomberg Intelligence said the company’s daily sales rose +1.5% in May, 1% below the historical average, and if sales trends continue, Q2 revenue may increase less than 2% to $1.92 billion, -2% below consensus.
PayPal Holdings (PYPL) closed up more than +5% on company optimism after CEP Chriss presented at the Bank of America Global Technology conference late Wednesday.
J M Smucker (SJM) closed up more than +4% after reporting Q4 adjusted EPS of $2.66, better than the consensus of $2.33.
Lululemon Athletica (LULU) closed up more than +4% after reporting Q1 EPS of $2.54, stronger than the consensus of $2.39, and raising its 2025 EPS forecast to $14.27-$14.47 from a previous forecast of $14.00-$14.20, above the consensus of $14.17.
Charles River Laboratories (CRL) International closed up more than +2% after Goldman Sachs initiated coverage of the stock with a buy recommendation and a price target of $290.
StoneCo (STNE) closed up more than +2% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $20.
Insulet (PODD) closed up more than +2% after Jeffries named the stock one of its highest-conviction, buy-rated stocks.
Earnings Reports (6/7/2024)
Comtech Telecommunications Cor (CMTL), Eagle Pharmaceuticals Inc/DE (EGRX), J Jill Inc (JILL), Lovesac Co/The (LOVE), Luna Innovations Inc (LUNA), Nathan's Famous Inc (NATH).
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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