Stocks Recover as a Solid Jobs Report Boosts Economic Optimism

The S&P 500 Index ($SPX) (SPY) today is up +0.22%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.39%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.21%.

Stock indexes today recovered from early losses and pushed higher, with the S&P 500 and Nasdaq 100 posting new record highs and the Dow Jones Industrials posting a 2-week high.  Stocks rebounded today despite initially retreating on the stronger-than-expected US May nonfarm payroll report as the solid jobs report downplays concerns about an economic slowdown that could hurt corporate profits.  Also, today’s payroll report shows a resilient US labor market that should underpin consumer spending and keep the economy growing.

Stocks today initially moved lower as bond yields jumped on the stronger-than-expected US May payroll report, which has dialed back expectations for Fed interest rate cuts. May nonfarm payrolls rose more than expected, and May average hourly earnings unexpectedly accelerated, which are hawkish factors for Fed policy. 

US May nonfarm payrolls rose +272,000, stronger than expectations of +180,000.  The May unemployment rate unexpectedly rose +0.1 to 4.0% versus expectations of no change at 3.9%.

US May average hourly earnings rose +0.4% m/m and +4.1% y/y, stronger than expectations of +0.3% m/m and +3.9% y/y.

China May exports rose +7.6% y/y, stronger than expectations of +5.7% y/y and the biggest increase in 4 months, a supportive factor for global growth. 

The markets are discounting the chances for a -25 bp rate cut at 1% for the June 11-12 FOMC meeting and 9% 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 is down -0.09%.  China's Shanghai Composite recovered from a 6-week low and closed up +0.08%.  Japan's Nikkei Stock 225 Index closed down -0.05%.

Interest Rates

September 10-year T-notes (ZNU24) today are down -30 ticks.  The 10-year T-note yield is up +12.9 bp to 4.416%.  Sep T-note prices retreated today, and yields jumped on the stronger-than-expected US May payroll report, which dampens the outlook for the Fed to cut interest rates anytime soon.  T-notes also have some negative carryover today from a slide in 10-year German bunds. 

European government bond yields today are higher.  The 10-year German bund yield is up +7.4 bp to 2.623%.  The 10-year UK gilt yield is up +8.5 bp to 4.260%.

The Eurozone Q1 compensation per employee, the ECB's preferred measure of wages, rose +5.1% y/y, stronger than expectations of +4.6% y/y, and accelerated from +4.9% y/y in Q4.

ECB Executive Board member Schnabel said, "As the future inflation outlook remains uncertain, the ECB cannot pre-commit to a particular interest rate path."

German Apr industrial production unexpectedly fell -0.1% m/m, weaker than expectations of +0.2% m/m.

German trade news was better than expected after Apr exports rose +1.6% m/m, stronger than expectations of +1.1% m/m.  Also, Apr imports rose +2.0% m/m, stronger than expectations of +0.5% m/m.

The Bundesbank cut its German 2024 GDP forecast to +0.3% from a previous forecast of +0.4% and raised its German 2024 inflation forecast to +2.8% from a prior estimate of +2.7%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 21% for the July 18 meeting and 52% for the September 12 meeting.

US Stock Movers

Air Products and Chemicals (APD) is up more than +3% to lead gainers in the S&P 500 after TotalEnergies SE signed a 15-year contract to buy green hydrogen from the company.

3M Co (MMM) is up more than +1% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $120. 

Emerson Electric (EMR) is up more than +1% after it said it reached an agreement to sell its stake in the Copeland joint venture to Blackstone for $3.5 billion.

Hewlett Packard Enterprise (HPE) is up more than +1% after Argus Research upgraded the stock to buy from hold.

Braze (BRZE) is up more than +4% after raising its 2025 revenue forecast to $577 million-$581 million from a previous forecast of $570 million-$575 million, stronger than the consensus of $574.1 million.

United Rentals (URI) is up more than +1% after JPMorgan Chase initiated coverage of the stock with an overweight recommendation and a price target of $780. 

Lyft (LYFT) is up more than +1% after Loop Capital Markets upgraded the stock to buy from hold, and Bank of America double upgraded the stock to buy from underperform.

Gen Digital (GEN) is down more than -4% to lead losers in the S&P 500 after Morgan Stanley downgraded the stock to equal weight from overweight. 

Homebuilders are retreating today on a sharp jump in T-note yields.  PulteGroup (PHM) and DR Horton (DHI) are down more than -3%.  Also, Toll Brothers (TOL) and Lennar (LEN) are down more than -2%.

DocuSign (DOCU) is down more than -6% after forecasting Q2 billings of $715 million-$725 million, weaker than the consensus of $727.8 million. 

Mining stocks are under pressure today, with gold, copper, and silver prices down by more than -2%.  As a result, Newmont (NEM) and AngloGold (AU) are down more than -4%.  Also, Freeport McMoRan (FCX) and ArcelorMittal (MT) are down more than -3%. 

Samsara (IOT) is down more than -12% despite reporting better-than-expected Q1 results after Morgan Stanley attributed the decline to the beat on revenue being below buy-side expectations and the average beat from last year. 

Biomea Fusion (BMEA) is down more than -63% after saying the FDA placed a clinical hold on its ongoing Phase I/II trials of BMF-219 in type 1 and type 2 diabetes. 

Vail Resorts (MTN) is down more than -13% after reporting Q3 net revenue of $1.28 billion, below the consensus of $1.29 billion, and cutting its full-year total reported Ebitda forecast to $825 million-$845 million from a previous forecast of $847 million-$889 million, well below the consensus of $859.8 million. 

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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