Stocks Mixed after Weak US Economic News and European Political Uncertainty

The S&P 500 Index ($SPX) (SPY) today is down -0.30%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.51%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.14%.

Stock indexes today are mixed, with the Dow Jones Industrials falling to a 1-1/2 week low.  The broader market is lower on negative carryover from a slump in European equity markets.  The Euro Stoxx 50 tumbled to a 3-1/2 month low today as growing concerns about political turmoil in France have prompted risk-off sentiment in asset markets. European markets are increasingly anxious about European politics after French President Macron announced a snap legislative election following his party’s drubbing in European Parliament elections last Sunday.  The broader market remained lower after the University of Michigan US June consumer sentiment index unexpectedly fell to a 7-month low.

On the positive side for stocks is today’s decline in the 10-year T-note yield to a 2-1/2 month low.  Also, Adobe is up more than +14% and helped to keep the Nasdaq 100 in positive territory after reporting Q2 revenue above consensus and raising its full-year revenue forecast.

The US May import price index ex-petroleum unexpectedly fell -0.3% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 11 months.

The University of Michigan US June consumer sentiment index unexpectedly fell -2.5 to a 7-month low of 65.6, weaker than expectations of an increase to 72.0.

The University of Michigan US June 1-year inflation expectations indicator was unchanged from May at 3.3%, above expectations of a decline to 3.2%.  Also, June 5-10 year inflation expectations indicator rose to a 7-month high of 3.1%, higher than expectations of no change at 3.0%.

Cleveland Fed President Mester said today that she is happy to see inflation moving down after stalling in Q1 and wants to see a few more months of good inflation data before cutting interest rates.

The markets are discounting the chances for a -25 bp rate cut at 14% for the next FOMC meeting on July 30-31 and 66% for the following meeting on September 17-18.

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. 

As expected, the BOJ kept the overnight call rate unchanged between 0% and 0.1% today and said it will specify its plan for bond buying at the July policy meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 dropped to a 3-1/2 month low and is down sharply by -2.17%.  China's Shanghai Composite recovered from a 1-3/4 month low and closed up +0.12%.  Japan's Nikkei Stock 225 Index recovered from a 1-week low and closed up +0.24%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +5 ticks.  The 10-year T-note yield is down -3.7 bp at 4.207%.  Sep T-note prices today extended this week’s rally to a 2-1/2 month high, and the 10-year T-note yield fell to a 2-1/2 month low of 4.186%.  T-notes are climbing today on carryover support from strength in European government bond markets.  Also, today’s stock slump has boosted the safe-haven demand for T-notes.  In addition, a fall in inflation expectations supported T-notes after the 10-year breakeven inflation rate tumbled to a 5-1/4 month low of 2.172%.  T-notes fell back from their best levels after the University of Michigan US Jun inflation expectations indicator unexpectedly rose and after Clevland Fed President Mester said she wanted to see a few more months of good inflation data before cutting interest rates.

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 2-month low of 2.342% and is down -11.9 bp at 2.351%.  The 10-year UK gilt yield fell to a 2-month low of 4.032% and is down -7.4 bp at 4.049%. 

ECB Governing Council member Centeno said the ECB must be prudent in bringing interest rates to levels that neither stimulate nor constrain the economy, suggesting the ECB will take some time before cutting rates again.

ECB Governing Council member Vasle said, "There's a high probability that the process of cutting interest rates will be significantly slower than the process of hiking rates was."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 8% for the July 18 meeting and 49% for the September 12 meeting.

US Stock Movers

Cruise line operators are under pressure today after Bank of America said cruise pricing was “modestly softer” in early June versus May. As a result, Carnival (CCL) is down more than -6% to lead losers in the S&P 500.  Also, Norwegian Cruise Line Holdings (NCLH) is down more than -6%, and Royal Caribbean Cruises Ltd (RCL) is down more than -5%.

MSC Industrial Direct (MSM) is down more than -9% after reporting Q3 preliminary adjusted EPS of $1.32-$1.34, weaker than the consensus of $1.57, and cutting its full-year adjusted operating margin estimate to 10.5%-10.7% from a previous estimate of 12.0%-12.8%.  Other industrial stocks fell on the news, with Parker-Hannifin (PH) down more than -5% and Ingersoll Rand (IR) down more than -4%.  In addition, Fastenal (FAST) is down more than -3% to lead losers in the Nasdaq 100, and WW Grainger (GWW) is down more than -2%.

RH (RH) is down more than -18% after reporting a Q1 adjusted loss per share of -40 cents, a much bigger loss than the consensus of -9.2 cents. 

Howmet Aerospace (HWM) is down more than -4% after Northcoast Research downgraded the stock to sell from neutral with a price target of $70.

Twilio (TWLO) is down more than -2%, and Bandwidth (BAND) is down more than -5% after Morgan Stanley downgraded the stocks to equal weight from overweight. 

Datadog (DDOG) is down more than -2% after Monness, Crespi, Hardt & Co. downgraded the stock to sell from neutral with a price target of $98.

ON Semiconductor (ON) is down more than -3% on signs of inside selling after an SEC filing showed CFO Thad sold $2.76 million of shares on Tuesday.

Adobe (ADBE) is up more than +14% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q2 revenue of $5.31 billion, better than the consensus of $5.29 billion, and raising its full-year revenue forecast to $21.40 billion-$21.50 billion from a previous estimate of $21.30 billion-$21.50 billion. 

Hasbro (HAS) is up more than +4% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $80.

Chimera Investment (CIM) is up more than +5% after raising its quarterly dividend to 35 cents from 33 cents.

Spotify Technology (SPOT) is up more than +2% after Guggenheim Securities raised its price target on the stock to $400 from $350.

Zscaler (ZS) is up more than +1% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $230. 

Earnings Reports (6/14/2024)

Anterix Inc (ATEX).

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