Stocks Slide on the Last Trading Day of Q2

The S&P 500 Index ($SPX) (SPY) today is down -0.26%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.39%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.29%.

Stock indexes today are lower in today's afternoon trade.  Earlier this morning, the S&P 500 and Nasdaq 100 posted new all-time highs as easing US price pressures knocked T-note yields lower and bolstered the chances of Fed interest rate cuts this year.  Today’s economic news showed the US May core PCE deflator, the Fed’s preferred inflation gauge, eased +2.6% y/y from +2.8% y/y in April, right on expectations and the slowest pace of increase in 3 years.  Strength in chip stocks today is also bouying the overall market.

Stock indexes fell back from their best levels today after stronger-than-expected US economic reports on Jun MNI Chicago PMI, and the University of Michigan Jun consumer sentiment index pushed T-note yields higher.  

Comments today from Richmond Fed President Barkin were slightly hawkish when he said, "Given the remarkable strength we are seeing in the economy," he is open to the idea that the longer run rate that keeps supply and demand in balance "has shifted up somewhat" and that policy may not be as restrictive as perceived.

US May personal spending rose +0.2% m/m, weaker than expectations of +0.3% m/m.  May personal income rose +0.5% m/m, stronger than expectations of +0.4% m/m.

The US May core PCE price index eased to +2.6% y/y form +2.8% y/y in Apr, right on expectations and the slowest pace of increase in 3 years.

The US Jun MNI Chicago PMI rose +12.0 to a 7-month high of 47.4, stronger than expectations of 40.0.

The University of Michigan US Jun consumer sentiment index was revised upward to 68.2 from 65.6, stronger than expectations of 66.0.

The markets are discounting the chances for a -25 bp rate cut at 10% for the next FOMC meeting on July 30-31 and 60% 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. 

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down -0.40%.  China's Shanghai Composite closed up +0.73%.  Japan's Nikkei Stock 225 Index closed up +0.61%.

Interest Rates

September 10-year T-notes (ZNU24) today are down -8 ticks.  The 10-year T-note yield is up +4.1 bp to 4.327%.  T-notes today gave up an early advance and turned lower on stronger-than-expected US economic news on Jun MNI Chicago PMI and the University of Michigan US Jun consumer sentiment index, hawkish factors for Fed policy.  Also, an increase in inflation expectations is weighing on T-notes after the 10-year breakeven inflation rate rose to a 2-week high today at 2.287%.  In addition, hawkish comments today from Richmond Fed President Barkin undercut T-note prices when he said Fed policy may not be as restrictive as perceived.  Finally, today’s rally in the S&P 500 to a new record high has reduced safe-haven demand for T-notes.

T-notes today initially moved higher on signs of cooling US price pressures after the May core PCE price index increased by the slowest pace in more than three years, bolstering the outlook for Fed rate cuts this year. 

European government bond yields today are moving higher.  The 10-year German bund yield rose to a 2-week high of 2.499% and is up +4.8 bp to 2.496%.  The 10-year UK gilt yield rose to a 2-week high of 4.185% and is up +4.9 bp at 4.179%. 

The Eurozone's May ECB 1-year inflation expectations eased to 2.8% from 2.9% in Apr, the slowest pace of increase in 2-1/2 years.  The May 3-year inflation expectations eased to 2.3% from 2.4% in April, the slowest pace of increase in 2-1/4 years.

German Jun unemployment rose by +19,000, showing a weaker labor market than expectations of +15,000.  The Jun unemployment rate rose +0.1 to a 3-year high of 6.0%, showing a weaker labor market than expectations of no change at 5.9%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 9% for the July 18 meeting and 67% for the September 12 meeting.

US Stock Movers

Synchrony Financial (SYF) is up more than +6% to lead gainers in the S&P 500 after Baird initiated coverage on the stock with a recommendation of outperform and a price target of $56.

Chip stocks are climbing today and supporting gains in the broader market.  Marvell Technology (MRVL) is up more than +3% to lead gainers in the Nasdaq 100.  Also, Advanced Micro Devices (AMD), NXP Semiconductor NV (NXPI), KLA Corp (KLAC), Microchip Technology (MCHP), and Applied Materials (AMAT) are up more than +2%.  In addition, Nvidia (NVDA), Qualcomm (QCOM), Texas Instruments (TXN), Intel (INTC), and Lam Research (LRCX) are up more than +1%.

Healthcare stocks are climbing today and giving support to the overall market after RBC Capital Markets said Thursday night’s presidential debate “bodes well” for health insurers.  Humana (HUM) is up more than +3%.  Also, UnitedHealth Group (UNH) is up more than +2% to lead gainers in the Dow Jones Industrials. 

Tesla (TSLA) is up more than +2% after Bloomberg NEF reported Q1 global electric vehicles rose +24% y/y to 3.2 million units.

Infinera (INFN) is up more than +16% after Nokia Oyj agreed to buy the company in a deal valued at about $2.3 billion.

Digital Realty Trust (DLR) is up more than +2% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $175. 

Nike (NKE) is down more than -19% to lead losers in the S&P 500 and Dow Jones Industrials after reporting Q4 revenue of $12.61 billion, weaker than the consensus of $12.86 billion, and forecasting Q1 revenue to be down about 10%.  Other athletic apparel makers fell on the news, with Lululemon Athletica (LULU) down more than -2% to lead losers in the Nasdaq 100.  Also, Foot Locker (FL), Dicks Sporting Goods (DKS), and Under Armour (UAA) are down more than -1%.

Estee Lauder (EL) is down more than -4% on negative carryover from a fall in L’Oreal SA after L’Oreal said it expects slower growth for the overall beauty market this year due to weakness in Chinese sales.

Travelers Cos (TRV) is down more than -1% after Citigroup downgraded the stock to sell from neutral with a price target of $200.

Rocket Pharmaceuticals (RCKT) is down more than -4% after the FDA rejected the company’s drug application for gene therapy, Kresladi, to treat leukocyte adhesion deficiency-I. 

Kura Sushi USA (KRUS) is down -24% after forecasting 2024 sales between $235 million-$237 million, weaker than the consensus of $246 million.

Xerox Holdings (XRX) is down more than -3% after Citigroup initiated coverage of the stock with a recommendation of sell and a price target of $11.

Hartford Financial Services Group (HIG) is down more than -1% after Citigroup downgraded the stock to neutral from buy. 

Earnings Reports (6/28/2024)

DZS Inc (DZSI), Inhibrx Biosciences Inc (INBX), NET Lease Office Properties (NLOP).

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