Stocks Finish Higher on Fed Rate Cut Hopes

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.41%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.65%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.08%.  June E-mini S&P futures (ESM25) are up +0.48%, and June E-mini Nasdaq futures (NQM25) are up +0.09%. 

Stock indexes on Thursday settled higher, with the S&P 500 posting a 2-1/4 month high and the Nasdaq 100 posting a 2-1/2 month high. The broader found support Thursday on hopes for Fed rate cuts as T-note yield fell on a weaker-than-expected US Apr PPI report and the largest decline in six months for Apr manufacturing production.  Stocks also found support on US economic news that showed weekly initial unemployment claims were unchanged, and April retail sales rose more than expected, easing recession concerns. 

However, chip stocks gave back some of this week’s sharp rally on Thursday and limited gains in the overall market.  Comments on Thursday from Fed Chair Powell were neutral for stocks as he reiterated that the Fed is fully committed to its 2% inflation target.

US weekly initial unemployment claims were unchanged at 229,000, close to expectations of 228,000.

The US Apr final-demand PPI report of -0.5% m/m and +2.4% y/y was weaker than expectations of +0.2% m/m and +2.5% y/y.

US Apr retail sales rose +0.1% m/m, stronger than expectations of no change, although Apr retail sales ex-autos rose +0.1% m/m, weaker than expectations of +0.3% m/m.

The US May Empire manufacturing survey general business conditions index unexpectedly fell -1.1 to -9.2, weaker than expectations of an increase to -8.0.

The US May Philadelphia Fed business outlook survey general conditions index rose +22.4 to -4.0, stronger than expectations of -11.0.

US Apr manufacturing production fell -0.4% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 6 months.

The US May NAHB housing market index unexpectedly fell -6 to a 1-1/2 year low of 34, weaker than expectations of no change at 40.

Fed Chair Powell said policymakers are considering changes to the framework that guides monetary policy decisions, including how they think about shortfalls in US employment and approach to their inflation target. He added, “Anchored inflation expectations are critical to everything we do, and we remain fully committed to the 2% target today.”

This week, the markets will focus on tariff news and the prospects for additional trade deals.  On Friday, Apr housing starts are expected to be up +2.9% m/m to 1.363 million, while Apr building permits are expected to be down -1.2% m/m to 1.450 million.  Also, on Friday, the preliminary May University of Michigan US consumer sentiment index is expected to rise +1.2 points to 53.4. 

The markets are discounting the chances at 8% for a -25 bp rate cut at the next FOMC meeting on June 17-18.

Q1 earnings reporting season is winding down.  So far, over 80% of companies in the S&P 500 have reported quarterly results, and 77% have beaten estimates, the highest since Q2 of 2024.  Earnings growth in Q1 is running at +13.1%, compared with just +6.6% expected before the start of the season.  Full-year 2025 corporate profits for the S&P 500 are seen rising +9.4%, down from the forecast of +12.5% in early January.  

Overseas stock markets on Thursday settled mixed.  The Euro Stoxx 50 closed up +0.16%.  China’s Shanghai Composite closed down -0.68%.  Japan’s Nikkei Stock 225 closed down -0.98%.

Interest Rates

June 10-year T-notes (ZNM25) Thursday closed up +17 ticks.  The 10-year T-note yield fell -8.5 bp to 4.451%.  June T-notes moved higher Thursday on signs of easing price pressures due to the weaker-than-expected US Apr PPI report.  Also, Thursday’s -2% plunge in crude oil prices knocked inflation expectations lower, a bullish factor for T-notes.  T-notes added to their gains after US Apr manufacturing production fell by the most in six months, and the May NAHB housing market index unexpectedly fell to a 1-1/2 year low, bolstering speculation for Fed rate cuts.

European government bond yields today are moving lower.  The 10-year German bund yield fell -7.7 bp at 2.622%. The 10-year UK gilt yield fell -5.3 bp to 4.660%.

Eurozone Q1 GDP was revised lower to +0.3% q/q from the previously reported +0.4% q/q.

Eurozone Mar industrial production rose +2.6% m/m, stronger than expectations of +2.0% m/m and the largest increase in 4-1/3 years.

UK Q1 GDP rose +0.7% q/q and +1.3% y/y, stronger than expectations of +0.6% q/q and +1.2% y/y. 

ECB Vice President Guindos said that trade tensions, high funding costs, and weak economic growth could pose headwinds to Eurozone companies and households and that increased defense spending could pressure public finances.

Swaps are discounting the chances at 91% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

US Stock Movers

Foot Locker (FL) closed up more than +85% after Dick’s Sporting Goods agreed to buy the company for $24 a share in cash or about $2.4 billion.

Recently beaten-down pharmaceutical stocks and drug makers rallied on Thursday.  Bristol-Myers Squibb (BMY), Abbot Laboratories (ABT), Amgen (AMGN), and Vertex Pharmaceuticals (VRTX) closed up more than +3%.  Also, Biogen (BIIB), Pfizer (PFE), Eli Lilly (LLY), AbbVie (ABBV), AstraZeneca Plc (AZN) and Regeneron Pharmaceuticals (REGN) closed up more than +2%. 

Chip stocks moved lower Thursday as they gave back some of this week’s advance.  Advanced Micro Devices (AMD) closed down more than +2%.  Also, ON Semiconductor Corp (ON), ASML Holding NV (ASML), Marvell Technology (MRVL), and GlobalFoundries (GFS) closed down more than -1%.

The weakness in the Magnificent Seven stocks on Thursday limited gains in the broader market.  Amazon.com (AMZN) and Meta Platforms (META) closed down more than -2%, and Tesla (TSLA) closed down more than -1%.  Also, Alphabet (GOOGL) closed down -0.85%, Apple (AAPL) closed down -0.47%, and Nvidia (NVDA) closed down -0.38%. 

Steris Plc (STE) closed up more than +8% to lead gainers in the S&P 500 after reporting Q4 life sciences revenue of $149.5 million, stronger than the consensus of $147.2 million. 

Cisco Systems (CSCO) closed up more than +4% to lead gainers in the Dow Jones Industrials after reporting Q3 revenue of $14.15 billion, stronger than the consensus of $14.05 billion, and raised its full-year revenue forecast to $56.5 billion-$56.7 billion from a previous estimate of $56.0 billion-$56.5 billion.

Deere & Co (DE) closed up more than +3% after reporting Q2 net sales and revenue of $12.76 billion, better than the consensus of $12.42 billion. 

Chubb Ltd (CB) closed up more than +3% after announcing a $5 billion share buyback plan. 

UnitedHealth Group (UNH) closed down more than -10% to losers in the Dow Jones Industrials after the Wall Street Journal reported the company is under criminal investigation for possible Medicare fraud. 

Fiserv (FI) closed down more than -16% to lead losers in the S&P 500 after CFO Hau said that Q1 growth had headwinds from factors including conversion last year of non-Clover clients to Clover and that headwind is seen increasing somewhat in Q2.

DXC Technology (DXC) closed down more than -3% after forecasting 2026 revenue of $12.18 billion to $12.44 billion, well below the consensus of $12.52 billion.

AppLovin (APP) closed down more than -2% on signs of insider selling after an SEC filing showed Director Billings sold more than $4 million of shares on Monday. 

Crowdstrike Holdings (CRWD) closed down more than -1% after Mizuho Securities downgraded the stock to neutral from outperform.

Earnings Reports (5/16/2025)

Despegar.com Corp (DESP), Flowers Foods Inc (FLO), PrimeEnergy Resources Corp (PNRG), RBC Bearings Inc (RBC), Replimune Group Inc (REPL), Septerna Inc (SEPN).