Stocks Surge After Powell Quells Fear of an Aggressive Fed

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +2.99%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +2.81%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +3.41%.

U.S. stock indexes Wednesday settled sharply higher, with the Dow Jones Industrials and Nasdaq 100 posting 1-1/2 week highs.  U.S. stock indexes Wednesday traded mixed early as disappointing U.S. economic data on Apr ADP employment, Apr ISM services index, and a record Mar trade deficit weighed on the overall market.  However, stocks rallied sharply Wednesday afternoon when Fed Chair Powell quelled fears about aggressive Fed rate hikes when he said the FOMC was not considering raising rates by 75 bp.

Lower T-note yields Wednesday gave a boost to stocks as the 10-year T-note yield fell -6.4 bp to 2.907%.  Also, upbeat comments from Treasury Secretary Yellen were bullish for stocks Wednesday when she said she sees a possible “soft landing” as the Fed moves to bring down inflation and that “I do believe we’re going to see solid growth in the coming year.” 

The FOMC Wednesday unanimously voted to raise the federal funds target range by 50 bp to 0.75%-1.00% and said that "ongoing increases in the target range will be appropriate."  The FOMC also said it would begin a runoff of its balance sheet by $47.5 billion a month in June, which will increase to $95 billion a month in September.

Fed Chair Powell said inflation is "much too high" and that there was "a broad sense on the FOMC that additional 50 bp increases should be on the table for the next couple of meetings."  He also said that a 75 bp rate hike is not something the FOMC is actively considering. 

U.S. Apr ADP employment rose +247,000, weaker than expectations of +383,000 and the smallest increase in 2 years.

The U.S. Mar trade deficit of a record -$109.8 billion (data from 1992) was wider than expectations of -$107.1 billion and had negative implications for U.S. GDP growth figures.

The U.S. Apr ISM services index unexpectedly fell -1.2 to 57.1, weaker than expectations of an increase to 58.5.

Today’s stock movers…

Paycom Software (PAYC) closed up more than +13% Wednesday to lead gainers in the S&P 500 after reporting Q1 revenue of $354 million, better than the consensus of $343.1 million and raised its full-year revenue forecast to $1.33 billion-$1.34 billion from a prior view of $1.31 billion-$1.32 billion. 

Generac (GNRC) closed up more than +11% Wednesday after reporting Q1 net sales of $1.14 billion, stronger than the consensus of $1.09 billion. 

Starbucks (SBUX) closed up more than +9% Wednesday to lead gainers in the Nasdaq 100 after reporting Q2 net revenue of $7.64 billion, better than the consensus of $7.62 billion. 

Advanced Micro Devices (AMD) closed up more than +9% Wednesday after reporting Q1 revenue of $5.89 billion, above the consensus of $5.30 billion, and raised its full-year revenue forecast to $26.3 billion from a prior view of $21.5 billion, well above the consensus of $24.08 billion.

Airbnb (ABNB) closed up more than +7% Wednesday after reporting Q1 revenue of $1.51 billion, better than the consensus of $1.45 billion, and forecast Q2 revenue of $2,03 billion-$2.13 billion, above the consensus of $1.97 billion. 

Akamai Technologies (AKAM) closed down more than -9% Wednesday to lead losers in the S&P 500 after reporting Q1 adjusted EPS of $1.39, weaker than the consensus of $1.42.

Johnson Controls (JCI) closed down more than -8% Wednesday after reporting Q2 adjusted net sales of $6.10 billion, weaker than the consensus of $6.16 billion, and forecast an unexpected Q3 adjusted loss per share from continuing operations of -82 cents to -87 cents, well below expectations of a profit of $1.02 EPS.

Idexx Labs (IDXX) closed down more than -5% Wednesday to lead losers in the Nasdaq 100 after forecasting full-year EPS of $8.11-$8.35, well below the consensus of $9.46. 

Skyworks Solutions (SWKS) closed down more than -4% Wednesday after forecasting Q3 revenue of $1.20 billion-$1.26 billion, below the consensus of $1.30 billion.

Across the markets…

June 10-year T-notes (ZNM22) on Wednesday closed up by +20.5 ticks, and the 10-year T-note yield fell -6.4 bp to 2.907%.  June T-notes Wednesday traded with moderate losses into early afternoon when they rallied into the close after Fed Chair Powell said the FOMC was not considering raising rates by 75 bp.  T-notes also found support Wednesday from weaker than expected U.S. economic data. T-notes Wednesday initially posted moderate losses on negative carry-over from a slump in 10-year German bunds to a 6-3/4 year low.