Stocks Recover Losses After Target Cuts its Profit Outlook

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down by -0.61%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.64%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.76%. 

U.S. stock indexes this morning are moderately lower.  Economic growth concerns are weighing on stocks today.  Target is down more than -3% today to lead losses in retailer stocks after it cut its profit outlook for the second time in three weeks amid an inventory surplus.  Meanwhile, this morning’s U.S. trade data showed a smaller-than-expected deficit in April and was slightly bullish for stocks.

Technology stocks are also weaker today amid higher global interest rates.  Government bond yields are climbing worldwide as global central banks tighten monetary policy to rein in inflation.  Today, the Reserve Bank of Australia (RBA) raised its cash rate by 50 bp to 0.85%, a bigger increase than expectations of a 25 bp increase.

The U.S. Apr trade deficit of -$87.1 billion was narrower than expectations of -$89.5 billion and the smallest deficit in 4 months.  The report was supportive of Q2 U.S. GDP.

The World Bank cut its 2022 global growth estimate to 2.9% from an April forecast of 3.2% due to a surge in energy and food prices, supply disruptions from the Covid outbreak in China and the war in Ukraine, and the action by central banks globally to raise interest rates.

Today’s stock movers…

Target (TGT) is down -3% today after cutting its profit outlook for the second time in three weeks due to an inventory surge. Target says it expects its Q2 operating margin rate to be in the range around 2%, below its previous guidance of a wide range around 5.3%, weaker than the consensus of 6.55%.  Other retailers are falling as well, with Home Depot (HD) down more than -2% to lead losers in the Dow Jones Industrials.  Also, Walmart (WMT) and Ross Stores (ROST) are down more than -2%.  In addition, Costo Wholesale (COST), Dollar General (DG), and Macy’s (M) are down more than -1%.

Technology stocks are weaker today and weighing on the overall market.  Micron Technology (MU) and Amazon.com (AMZN) are down more than -2%.  Also, Applied Materials (AMAT), Netflix (NFLX), Illumina (ILMN), Tesla (TSLA), Nvidia (NVDA), and Microchip Technology (MCHP) are down more than -1%. 

JM Smucker (SJM) is up more than +3% today to lead gainers in the S&P 500 after reporting Q4 net sales of $2.03 billion, stronger than the consensus of $1.85 billion.

Strength in crude prices today is lifting energy stocks and energy service providers.  Exxon Mobil (XOM) is up more than +3%.  Also, APA Corp (APA) is up more than +2%.  In addition, ConocoPhillips (COP), Marathon Oil (MRO), and Phillips 66 (PSX) are up more than +1%.

U.S.-listed Chinese technology stocks are climbing today in hopes the Chinese government is close to ending its regulatory crackdown on the sector.  Piduoduo (PDD) is up more than +7% today to lead gainers in the Nasdaq 100.  Also, Alibaba Group Holding (BABA) is up more than +2%, and JD.com (JD) and Baidu (BIDU) are up more than +1%.

Across the markets…

September 10-year T-notes (ZNU22) this morning are up +14 ticks, and the 10-year T-note yield is down -5.3 bp at 2.986%.  Sep T-notes this morning recovered from a 3-1/2 week low, and the 10-year T-note yield fell back from a 3-1/2 week high of 3.062%.  A sell-off in stocks today has sparked short-covering in T-notes.  The upside may be limited today by supply pressures as the Treasury will auction $44 billion of 3-year T-notes later today as part of this week’s sale of $96 billion of T-notes and T-bonds.

The dollar index (DXY00) this morning is up +0.37% at a 2-week high.  The dollar is climbing today as a slump in stocks fuels liquidity demand for the dollar.  Also, weakness in the yen is supportive for the dollar after the yen sank to a new 20-year low against the dollar.  Today’s U.S. trade data showed a smaller-than-expected U.S. Apr trade deficit, which was positive for the dollar. 

EUR/USD (^EURUSD) this morning is down -0.28%.  Dollar strength today is weighing on EUR/USD.  The euro also remains under pressure on the expectation the ECB at Thursday’s policy meeting will cut its forecasts for growth in the Eurozone while also raising its inflation outlook.  Today’s Eurozone economic data on Sentix June investor confidence and German April factory orders were mixed for EUR/USD.

USD/JPY (^USDJPY) today is up +0.87% at a fresh 20-year high.  The yen sank to a 20-year low against the dollar today, and negative carry-over from Monday BOJ Governor Kuroda said Japan’s economy isn’t in a place appropriate for tightening monetary policy. Losses in the yen accelerated today after the Reserve Bank of Australia raised interest rates more than expected, putting additional pressure on the yen’s interest rate differentials.  Today’s Japanese economic data was mixed for the yen.

Japan Apr household spending fell -1.7% y/y, weaker than expectations of -0.6% y/y.

The Japan Apr leading index CI rose +2.1 to 102.9, stronger than expectations of 102.4.

August gold (GCQ22) this morning is up +9.2 (+0.50%), and July silver (SIN22) is up by +0.043 (+0.19%).  Precious metals today are moderately higher.  A slide in stocks today is boosting safe-haven demand for precious metals.  Also, lower global bond yields today are supportive of gold.  Today’s rally in the dollar index to a 2-week high is a bearish factor for metals.  Gains in gold were also limited after the Reserve Bank of Australia today raised interest rates more than expected.