Stocks Rebound Sharply after Last Week’s Rout

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up by +2.38%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +1.72%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +2.85%. 

Stocks today are sharply higher as a rally in mega-cap technology stocks lifts the overall market.  Apple, Alphabet, Amazon.com, and Nvidia are all up at least +3%.  Also, a gain of nearly +2% in crude oil is supporting gains in energy stocks.  In addition, a decline in stock valuations with last week's selloff has sparked some dip-buying by investors.

Today’s U.S. economic data was bearish for stocks.  The May Chicago Fed national activity index fell -0.39 to an 8-month low of 0.01, weaker than expectations of unchanged at 0.47. Also, May existing home sales fell -3.4% m/m to a 2-year low of 5.41 million, although that was slightly stronger than expectations of 5.40 million.

Goldman Sachs and Morgan Stanley warned of more losses for stocks.  Morgan Stanley said the S&P 500 Index needs to drop another 15% to 20% to about 3,000 for the market to fully reflect the scale of economic contraction.  Also, Goldman Sachs said stocks were only pricing in a mild recession, "leaving them exposed to a further deterioration in expectations."

Today’s stock movers…

Mega-cap technology stocks are climbing today and are leading the overall market higher.  Nvidia (NVDA) is up more than +5%. Also, Apple (AAPL), Alphabet (GOOGL), Amazon.com (AMZN), and Qualcomm (QCOM) are up more than +3%. 

A rally of nearly +2% in crude oil prices today is lifting energy stocks and energy service providers.  Diamondback Energy (FANG) is up more than +6%.  Also, Exxon Mobil (XOM), Phillips 66 (PSX), Haliburton (HAL), ConocoPhillips (COP),  Schlumberger (SLB), Marathon Petroleum (MPC), and Marathon Oil (MRO) are up more than +4%.  In addition, Chevron (CVX) is up more than +3% to lead gainers in the Dow Jones Industrials.

Tesla (TSLA) is up more than +8% today to lead gainers in the S&P 500 and Nasdaq 100 after CEO Musk said Tesla would cut its salaried workforce by about 10% over the next three months.

DaVita (DVA) is down more than -4% today to lead losers in the S&P 500 after the Supreme Court ruled in favor of an Ohio hospital’s employee health plan in a dispute with DaVita over how much the hospital pays for kidney dialysis.

International Paper (IP) and Westrock (WRK) are both down more than -1% today after Citigroup cut its recommendation on the companies to neutral from buy, citing demand concerns and building inventories.  

Across the markets…

Sep 10-year T-notes (ZNU22) this morning are down -11 ticks, and the 10-year T-note yield is up +7.8 bp at 3.303%.  Today’s rally in U.S. stocks is curbing safe-haven demand for T-notes.  Also, hawkish ECB comments today are pushing European government bond yields higher and are weighing on T-note prices.

The dollar index (DXY00) this morning is down -0.39%.  The dollar this morning is moderately lower as strength in stocks reduces liquidity demand for the dollar.  Also, strength in EUR/USD is undercutting the dollar as hawkish ECB comments today boosted European government bond yields, which strengthened the euro’s interest rate differentials.   

EUR/USD (^EURUSD) is up +0.45% today.  Comments today from ECB officials gave EUR/USD a boost and bolstered the outlook for the ECB to raise interest rates in July and September. ECB Governing Council member Rehn said that a 25 bp rate hike by the ECB next month is "very likely," and the rate hike in September "will be bigger than that," given the outlook for inflation.  Also, ECB Governing Council member Kazimir said "negative rates must be history by September" and that a 50 bp rate hike by the ECB that month is "highly probable."

USD/JPY (^USDJPY) today is up +0.84%.  USD/JPY today is moderately higher as the yen tumbled to a new 24-year low.   Rising T-note yields today are weighing on the yen.  Also, strength in stocks today has reduced the safe-haven demand for the yen. Divergent central bank policies continue to pressure the yen with the Fed, BOE, and ECB ending their QE programs and lifting interest rates, while the BOJ continues to expand its QE program and maintains record-low interest rates.

August gold (GCQ22) this morning is down -0.4 (-0.02%), and July silver (SIN22) is up +0.253 (+1.17%).  Precious metals today are mixed.  A weaker dollar today is supportive of metals prices.  However, gold prices are slightly lower on rising global bond yields and strength in stocks, which curbs safe-haven demand for precious metals.  Slightly better-than-expected U.S. May existing home sales data today was supportive for silver prices.

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