Stocks Climb on Stronger-Than-Expected U.S. Economic Data

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +0.36%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.62%. 

Stock indexes Wednesday recovered from overnight losses and moved moderately higher, with the S&P 500, Dow Jones Industrials, and Nasdaq 100 climbing to 1-week highs.  Better-than-expected U.S. economic reports Wednesday, including May JOLTS job openings and Jun ISM services, were bullish for stocks.

The indexes initially moved lower Wednesday on concern about a global recession.  Also, negative carry-over from a -1.4% slide in China’s Shanghai Composite to a 1-1/2 week low Wednesday undercut U.S. stock indexes on concern that rising Covid infections in China will lead to additional lockdowns in China that stifle economic growth and snarl global supply chains. 

The upside in stocks Wednesday was limited by an increase in T-note yields and hawkish minutes of the June 14-15 FOMC meeting.  The 10-year T-note yield rebounded from a 5-week low Wednesday of 2.744% and jumped +11.4 bp to 2.919% on the hawkish FOMC meeting minutes.

The U.S. Jun ISM services index fell -0.6 to 55.3, stronger than expectations of 54.0.

U.S. May JOLTS job openings fell -427,000 to 11.254 million, showing a stronger labor market than expectations of 11.000 million.

The minutes of the Jun 14-15 FOMC meeting said that many on the FOMC saw a "significant risk" of entrenched inflation and that an "even more restrictive" policy was possible in time. Fed officials saw a 50 bp or a 75 bp rate hike at the July FOMC meeting as likely.

Today’s stock movers…

Strength in technology stocks Wednesday was supportive for the overall market.  Alphabet (GOOGL), Broadcom (AVGO), Microsoft (MSFT), Nvidia (NVDA), Adobe (ADBE), Cisco Systems (CSCO), Marvel Technology (MRVL), and Texas Instruments (TXN) all closed up more than +1%.

Consumer-related stocks moved higher Wednesday, with Procter & Gamble (PG), Monster Beverage (MNST), Conagra Brands (CAG), Hershey Co (HSY), Hormel Foods (HRL), General Mills (GIS), Walmart (WMT), Costco Wholesale (COST), and Clorox Co (CLX) all closing up more than +1%. 

Cruise-line stocks retreated Wednesday on recession concerns.  Norwegian Cruise Line Holdings (NCLH) closed down more than -9% Wednesday to lead losers in the S&P 500.  Also, Royal Caribbean Cruises (RCL) closed down by more than -7%, and Carnival (CCL) closed down by more than -6%. 

Casino stocks with exposure to Macau fell back Wednesday after the Chinese government placed the Grand Lisboa hotel in Macau under lockdown after finding a cluster of Covid cases Tuesday.  Caesars Entertainment (CZR) closed down more than -4%.  Also, Penn National Gaming (PENN) and Wynn Resorts (WYNN) closed down by more than -3%.  In addition, MGM Resorts International (MGM) closed down more than -2%.

HCA Healthcare (HCA) closed down more than -3% Wednesday, and Universal Health Services (UHS) closed down more than -2% after BMO Capital Markets cut both stocks to underperform from market performance.

EOG Resources (EOG) closed down more than -3% Wednesday after RBC Capital Markets cut its recommendation on the stock to sector perform from outperform.

U.S.-listed Chinese stocks sold off Wednesday on concern that rising Covid infections in Shanghai will prompt the government to impose lockdowns that stifle economic activity.  Pinduoduo (PDD) closed down more than -7% to lead losers in the Nasdaq 100.  Also, JD.com (JD) closed down more -4%, and Baidu (BIDU) and NetEase (NTES) closed down by more than -3%.

Across the markets…

Sep 10-year T-notes (ZNU22) on Wednesday closed down by -28 ticks, and the 10-year T-note yield rose +11.4 bp to 2.919%. Sep T-notes Wednesday fell back from a 5-week high, and the 10-year T-note yield rose from a 5-week low at 2.744%. T-notes gave up early gains Wednesday and turned lower on stronger-than-expected U.S. economic data, including Jun ISM services and May JOLTS job openings.  Moreover, T-notes extended their losses Wednesday on the hawkish minutes of the June 14-15 FOMC meeting.

T-notes Wednesday initially opened higher and posted a 5-week high on carry-over support from a rally in European government bonds as both the 10-year German bund yield and 10-year UK gilt yields fell to 1-month lows.  A decline in inflation expectations was also supportive for T-notes as the 10-year breakeven inflation rate sank to a 9-1/2 month low Wednesday of 2.280%.

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