Stocks Waver as Fed Preaches Patience on Rate Cuts

The S&P 500 Index ($SPX) (SPY) today is up +0.11%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.16%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.09%. 

US stock indexes today are mixed.  Stocks are wavering today based on comments from Fed Governor Waller and Atlanta Fed President Bostic, who said they favor waiting for inflation to decline before cutting interest rates.  A decline in T-note yields today is a supportive factor for equities.

Fed Governor Waller said he needs to see "several more" months of good inflation figures to begin interest rate cuts. 

Atlanta Fed President Bostic reiterated his view that inflation will continue to decline slowly and that the Fed can likely begin cutting interest rates in the fourth quarter.

The markets are looking ahead to Wednesday’s April 30-May 1 FOMC meeting minutes to see how close the Fed is to cutting interest rates.  Also, earnings results from Nvidia and Analog Devices will be examined on Wednesday to gauge the demand for semiconductor chips.  In addition, earnings results from big-box retailer Target will be scoured on Wednesday for clues to consumer spending.

Generally positive Q1 earnings results are supportive of stocks.  Q1 earnings are expected to climb +7.1% y/y, well above the pre-earnings season estimate of +3.8%.  According to data compiled by Bloomberg Intelligence, about 81% of reporting S&P 500 companies have beaten Q1 earnings estimates. 

The markets are discounting the chances for a -25 bp rate cut at 5% for the June 11-12 FOMC meeting and 25% for the following meeting on July 30-31.

The price of Bitcoin (^BTCUSD) is up more than +1% at a 6-week high on positive carryover from a surge in Ethereum (^ETHUSD). Ether is up more than +7% today at a 2-month high, adding to Monday’s +13% rally on speculation the US will soon approve exchange-traded funds (ETFs) investing directly in Ether, the second-largest cryptocurrency token.  Bloomberg reported the US Securities and Exchange Commission (SEC) contacted at least one exchange and at least one potential spot-Ether ETF issuer to update related 19b-4 filings, a sign that odds for SEC approval may be rising. 

Overseas stock markets today are lower.  The Euro Stoxx 50 fell to a 1-1/2 week low and is down -0.71%.  China's Shanghai Composite closed down -0.42%.  Japan's Nikkei Stock Index closed down -0.31%. 

Interest Rates

June 10-year T-notes (ZNM24) today are up +5 ticks.  The 10-year T-note yield is down -3.1 bp to 4.412%.  June T-notes today are moving higher on carryover support from strength in European government bonds.  Also, a more than -2% fall in crude oil prices today has lowered inflation expectations and supports T-notes.  Gains in T-notes are limited after Fed Governor Waller and Atlanta Fed President Bostic said they favor waiting for inflation to decline before cutting interest rates.

European government bond yields today are moving lower.  The 10-year German bund yield is down -1.9 bp to 2.509%.  The 10-year UK gilt yield is down -1.8 bp to 4.150%.

Eurozone Q1 labor costs accelerated to +4.9% y/y from +3.4% y/y in Q4.

German Apr PPI eased to -3.3% y/y from -2.9% y/y in Mar, weaker than expectations of -3.1% y/y.

US Stock Movers

Consumer staple stocks are moving higher today.  Dollar General (DG) is up more than +4% to lead gainers in the S&P 500.  Also, Dollar Tree (DLTR) and Walmart (WMT) are up more than +1%.

Eli Lilly (LLY) is up more than +3% at a record high after receiving approval for its tirzepatide drug in China to treat type 2 diabetes.  It also formed a partnership with Atkis Oncology to develop tumor-targeting radiopharmaceuticals.

AstraZeneca Plc (AZN) is up more than +2% to lead gainers in the Nasdaq 100 after it said it expects to deliver $80 billion in total revenue by 2030 through “significant growth” in its existing oncology, biopharmaceuticals and rare disease portfolio.   

International Business Machines (IBM) is up more than +2% to lead gainers in the Dow Jones Industrials after it said it was expanding its partnership with Salesforce for AI and data ecosystems.

Global-e Online (GLBE) is up more than +2% after raising its full-year revenue estimate to $733 million-$773 million from a previous forecast of $731 million-$771 million. 

Progressive (PGR) is up more than +1% after Morgan Stanley named the stock a “top pick” on attractive valuation.  

Lam Research (LRCX) is up more than +1% after approving a $10 billion share repurchase authorization and a 10-for-1 stock split.

Keysight Technologies (KEYS) is down more than -10% to lead losers in the S&P 500 after forecasting Q3 adjusted EPS of $1.30-$1.36, below the consensus of $1.45.

Nordson (NDSN) is down more than -6% after reporting Q2 sales of $650.6 million, weaker than the consensus of $661.4 million, and forecasting Q3 sales of $645 million-$670 million, well below the consensus of $705.3 million. 

Cybersecurity stocks are under pressure today after Palo Alto Networks forecast Q4 billings of $3.43 billion-$3.48 billion, the midpoint below the consensus of $3.47 billion.  As a result, Palo Alto Networks (PANW) is down more than -4%.  Also, Fortinet (FTNT) and Zscaler (ZS) are down more than -1%. 

Globe Life (GL) is down more than -4% after receiving a preliminary, informal inquiry from the SEC requesting information about recent short-seller reports making allegations about the company.

Amer Sports (AS) is down more than -9% after forecasting a Q2 loss per share of -4 cents to -8 cents, a steeper loss than the consensus of -5 cents. 

AutoZone (AZO) is down more than -3% after reporting Q3 comparable sales rose +1.9%, weaker than the consensus of +3.3%.

Toast Inc (TOST) is down more than -2% after Baird downgraded the stock to neutral from outperform.   

Earnings Reports (5/21/2024)

AutoZone Inc (AZO), Eagle Materials Inc (EXP), Lowe's Cos Inc (LOW), Macy's Inc (M), Toll Brothers Inc (TOL), Viasat Inc (VSAT), XP Inc (XP).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.