Stocks Recover as JOLTS Report Bolsters Fed Rate Cut Prospects

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.15%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.36%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.29%.

On Tuesday, stocks recovered early losses and posted moderate gains as bond yields tumbled after job openings in the US fell more than expected in April.  The Apr JOLTS job openings fell more than expected to a 3-year low, which knocked the 10-year T-note yield to a 2-week low and bolsters expectations that the Fed will be able to cut interest rates sooner rather than later.

Weakness in energy stocks Tuesday weighed on the overall market after WTI crude fell more than -1% to a 3-3/4 month low on concern that OPEC+’s plan to return crude production to the market earlier than expected will lead to a glut in global oil supplies. 

The US Apr JOLTS job openings fell -296,000 to a 3-year low of 8.059 million, showing a weaker labor market than expectations of 8.350 million.

US Apr factory orders rose +0.7% m/m, stronger than expectations of +0.6% m/m.

The markets are looking ahead to Thursday’s ECB meeting, with the ECB expected to cut its main refinancing rate by 25 bp to 4.25%.  In addition, Friday’s monthly US payroll report for May will be scoured for clues to the labor market's strength that could decide when the Fed can begin cutting interest rates.  The consensus is for May nonfarm payrolls to increase by +190,000 and for the May unemployment rate to remain unchanged at 3.9%.

The markets are discounting the chances for a -25 bp rate cut at 1% for the June 11-12 FOMC meeting and 18% for the following meeting on July 30-31.

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. 

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 fell to a 4-week low and closed down -1.00%.  China's Shanghai Composite closed up +0.41%.  Japan's Nikkei Stock 225 Index closed down -0.22%.

Interest Rates

September 10-year T-notes (ZNU24) Tuesday closed up +14.5 ticks.  The 10-year T-note yield fell -5.4 bp to 4.334%.  Sep T-notes Tuesday climbed to a 2-week high, and the 10-year T-note yield fell to a 2-week low of 4.312%.  T-notes on Tuesday extended Monday’s gains on carryover support from strength in European government bonds.  Also, falling inflation expectations supported T-notes as the 10-year breakeven inflation rate fell to a 2-week low Tuesday of 2.310%. T-notes raced to their highs Tuesday after the US Apr JOLTS job openings fell more than expected to a 3-year low, a dovish factor for Fed policy.

Eurozone government bond yields Tuesday moved lower.  The 10-year German bund yield fell to a 2-week low of 2.505% and finished down -4.7 bp at 2.534%.  The 10-year UK gilt yield fell to a 2-week low of 4.158% and finished down -4.3 bp at 4.178%. 

The German May unemployment change rose by +25,000, the largest increase in 7 months, showing a weaker labor market than expectations of +7,000.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% for Thursday’s meeting.  If the ECB cuts rates by -25 bp on Thursday as expected, then the markets are expecting a 0% chance of another rate cut at the following meeting on July 18 and a 63% chance of a -25 bp rate cut at the September 12 meeting.

US Stock Movers

Cruise line operators rallied Tuesday after Peel Hunt upgraded Carnival to buy from hold.  As a result, Carnival (CCL) closed up more than +5% to lead gainers in the S&P 500.  Also, Norwegian Cruise Line Holdings (NCLH) closed up more than +3%, and Royal Caribbean Cruises (RCL) closed up more than +2%. 

Real estate investment trusts (REITs) rose Tuesday due to lower bond yields after the 10-year T-note yield fell to a 2-week low.  As a result, Camden Property Trust (CPT), Realty Income Corp (O), and Mid-America Apartment Communities (MAA) closed up more than +2%.  Also, American Tower Corp (AMT), AvalonBay Communities (AVB), and Essex Property Trust (ESS) closed up more than +1%.

Honeywell International (HON) closed up more than +2% to lead gainers in the Dow Jones Industrials after it raised its full-year adjusted EPS estimate to $10.15-$10.45 from a previous estimate of $9.80-$10.10.

HealthEquity (HQY) closed up more than +2% after reporting Q1 adjusted EPS of 80 cents, stronger than the consensus of 66 cents, and raising its full-year adjusted EPS forecast to $2.93-$3.10 from a previous forecast of $2.79-$2.96, above the consensus of $2.89. 

Boeing (BA) closed up more than +2% after China’s Juneyao Airlines said it is expecting to take delivery of a 737 Max jet as soon as Friday, potentially marking a resumption of Boeing jet deliveries to China. 

Donaldson (DCI) closed up more than +1% after reporting Q3 net sales of $927.9 million, better than the consensus of $915.8 million, and raising its full-year EOS estimate to $3.33-$3.39 from a previous estimate of $3.24-$3.32, stronger than the consensus of $3.27. 

Bath & Body Works (BBWI) closed down more than -12% to lead losers in the S&P 500 after forecasting Q2 EPS of 31 cents-36 cents, weaker than the consensus of 39 cents. 

Energy stocks and energy service providers were under pressure Tuesday after the price of WTI crude fell more than -1% to a 3-3/4 month low. As a result, Haliburton (HAL) closed down more than -2%.  Also, Exxon Mobil (XOM), Occidental Petroleum (OXY), Schlumberger (SLB), Phillips 66 (PSX), ConocoPhillips (COP), and APA Corp (APA) closed down more than -1%.

Mining stocks retreated Tuesday after the price of copper fell more than -2% to a 4-week low.  As a result, Freeport McMoRan (FCX) and Southern Copper (SCCO) closed down more than -4%.  Also, AngloGold Ashanti Plc (AU), ArcelorMittal (MT), and Newmont (NEM) closed down more than -3%. 

Designer Brands (DBI) closed down more than -21% after reporting Q1 comparable sales unexpectedly fell -2.5% versus expectations of a +0.59% increase. 

Stanley Black & Decker (SWK) closed down more than -4% after Barclays downgraded the stock to equal weight from overweight. 

Earnings Reports (6/5/2024)

Brown-Forman Corp (BF/B), Campbell Soup Co (CPB), ChargePoint Holdings Inc (CHPT), Dollar Tree Inc (DLTR), Five Below Inc (FIVE), Lululemon Athletica Inc (LULU), Ollie's Bargain Outlet Holding (OLLI), Smartsheet Inc (SMAR), Thor Industries Inc (THO), Victoria's Secret & Co (VSCO).

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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.