Strength in Chips Stocks Leads the Overall Market Higher

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.91%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.85%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.29%. 

US stock indexes settled moderately higher on Thursday.  A +9% surge in Qualcomm led chip stocks higher Thursday and boosted the overall market after it reported stronger-than-expected Q2 EPS and forecast Q3 EPS above consensus. The broader market also had carryover support from Wednesday when Fed Chair Powell said it’s unlikely the Fed’s next move would be to raise interest rates.  Stocks are awaiting earnings results from Apple after Thursday’s close and from Friday’s monthly US payroll report for further direction.

Stocks also garnered support Thursday after the Organization for Economic Cooperation and Development (OECD) raised its 2024 global growth forecast to +3.1% from a February estimate of +2.9% and said risks are becoming "better balanced."

Stock indexes maintained their gains Thursday even after US economic reports showed weekly jobless claims rose less than expected, and Q1 unit labor costs rose more than expected, hawkish factors for Fed policy. 

Corporate earnings results Thursday were mixed.  On the positive side, Howmet Aerospace closed up more than +14% after reporting Q1 revenue above consensus and raising its full-year revenue forecast.  Also, CH Robinson Worldwide rose more than +12% after reporting better-than-expected Q1 revenue. 

On the negative side, Etsy closed down more than -15% after reporting Q1 gross merchandise sales below consensus.  Also, Qorvo fell more than -14% after forecasting Q1 adjusted EPS below consensus. In addition, Paycom Software closed down more than -10% after forecasting Q2 revenue below consensus.

Q1 earnings results have been mostly better than expected, a supportive factor for stocks.  Q1 earnings are now expected to climb +4.7% from a year ago, compared with the pre-earnings season estimate of +3.8%.  According to data compiled by Bloomberg Intelligence, about 81% of the S&P 500 companies that have already reported have beaten Q1 earnings estimates. 

Weekly US initial unemployment claims were unchanged at 208,000, showing a stronger labor market than expectations of an increase to 211,000.

US Q1 nonfarm productivity rose +0.3%, weaker than expectations of +0.5%.  Q1 unit labor costs rose +4.7%, stronger than expectations of +4.0%.

US Mar factory orders rose +1.6% m/m, right on expectations and the biggest increase in 4 months.

The markets are discounting the chances for a -25 bp rate cut at 15% for the June 11-12 FOMC meeting and 39% for the following meeting on July 30-31.

Overseas stock markets Thursday settled lower.  The Euro Stoxx 50 fell to a 1-1/2 week low and closed down -0.62%.  China's Shanghai Composite was closed for the Labor Day holiday.  Japan's Nikkei Stock Index closed down -0.10%. 

Interest Rates

June 10-year T-notes (ZNM24) on Thursday closed up +8 ticks.  The 10-year T-note yield fell -5.1 bp to 4.577%.  On Thursday, Jun T-notes recovered from early losses and posted moderate gains as a fall in European government bond yields sparked short-covering in T-notes.  Also, a positive carryover from Wednesday supported T-notes when Fed Chair Powell said it was “unlikely” that the next rate move by the Fed would be a rate hike. 

T-notes on Thursday initially moved lower after US economic reports showed weekly initial unemployment claims rose less than expected and Q1 unit labor costs rose more than expected, hawkish factors for Fed policy. 

European government bond yields Thursday moved lower.  The 10-year German bund yield fell -4.2 bp to 2.541%.  The 10-year UK gilt yield fell -8.0 bp to 4.286%.

US Stock Movers

Howmet Aerospace (HWM) closed up more than +14% to lead gainers in the S&P 500 after reporting Q1 revenue of $1.82 billion, better than the consensus of $1.74 billion, and raising its full-year revenue forecast to $7.23 billion-$7.38 billion from a previous forecast of $7.00 billion-$7.20 billion, stronger than the consensus of $7.15 billion. 

CH Robinson Worldwide (CHRW) closed up more than +12% after reporting Q1 revenue of $4.41 billion, stronger than the consensus of $4.27 billion. 

Moderna (MRNA) closed up more than +12% to lead gainers in the Nasdaq 100 after reporting a Q1 loss of -$3.07 per share, smaller than the consensus of -$3.58 per share.

Qualcomm (QCOM) closed up more than +9% to lead chip stocks higher after it reported Q2 adjusted EPS of $2.44, stronger than the consensus of $2.32, and forecasted Q3 adjusted EPS of $2.15-$2.35, the midpoint above the consensus of $2.16.  Other chip stocks rallied on the news as Marvell Technology (MRVL) closed up more than +4% and Nvidia (NVDA) closed up more than +3%.  Also, ASML Holding NV (ASML), GlobalFoundries (GFS), KLA Corp (KLAC), and Micron Technology (MU) closed up more than +2%.

BorgWarner (BWA) closed up more than +8% after reporting Q1 adjusted EPS of $1.03, better than the consensus of 87 cents, and forecasting full-year adjusted EPS from continuing operations of $3.80-$4.15, the midpoint above the consensus of $3.90. 

Kellanova (K) closed up more than +7% after reporting Q1 organic net sales rose +5.4%, stronger than the consensus of +2.45%. 

Carvana (CVNA) closed up more than +32% after reporting Q1 revenue of $3.06 billion, well above the consensus of $2.68 billion. 

MGM Resorts International (MGM) closed up more than +2% after reporting Q1 net revenue of $4.38 billion, stronger than the consensus of $4.24 billion. 

Etsy (ETSY) closed down more than -15% to lead losers in the S&P 500 after reporting Q1 gross merchandise sales of $2.99 billion, below the consensus of $3.02 billion.

Qorvo (QRVO) closed down more than -14% after forecasting Q1 adjusted EPS of 60 cents to 80 cents, well below the consensus of $1.29.

Huntington Ingalls Industries (HII) closed down more than -11% after reporting Q1 negative free cash flow of -$274 million, wider than the consensus of -$196.6 million.

Paycom Software (PAYC) closed down more than -10% after forecasting Q2 revenue of $434 million-$438 million, weaker than the consensus of $442.2 million.

DoorDash (DASH) closed down more than -10% to lead losers in the Nasdaq 100 after forecasting Q2 adjusted Ebitda of $325 million-$425 million, well below the consensus of $394.4 million. 

Baxter International (BAX) closed down more than -8% after forecasting Q2 adjusted EPS of 65 cents-67 cents, below the consensus of 68 cents. 

Stanley Black & Decker (SWK) closed down more than -7% after forecasting full-year adjusted EPS of $3.0-$4.50, the midpoint below the consensus of $4.19.

Linde Plc (LIN) closed down more than -5% after reporting Q1 sales of $8.1 billion, below the consensus of $8.4 billion. 

Earnings Reports (5/3/2024)

Cboe Global Markets Inc (CBOE), CBRE Group Inc (CBRE), Equinix Inc (EQIX), Hershey Co/The (HSY), Trimble Inc (TRMB).

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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.