Stocks Finish Higher on Hopes Inflation Pressures Will Dissipate

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.70%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.01%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.99%. 

US stock indexes Friday settled higher.  The broader market rose Friday on some positive corporate news.  Deckers Outdoor closed up more than +14% after reporting Q4 net sales well above consensus.  Also, Ross Stores closed up more than +7% after reporting better-than-expected Q1 EPS and raising its 2025 EPS forecast.  Strength in chip stocks was another supportive factor for the overall market Friday after Nvidia’s 9% surge on Thursday bolstered the outlook for AI computing spending to remain strong. 

Stocks extended their gains Friday when bond yields gave up an early advance and turned lower as consumers tempered their inflation expectations after the University of Michigan May inflation expectations were revised lower.

On the negative side was Friday’s US economic news that showed Apr capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +0.3% m/m, stronger than expectations of +0.1% m/m and a hawkish factor for Fed policy.

Fed Governor Waller said, "The US is on an unsustainable fiscal path.  If the growth in the supply of US Treasuries begins to outstrip demand, then this will mean lower prices and higher yields, which will put pressure on the neutral rate." 

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 0% for the June 11-12 FOMC meeting and 10% for the following meeting on July 30-31.

Overseas stock markets Friday settled lower.  The Euro Stoxx 50 fell to a 2-1/2 week low and closed down -0.04%.  China's Shanghai Composite fell to a 3-1/2 week low and closed down -0.88%.  Japan's Nikkei Stock Index fell to a 1-week low and closed down -1.17%. 

Interest Rates

June 10-year T-notes (ZNM24) Friday were little changed and closed down -0.5 of a tick.  The 10-year T-note yield fell -1.2 bp to 4.465%.  June T-notes Friday recovered from a 1-1/2 week low and settled little changed, and the 10-year T-note yield fell back from a 1-1/2 week high of 4.500%.  T-note recovered from early losses Friday when short covering emerged after the University of Michigan’s US May inflation expectations were revised lower, a dovish factor for Fed policy. 

T-notes on Friday initially moved lower on negative carryover from a fall in 10-year German bunds to a 4-week low.  T-notes were also under pressure from Friday’s economic news showed that Apr capital goods, new orders, nondefense ex-aircraft, and parts rose more than expected, a hawkish factor for Fed policy. 

European government bond yields on Friday were mixed.  The 10-year German bund yield fell back from a 4-week high of 2.624% and finished down -1.3 bp at 2.583%.  The 10-year UK gilt yield rose to a 3-week high of 4.286% and finished up +0.2 bp at 4.261%.

ECB Executive Board member Schnabel said the ECB shouldn't lower borrowing costs too rapidly as some elements of inflation "are proving persistent, especially domestic inflation and services in particular."

ECB Governing Council member and Bundesbank President Nagel said he's confident that wage growth will slow in coming months and the likelihood of a June rate cut by the ECB is "winning traction."

US Stock Movers

Deckers Outdoor (DECK) closed up more than +14% to lead gainers in the S&P 500 after reporting Q4 net sales of $959.8 million, well above the consensus of $884.4 million.

Ross Stores (ROST) closed up more than +7% to lead gainers in the Nasdaq 100 after reporting Q1 EPS of $1.46, better than the consensus of $1.35, and raising its 2025 EPS forecast to $5.79-$5.98 from a previous forecast of $5.64-$5.89.

Chip stocks rallied Friday after Nvidia’s earnings results late Wednesday bolstered optimism that AI computing spending will remain strong.  As a result, Qualcomm (QCOM) and Super Micro Computer (SMCI) closed up more than +4%.  Also, Advanced Micro Devices (AMD) closed up more than +3%.  In addition, Nvidia (NVDA), Micron Technology (MU), ASML Holding NV (ASML), and Marvell Technology (MRVL) closed up more than +2%. 

Dell Technologies (DELL) closed up more than +3%, adding to Thursday’s+4% gain after Evercore ISI added the stock to its tactical outperform list with a price target of $165.

International Paper (IP) closed up more than +2% after Bloomberg reported that Suzano SA is in talks with banks on financing a potential bid for International Paper.

Booz Allen Hamilton Holding (BAH) closed up more than +3% after reporting Q4 adjusted EPS of $1.33, stronger than the consensus of $1.23, and forecasting 2025 adjusted EPS of $5.80-$6.05, the midpoint above the consensus of $5.92. 

DuPont de Nemours (DD) closed up more than +2% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $103. 

Apple (AAPL) closed up more than +1% after Wedbush raised its price target on the stock to $275 from $250.   

Intuit (INTU) closed down more than -8% to lead losers in the S&P 500 after forecasting Q4 adjusted EPS of $1.80-$1.85, weaker than the consensus of $1.93. 

Workday (WDAY) closed down more than -15% to lead losers in the Nasdaq 100 after cutting its full-year subscription sales forecast to $7.73 billion from a previous estimate of $7.78 billion. 

Salesforce (CRM) closed down more than -2% to lead losers in the Dow Jones Industrials on signs of insider selling after an SEC filing showed CEO Benioff sold $4.28 million of shares on Wednesday.

Exact Sciences (EXAS) closed down more than -8% after rival Guardant Health’s Shield blood test to screen for colorectal cancer received the support of an FDA advisory panel. 

Defensive healthcare stocks were under pressure Friday, with Elevance Health (ELV) closing down more than -4% and Centene (CNC) closing down more than -3%.  Also, Molina Healthcare (MOH) closed down more than -2%.  In addition, UnitedHealth Group (UNH) and Cigna Group (CI) closed down more than -1%. 

Cintas (CTAS) closed down more than -2% after Citigroup downgraded the stock to sell from neutral with a price target of $570.   

Earnings Reports (5/28/2024)

Box Inc (BOX), Cava Group Inc (CAVA), Digital Turbine Inc (APPS), Golar LNG Ltd (GLNG), HEICO Corp (HEI), Hibbett Inc (HIBB), Nano-X Imaging Ltd (NNOX), Ocean Biomedical Inc (OCEA), Ooma Inc (OOMA), Urban One Inc (UONEK).

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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.