Stocks Tumble on Banking Woes and Debt Ceiling Angst

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -1.16%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.08% and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.89%.

Stock indexes Tuesday posted moderate losses on concern about the health of the U.S. banking system and the debt ceiling impasse.  Also, energy stocks were hammered Tuesday after the price of WTI crude plunged more than -5% to a 5-week low. 

The markets are awaiting the conclusion of the 2-day FOMC meeting that began Tuesday to see if the Fed will provide clues as to when it will end its rate-hike campaign.  The markets are worried about the debt limit showdown after Treasury Secretary Yellen on Monday said the government might run out of borrowing power to pay off its bills as early as June 1, which means that Democrats and Republicans in Washington do not have much time to come up with a solution. 

Weaker-than-expected U.S. JOLTS job openings and factory order reports weighed on stocks but sparked a bond rally.

U.S. Mar JOLTS job openings fell -341,000 to a 23-month low of 9.59 million, showing a weaker labor market than expectations of 9.736 million.

U.S. Mar factory orders rose +0.9% m/m, weaker than expectations of +1.2% m/m.

The markets are showing an 86% chance of a +25 bp rate hike by the Federal Reserve at the Tue/Wed FOMC meeting and have fully priced in a +25 bp rate hike by the ECB at Thursday’s ECB meeting.

Global bond yields Tuesday moved lower.  The 10-year T-note yield fell -14.2 bp to 3.426%.  The 10-year German bund yield fell to a 3-week low of 2.249% and finished down -5.5 bp at 2.258%, and the UK 10-year gilt yield fell -5.0 bp to 3.669%.

The Reserve Bank of Australia unexpectedly raised its benchmark interest rate by +25 bp to 3.85% and said inflation remained too high and further tightening may be required.

On the bearish side for stocks, Arista Networks closed down more than -15% after analysts said the company’s Q1 results and forecast for Q2 were strong but cited a lack of visibility for the second half of the year, especially regarding the company’s “cloud titan” customers.  Also, Leidos Holdings closed down more than -14% after reporting Q1 adjusted and forecasting full-year adjusted EPS below consensus. In addition, Zebra Technologies closed down more than -11% after forecasting weaker-than-expected Q2 adjusted EPS.

On the bullish side, Molson Coors Beverage closed up more than +7% after reporting Q1 net sales well above consensus.  Also, Broadridge Financial Solutions closed up more than +6% after stronger-than-expected Q3 adjusted EPS.  Finally, Marriot International closed up more than +4% after reporting Q1 adjusted EPS above consensus and raising guidance on its full-year adjusted EPS estimate.

Overseas stock markets on Tuesday settled mixed.  The Euro Stoxx 50 closed down -1.48%. China’s Shanghai Composite remains closed for the Golden Week holidays, and Japan’s Nikkei Stock Index closed up +0.12%. 

Today’s stock movers…

Weakness in regional bank stocks weighed on the overall market after First Republic Bank on Monday became the third U.S. bank to fail this year. Comerica (CMA) closed down more than -12%, and Zions Bancorp (ZION) closed down more than -10%. Also, KeyCorp (KEY) closed down more than -9%, and Trust Financial (TFC) closed down more than- 7%. In addition, US Bancorp (USB), Citizens Financial Group (CFG), Huntington Bancshares (HBAN), and Regions Financial Corp (RF) closed down more than -6%.

Arista Networks (ANET) closed down more than -15% to lead losers in the S&P 500 after analysts said the company’s Q1 results and forecast for Q2 were strong but cited a lack of visibility for the second half of the year, especially regarding the company’s “cloud titan” customers.

Leidos Holdings (LDOS) closed down more than -14% after reporting Q1 adjusted EPS of $1.47, weaker than the consensus of $1.59, and forecasting full-year adjusted EPS of $6.40-$6.80, the midpoint below the consensus of $6.69.

Zebra Technologies (ZBRA) closed down more than -11% after forecasting Q2 adjusted EPS of $3.20-$3.40, well below the consensus of $4.15. 

Sealed Air (SEE) closed down more than -10% after reporting Q1 adjusted EPS of 74 cents, weaker than the consensus of 77 cents.

Energy stocks and energy service providers sold off Tuesday after the price of WTI crude slumped more than -5% to a 5-week low. Halliburton (HAL) closed down more than -8%. Also, Schlumberger (SLB) and APA Corp (APA) closed down more than -6%.  In addition, Baker Hughes (BKR) and Marathon Oil (MRO) closed down more than -5%, and Diamondback Energy (FANG), Devon Energy (DVN), Marathon Petroleum (MPC), and Valero Energy (VLO) closed down more than -4%. Finally, Chevron (CVX) closed down more than -4% to lead the Dow Jones Industrials losers.

DuPont de Nemours (DD) closed down more than -6% after cutting the top end of its full-year adjusted EPS estimate to $3.55-$3.70 from a previous estimate of $3.50-$4.00, weaker than the consensus of $3.75. 

Molson Coors Beverage (TAP) closed up more than +7% to lead gainers in after S&P 500 after reporting Q1 net sales of $2.35 billion, better than the consensus of $2.24 billion.   

Broadridge Financial Solutions (BR) closed up more than +6% after reporting Q3 adjusted EPS of $2.05, above the consensus of $2.03. 

AMETEK (AME) closed up more than +4% after reporting Q1 net sales of $1.60 billion, stronger than the consensus of $1.54 billion, and raised guidance on full-year adjusted EPS to $5.96-$6.10 from a prior forecast of $5.84-$6.00, above the consensus of $6.00.

Marriot International (MAR) closed up more than +4% to lead gainers in the Nasdaq 100 after reporting Q1 adjusted EPS of $2.09, above the consensus of $1.85, and raised guidance on its full-year adjusted EPS estimate to $7.97-$8.42 from a prior estimate of $7.23-$7.91, stronger than the consensus of $7.71.

NXP Semiconductors NV (NXPI) closed up more than +3% after reporting Q1 revenue of $3.12 billion, better than the consensus of $3 billion, and forecast Q2 revenue of $3.10 billion-$3.30 billion, stronger than the consensus of $3.03 billion.

Ecolab (ECL) closed up more than +3% after reporting Q1 net sales of $3.57 billion, stronger than the consensus of $3.47 billion and forecast Q2 adjusted EPS of $1.15-$1.25, the midpoint above the consensus of $1.19.

Zimmer Biomet Holdings (ZBH) closed up more than +3% after reporting Q1 net sales of $1.83 billion, stronger than the consensus of $1.70 billion. 

Across the markets…

June 10-year T-notes (ZNM23) on Tuesday closed up +1-2/32 points, and the 10-year T-note yield fell by -14.2 bp to 3.426%.  June T-notes Tuesday rallied sharply as concerns about the health of the U.S. banking sector spurred safe-haven buying of T-notes.  Also, Tuesday’s weaker-than-expected U.S. JOLTS job openings and factory orders reports were bullish for T-note prices.  In addition, short-covering by bond dealers boosted T-notes as the dealers lifted short hedges placed on Monday when eleven companies priced $22.6 billion of corporate debt issuance.  T-notes extended their gains after the 10-year breakeven inflation rate Tuesday fell to a 5-week low of 2.185%. 

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• Bank Jitters and Debt Ceiling Weigh on Stocks

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.