Stocks Pressured as European Political Uncertainty Sparks Risk Off in Asset Markets

The S&P 500 Index ($SPX) (SPY) today is down -0.26%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.59%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.20%.

Stock indexes today are mixed.  The broader market is moderately lower on negative carryover from a slump in European equity markets.  The Euro Stoxx 50 tumbled to a 3-1/2 month low today as growing concerns about political turmoil in France have prompted risk-off sentiment in asset markets.  European markets are increasingly anxious about European politics after French President Macron announced a snap legislative election following his party’s drubbing in European Parliament elections last Sunday. 

On the positive side for stocks is today’s decline in the 10-year T-note yield to a 2-1/2 month low.  Also, Adobe is up more than +14% and helped to keep the Nasdaq 100 in positive territory after reporting Q2 revenue above consensus and raising its full-year revenue forecast.

The US May import price index ex-petroleum unexpectedly fell -0.3% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 11 months.

Cleveland Fed President Mester said today that she is happy to see inflation moving down after stalling in Q1 and wants to see a few more months of good inflation data before cutting interest rates.

The markets are discounting the chances for a -25 bp rate cut at 14% for the July 30-31 FOMC meeting and 66% for the next meeting on September 17-18.

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. 

As expected, the BOJ kept the overnight call rate unchanged between 0% and 0.1% today and said it will specify its plan for bond buying at the July policy meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 dropped to a 3-1/2 month low and is down -1.60%.  China's Shanghai Composite recovered from a 1-3/4 month low and closed up +0.12%.  Japan's Nikkei Stock 225 Index recovered from a 1-week low and closed up +0.24%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +4 ticks.  The 10-year T-note yield is down -2.9 bp at 4.215%.  Sep T-note prices today extended this week’s rally to a 2-1/2 month high, and the 10-year T-note yield fell to a 2-1/2 month low of 4.186%.  T-notes are climbing today on carryover support from strength in European government bond markets.  Also, today’s stock slump has boosted the safe-haven demand for T-notes.  In addition, a fall in inflation expectations supported T-notes after the 10-year breakeven inflation rate tumbled to a 5-1/4 month low today of 2.172%.  T-notes fell back from their best levels after Clevland Fed President Mester said she wanted to see a few more months of good inflation data before cutting interest rates.

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 2-month low of 2.346% and is down -9.9 bp at 2.371%.  The 10-year UK gilt yield fell to a 2-month low of 4.032% and is down -6.6 bp at 4.057%. 

ECB Governing Council member Centeno said the ECB must be prudent in bringing interest rates to levels that neither stimulate nor constrain the economy, suggesting the ECB will take some time before cutting rates again.

ECB Governing Council member Vasle said, "There's a high probability that the process of cutting interest rates will be significantly slower than the process of hiking rates was."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 8% for the July 18 meeting and 49% for the September 12 meeting.

US Stock Movers

Cruise line operators are under pressure today after Bank of America said cruise pricing was “modestly softer” in early June versus May. As a result, Carnival (CCL) is down more than -4% to lead losers in the S&P 500.  Also, Norwegian Cruise Line Holdings (NCLH) is down more than -3%, and Royal Caribbean Cruises Ltd (RCL) is down more than -2%.

MSC Industrial Direct (MSM) is down more than -5% after reporting Q3 preliminary adjusted EPS of $1.32-$1.34, weaker than the consensus of $1.57, and cutting its full-year adjusted operating margin estimate to 10.5%-10.7% from a previous estimate of 12.0%-12.8%.  Peers Fastenal (FAST) is down more than -3% on the news to lead losers in the Nasdaq 100.  Also, WW Grainger (GWW) is down more than -2%.

RH (RH) is down more than -13% after reporting a Q1 adjusted loss per share of -40 cents, a much bigger loss than the consensus of -9.2 cents. 

Twilio (TWLO) is down more than -3%, and Bandwidth (BAND) is down more than -5% after Morgan Stanley downgraded the stocks to equal weight from overweight. 

Datadog (DDOG) is down more than -2% after Monness, Crespi, Hardt & Co. downgraded the stock to sell from neutral with a price target of $98.

Pinterest (PINS) is down more than -1% after Piper Sandler noted a deceleration in growth to traffic to Amazon in May.  Bank of America Global Research double-upgraded the stock to buy from underperform with a price target of $160.

Adobe (ADBE) is up more than +14% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q2 revenue of $5.31 billion, better than the consensus of $5.29 billion, and raising its full-year revenue forecast to $21.40 billion-$21.50 billion from a previous estimate of $21.30 billion-$21.50 billion. 

Hasbro (HAS) is up more than +5% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $80.

Zscaler (ZS) is up more than +1% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $230. 

Earnings Reports (6/14/2024)

Anterix Inc (ATEX).

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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.