Stocks Rally as Risk Appetite Returns

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +1.42%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.00%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.87%.

Stock indexes Wednesday rallied moderately as waning banking concerns boosted risk appetite and fueled stock buying.  Strength in technology stocks also lifted market sentiment, with Micron Technology climbing more than +7% after forecasting stronger-than-expected Q3 sales. In addition, regional bank stocks moved higher Wednesday in hopes of more support from U.S. authorities. Finally, an unexpected increase in U.S. Feb pending home sales boosted hopes for the economic outlook.

U.S. tech stocks had carryover support from a rally in Chinese technology companies after Alibaba Group Holding’s plan, announced on Tuesday, to split into six separate units sparked optimism that China’s regulatory crackdown on the sector might be over. 

Some positive corporate news was bullish for stocks.  Lululemon Athletica closed up more than +13% after reporting stronger-than-expected Q4 net revenue and forecasting 2024 net revenue above consensus.  Also, Intel rallied by more than +7% after the company said that new server chips would come to market sooner than expected.  Susquehanna Financial called the news a "huge positive" for the company.

U.S. Feb pending home sales unexpectedly rose +0.8% m/m, stronger than expectations of a -3.0% m/m decline.

Overseas stock markets Wednesday settled mixed.  The Euro Stoxx 50 closed up +1.51%.  China’s Shanghai Composite stock index closed down -0.16%, and Japan’s Nikkei Stock Index closed up +1.33%.

Today’s stock movers…

Chip stocks rallied Wednesday, with Micron Technology (MU) closing up more than +7% on its forecast for Q3 sales of $3.90 billion, better than the consensus of $3.75 billion. Other chip makers also moved higher on the news, with Lam Research (LRCX) closing up more than +6% and Marvell Technology (MRVL) and GlobalFoundries (GFS) closing up more than +5%. KLA Corp (KLAC), NXP Semiconductors NV (NXPI), and Microchip Technology (MCHP) closed up more than +3%. Qualcomm (QCOM), Nvidia (NVDA), ASML Holding NV (ASML), and Applied Materials (AMAT) closed up more than +2%.

Regional bank stocks moved higher Wednesday as hope for more support from U.S. authorities boosts sentiment toward the banking sector. First Republic Bank (FRC) closed up more than +5%. Also, Lincoln National (LNC) and Comerica (CMA) closed up more than +4%. In addition, Zions Bancorp (ZION) and Truist Financial (TFC) closed up more than +3%.

Intel (INTC) closed up more than +7% to lead gainers in the S&P 500 and Dow Jones Industrials after the company said that new server chips would come to market sooner than expected. Susquehanna Financial called the news a "huge positive" for the company.

Lululemon Athletica (LULU) closed up more than +12% to lead gainers in the Nasdaq 100 after reporting Q4 net revenue of $2.77 billion, above the consensus of $2.70 billion, and forecast 2024 net revenue of $9.30 billion-$9.41 billion, stronger than the consensus of $9.10 billion.

Rivian Automotive (RIVN) closed up more than +9% after Needham & Co said it’s positive on the risk/reward going into the electric vehicle maker’s Q1 delivery data, which is expected to be announced next week.

Cintas (CTAS) closed up more than +4% after reporting Q3 revenue of $2.19 billion, better than the consensus of $2.15 billion, and raising its full-year revenue estimate to $8.74 billion-$8.80 billion from a prior forecast of $8.67 billion-$8.75 billion, stronger than the consensus of $8.72 billion. 

Paychex (PAYX) closed up more than +6% after reporting Q3 revenue of $1.38 billion, above the consensus of $1.36 billion.

Carnival (CCL) closed up +6% after Susquehanna Financial upgraded the stock to positive from neutral.

Hartford Financial Services Group (HIG) closed up more than +3% after Goldman Sachs upgraded the stock to buy from hold.

Retailers were under pressure Wednesday after UBS downgraded five stocks in the sector to sell.  Bath & Body Works (BBWI) closed down more than -2% to lead losers in the S&P 500.  Also, Ross Stores (ROST), Foot Locker (FL), Burlington Stores (BURL), Urban Outfitters (URBN) closed down -1% or more.

Managed healthcare companies that manage private Medicare plans are falling for a second day after Senator Warren on Tuesday urged the Biden administration to finalize new rules that would curb how much the Medicare Advantage program pays health insurers.  UnitedHealth Group (UNH) closed down more than -1% to lead losers in the Dow Jones Industrials.  Also, Cigna Group (CI) and Elevance Health (ELV) closed down -0.5% or more. 

Medtronic Plc (MDT) closed down -0.55% after UBS downgraded the stock to sell from buy.

Across the markets…

June 10-year T-notes (ZNM23) on Wednesday closed down -3.5 ticks, and the 10-year T-note yield fell by -0.6 bp to 3.564%.  June T-notes Wednesday posted modest losses as a rally in stocks reduced the safe-haven demand for government debt.  T-note prices were also undercut by an unexpected increase in Feb pending home sales. Also, weak demand for the Treasury’s $35 billion auction of 7-year T-notes undercut T-notes as the auction had a bid-to-cover ratio of 2.39, well below the 10-auction average of 2.54.

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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.