Stocks See Support from Chip Stocks But T-Note Yield Rises

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.02%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.55%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.32%. 

US stock indexes settled mixed on Tuesday, with the Dow Jones Industrials posting a 3-week low.  A +6% jump in Nvidia led chip stocks higher and supported the broader market.  Also, Tuesday’s unexpected increase in US May consumer confidence supported the US economy and stocks.

However, a jump in the 10-year T-note yield on Tuesday to a 3-week high weighed on the overall market. T-note yields rose after Minneapolis Fed President Kashkari said the US economy has remained "remarkably resilient" and the Fed should monitor whether inflation is slowing enough to warrant interest rate cuts.  T-note yields jumped to their highs Tuesday afternoon on tepid demand for the Treasury’s 2-year and 5-year T-note auctions.

Increased M&A activity is supportive of stocks.  Energy Transfer LP on Tuesday agreed to buy WTG Midstream through a deal valued at $3.25 billion.  Also, T-Mobile US agreed to buy US Cellular Corp’s wireless operations and some of its spectrum assets for about $2.4 billion.  In addition, Hess Corp said shareholders approved Chevron’s $53 billion takeover of the company.

The markets are awaiting this Friday’s April PCE core deflator, the Fed’s preferred inflation gauge, for clues as to when the Fed might begin cutting interest rates.  Expectations are for the Apr PCE core deflator to remain unchanged from March at +2.8% y/y. 

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 Conference Board US May consumer confidence index unexpectedly rose +4.5 to 102.0, stronger than expectations of a decline to 96.0.

The US May Dallas Fed manufacturing outlook survey unexpectedly fell 4.9 to -19.4, weaker than expectations of an increase to -12.1.

The US Mar S&P CoreLogic composite-20 home price index rose +7.38% y/y, stronger than expectations of +7.30% y/y and the biggest increase in 17 months.

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 Tuesday settled lower.  The Euro Stoxx 50 fell back from a 1-week high and closed down -0.57%.  China's Shanghai Composite closed down -0.46%.  Japan's Nikkei Stock Index closed down -0.11%. 

Interest Rates

June 10-year T-notes (ZNM24) Tuesday closed down -13 ticks.  The 10-year T-note yield rose +7.3 bp to 4.538%.  Jun T-notes Tuesday gave up an early advance and fell to a 3-week low, and the 10-year T-note yield climbed to a 3-week high of 4.544%.  T-notes retreated Tuesday after the US May consumer confidence unexpectedly rose and after Minneapolis Fed President Kashkari said the Fed should take its time to monitor whether inflation is slowing enough to warrant interest rate cuts. 

T-note yields jumped to their highs Tuesday afternoon on weak demand for the Treasury’s 2-year and 5-year T-note auctions.  The $69 billion 2-year T-note auction had a bid-to-cover ratio of 2.41, well below the 10-auction average of 2.67 and the lowest in 2-1/2 years.  Also, the $70 billion 5-year T-note auction had a bid-to-cover ratio of 2.30, weaker than the 10-auction average of 2.45.

European government bond yields Tuesday moved higher.  The 10-year German bund yield rose +4.5 bp to 2.592%.  The 10-year UK gilt yield rose +2.0 bp to 4.281%.

The ECB Apr 1-year CPI expectations rate eased to +2.9% from +3.0% in March, right on expectations and the lowest rate in 2-1/2 years.  The Apr 3-year CPI expectations rate eased to +2.4% from +2.5% in March, slower than expectations of no change at +2.5%.

ECB Governing Council member Knot said the ECB is increasingly confident of bringing consumer price growth back to 2% next year and can loosen its "historically tight" monetary policy step by step.

ECB Governing Council member Holzmann said he "will support" next week's interest rate cut by the ECB but won't automatically support moves after June's rate cut. 

US Stock Movers

Moderna (MRNA) closed down more than -8% to lead losers in the S&P 500 and in the Nasdaq 100 on signs of inside selling after an SEC filing showed director Afeyan sold $2.36 million of shares last Wednesday.

Zscaler (ZS) closed down more than -4% after Wells Fargo Securities downgraded the stock to equal weight from overweight. 

Pentair Plc (PNR) closed down more than -3% after Barclays said a takeaway from recent meetings with executives from the company revealed that the sales environment “remains sluggish.”

Lululemon Athletica (LULU) closed down more than -2% after Stifel cut its price target on the stock to$410 from $539.

PepsiCo (PEP) closed down more than -2% after Nielsen industry data showed non-alcoholic beverage sales at Pepsi declined in the latest four-week period. 

DraftKings (DKNG) closed down more than -10% after Illinois legislators raised the tax that sports betting operators pay on their adjusted gross revenue to between 20% and 40% based on revenue thresholds, compared to a current rate of 15%.  Analysts note that the potential for other states to follow suit is a potential negative factor for sports betting companies.

Nvidia (NVDA) closed up more than +6% to lead gainers in the S&P 500 and Nasdaq 100 as it extended its rally from last Thursday when it reported better-than-expected Q1 earnings and forecasted stronger-than-expected Q2 earnings.  Other chip stocks also moved higher, with ASML Holding NV (ASML) and Advanced Micro Devices (AMD) closing up more than +3%.  Also, Micron Technology (MU) and Marvell Technology (MRVL) closed up more than +2%.  In addition, Qualcomm (QCOM) closed up more than +1%, and Intel (INTC) closed up more than +1% to lead gainers in the Dow Jones Industrials.

Norwegian Cruise Line Holdings (NCLH) closed up more than +3% after Mizuho Securities upgraded the stock to buy from neutral with a price target of $24. 

Deckers Outdoor (DECK) closed up more than +4% after Truist Securities upgraded the stock to buy from hold with a price target of $1,200.

Dell Technologies (DELL) closed up more than +3%, adding to last Thursday’s and last Friday’s +7% gain after Aletheia Capital Limited initiated coverage of the stock with a buy recommendation and a price target of $240. 

Airbnb (ABNB) closed up more than +1% after Wedbush upgraded the stock to outperform from neutral with a price target of $165. 

Arcturus Therapeutics (ARCT) closed up more than +26% after reporting the first four patients in a clinical trial to receive ARCT-032 treatments for cystic fibrosis demonstrated improvement after two treatments with no serious adverse events. 

Insmed (INSM) closed up more than +118% after reporting that a late-stage study of its experimental therapy for lung disease met its primary goal and “several” secondary endpoints.   

Earnings Reports (5/29/2024)

Advance Auto Parts Inc (AAP), Agilent Technologies Inc (A), Capri Holdings Ltd (CPRI), Dick's Sporting Goods Inc (DKS), HP Inc (HPQ), nCino Inc (NCNO), Nutanix Inc (NTNX), Okta Inc (OKTA), Pure Storage Inc (PSTG), Salesforce Inc (CRM), U-Haul Holding Co (UHAL), UiPath Inc (PATH).

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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.