Stocks See Mild Pressure from Hawkish Fed Comments

The S&P 500 Index ($SPX) (SPY) today is down -0.04%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.35%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.07%. 

US stock indexes today are slightly lower, with the Dow Jones Industrials posting a 2-1/2 week low.  Comments today from Minneapolis Fed President Kashkari were slightly hawkish for Fed policy and negative for stocks when he said the US economy has remained "remarkably resilient" and the Fed should take its time in monitoring whether inflation is slowing enough to warrant interest rate cuts.

On the positive side, Apple is up more than +1% after it reported its China iPhone shipments surged +52% in April.  Also, Nvidia is up more than +4% to lead chip stocks higher, extending its rally from last Thursday when it reported better-than-expected Q1 earnings and forecasted stronger-than-expected Q2 earnings.

Increased M&A activity is supportive of stocks.  Energy Transfer LP 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.

The markets are awaiting this Friday’s April PCE core deflator, the Fed’s preferred inflation gauge, for clues as to when the Fed will 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 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 today are lower.  The Euro Stoxx 50 fell back from a 1-week high and is down -0.33%.  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) today are up +4 ticks.  The 10-year T-note yield is down -1.2 bp at 4.453%.  A decline in European government bond yields today is supporting modest gains in T-note prices.  The upside was limited after the US Mar S&P CoreLogic composite-20 home price index rose more than expected and after Minneapolis Fed President Kashkari said the Fed should take its time in monitoring whether inflation is slowing enough to warrant interest rate cuts.

Heavy supply pressures are also limiting the upside in T-notes as the Treasury will auction $69 billion of 2-year T-notes and $70 billion of 5-year T-notes later today as part of this week’s $211 billion slate of T-note and floating rate note auctions. 

European government bond yields today are lower.  The 10-year German bund yield is down -0.1 bp at 2.546%.  The 10-year UK gilt yield is down -3.2 bp at 4.229%.

The ECB Apr 1-year CPI expectations rate eased to +2.9% from +3.0% in March, right on expectations and the lowest 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

Apple (AAPL) is up more than +1% to lead gainers in the Dow Jones Industrials after the company’s Apr China iPhone shipments jumped +52%.   

Nvidia (NVDA) is up more than +4% to lead gainers in the Nasdaq 100 as it extends its rally from last Thursday when it reported better-than-expected Q1 earnings and forecasted stronger-than-expected Q2 earnings. Other chip stocks are moving higher as well, with Micron Technology (MU), Marvell Technology (MRVL), ASML Holding NV (ASML), Advanced Micro Devices (AMD), and Qualcomm (QCOM) up more than +1%.

Norwegian Cruise Line Holdings (NCLH) is up more than +4% to lead gainers in the S&P 500  after Mizuho Securities upgraded the stock to buy from neutral with a price target of $24. 

Dell Technologies (DELL) is 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. 

Arcturus Therapeutics (ARCT) is up more than +16% 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) is up more than +121% after reporting that a late-stage study of its experimental therapy for lung disease met its primary goal and “several” secondary endpoints.   

Zscaler (ZS) is down more than -5% to lead losers in the Nasdaq 100 after Wells Fargo Securities downgraded the stock to equal weight from overweight. 

Southwest Airlines (LUV) is down more than -1% after Argus Research downgraded the stock to hold from buy. 

DraftKings (DKNG) is 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.

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.