Stocks Climb as US Jobs Report Ramps Up Fed Rate Cut Expectations

The S&P 500 Index ($SPX) (SPY) this morning is +0.86%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.81%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.65%. 

US stock indexes this morning are moderately higher, with the S&P 500 and Nasdaq 100 posting 2-1/2 week highs and the Dow Jones Industrials posting a 3-1/2 week high.  A +6% jump in Apple today is lending support to the overall market and has sparked optimism about the earnings power of big technology companies. Stocks added to their gains as bond yields fell after this morning’s weaker-than-expected US Apr nonfarm payrolls report bolstered confidence that the Fed will be able to start cutting interest rates this year.

Stock indexes fell back from their best levels today based on hawkish comments from Fed Governor Bowman, who said inflation will likely remain elevated for "some time" and that she is "willing to hike" interest rates if inflation stalls or reverses.  Also, stagflation concerns are bearish for stocks after the Apr ISM services index unexpectedly contracted by the most in 16 months, and the Apr ISM services prices paid sub-index rose more than expected.

Corporate earnings results today are mixed.  On the positive side, Apple is up more than +6% after reporting better-than-expected Q2 revenue and announcing plans to buy back a record $110 billion of stock. Also, Amgen is up more than +12% after reporting stronger-than-expected Q1 adjusted EPS and saying it was “very encouraged” by early results from a study of the experimental MariTide obesity drug.

On the negative side, Expedia Group is down more than -14% after reporting Q1 gross bookings below consensus. Also, Fortinet is down more than -7% after reporting Q1 billings below consensus. 

Q1 earnings results have been mostly better than expected, a supportive factor for stocks.  Q1 earnings are now expected to climb +4.7% from a year ago, compared with the pre-earnings season estimate of +3.8%.  According to data compiled by Bloomberg Intelligence, about 81% of the S&P 500 companies that have already reported have beaten Q1 earnings estimates. 

US Apr nonfarm payrolls rose +175,000, below expectations of +240,000 and the smallest increase in 6 months. The Apr unemployment rate unexpectedly rose +0.1 to 3.9%, showing a weaker labor market than expectations of no change at 3.8%.

US Apr average hourly earnings rose +0.2% m/m and +3.9% y/y, weaker than expectations of +0.3% m/m and +4.0% y/y with the +3.9% y/y gain the smallest annual increase in 2-3/4 years.

The US Apr ISM services index unexpectedly fell -2.0 to 49.4, weaker than expectations of an increase to 52.0 and the steepest pace of contraction in 16 months.  The Apr ISM services prices paid sub-index rose +5.8 to 59.2, stronger than expectations of 55.0.

The markets are discounting the chances for a -25 bp rate cut at 15% for the June 11-12 FOMC meeting and 43% for the following meeting on July 30-31.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +0.43%.  China's Shanghai Composite was closed for the Labor Day holiday.  Japan's Nikkei Stock Index was closed for the Constitution Memorial Day holiday. 

Interest Rates

June 10-year T-notes (ZNM24) this morning are up +10 ticks.  The 10-year T-note yield is down -4.5 bp at 4.536%.  Jun T-notes this morning jumped to a 3-week high, and the 10-year T-note yield tumbled to a 3-week low of 4.447%.  The main bullish factor for T-note prices is today’s US Apr employment report showing a smaller-than-expected increase in Apr nonfarm payrolls and a smaller-than-expected increase in Apr average hourly earnings, which are dovish factors for Fed policy.  Today’s decline in inflation expectations is also supportive for T-notes after the 10-year breakeven inflation rate fell to a 2-week low of 2.312%.

T-notes fell back from their best levels on hawkish comments from Fed Governor Bowman, who said she's "willing to hike" interest rates if inflation stalls or reverses.  Also, rising price pressures in the service sector are hawkish for Fed policy and bearish for T-notes after the Apr ISM services prices paid sub-index rose more than expected.

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 2-week low of 2.452% and is down -2.6 bp at 2.515%.  The 10-year UK gilt yield fell to a 2-1/2 week low of 4.189% and is down -4.1 bp at 4.246%.

The Eurozone Mar unemployment rate was unchanged at 6.5%, right on expectations.

US Stock Movers

Apple (AAPL) is up more than +6% after reporting Q2 revenue of $90.75 billion, better than the consensus of $90.33 billion, and announcing plans to buy back a record $110 billion of stock, above the consensus of $90 billion. 

Amgen (AMGN) is up more than +12% to lead gainers in the S&P 500, Dow Jones Industrials, and the Nasdaq 100 after reporting Q1 adjusted EPS of $3.96, better than the consensus of $3.94, and it said it was “very encouraged” by early results from a study of the experimental MariTide obesity drug. 

Live Nation Entertainment (LYV) is up more than +8% after reporting Q1 revenue of $3.80 billion, above the consensus of $3.26 billion. 

Arista Networks (ANET) is up more than +5% after Jeffries upgraded the stock to buy from hold with a price target of $320. 

Booking Holdings (BKNG) is up more than +5% after reporting Q1 revenue of $4.42 billion, stronger than the consensus of $4.25 billion.

Digital Realty Trust (DLR) is up more than +4% after reporting Q1 core FFO/share of $1.67, stronger than the consensus of $1.63, and forecasting full-year core FFO/share of $6.60-$6.75, the midpoint above the consensus of $6.64. 

Block (SQ) is up more than +3% after reporting Q1 adjusted Ebitda of $705.1 million, well above the consensus of $590.4 million, and raising its full-year adjusted Ebitda forecast to $2.76 billion from a previous forecast of $2.63 billion, stronger than the consensus of $2.67 billion.

Homebuilders are climbing today after the 10-year T-note yield fell to a 3-week low, a positive development for housing demand.  Builders FirstSource (BLDR) is up more than +5%.  Also, PulteGroup (PHM), DR Horton (DHI), and Toll Brothers (TOL) are up more than +3%.  In addition, Lennar (LEN) is up more than +2%.

Expedia Group (EXPE) is down more than -14% to lead losers in the S&P 500 after reporting Q1 gross bookings of $30.16 billion, below the consensus of $30.50 billion.

Fortinet (FTNT) is down more than -7% to lead losers in the Nasdaq 100 after reporting Q1 billings of $1.41 billion, weaker than the consensus of $1.43 billion. 

Ingersoll Rand (IR) is down more than -7% after reporting Q1 revenue of $1.67 billion, weaker than the consensus of $1.70 billion. 

DaVita (DVA) is down more than -7% despite reporting better-than-expected Q1 EPS after forecasting full-year free cash flow (FCF) of $900 million-$1.15 billion, the midpoint below the consensus of $1.13 billion. 

Cloudflare (NET) is down more than -16% after forecasting Q2 revenue of $393.5 million-$394.5 million, below the consensus of $394.5 million. 

Fluor (FLR) is down more than -6% after reporting Q1 adjusted EPS of 47 cents, weaker than the consensus of 57 cents.

Trimble (TRMB) is down more than -5% after forecasting Q2 revenue of $845 million-$875 million, weaker than the consensus of $879.3 million.

Earnings Reports (5/3/2024)

Cboe Global Markets Inc (CBOE), CBRE Group Inc (CBRE), Equinix Inc (EQIX), Hershey Co/The (HSY), Trimble Inc (TRMB).

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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.