Stocks Settle Higher Ahead of the Tue/Wed FOMC Meeting

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.26%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.39%.

Stock indexes on Monday recovered from early losses and posted mild gains.  The S&P 500 and Nasdaq 100 consolidated below last Friday’s record highs.  Higher bond yields Monday limited gains in the overall market as the 10-year T-note yield climbed to a 1-week high on negative carryover from last Friday’s stronger-than-expected May payroll and hourly earnings reports, which were hawkish factors for Fed policy.  On the positive side, energy stocks moved higher Monday as the price of WTI crude rallied more than +2% to a 1-week high.

Stocks are looking ahead to Wednesday’s US May consumer price report, which is expected to show that the May CPI was unchanged from Apr at +3.4% y/y and that the May CPI ex-food and energy eased slightly to +3.5% y/y from +3.6% y/y in April. 

Also, stock investors are awaiting Wednesday’s results of the 2-day FOMC meeting.  The consensus is that the Fed will keep the Fed funds target rate unchanged at 5.25%-5.50%. The FOMC will also release new estimates for growth and inflation and dot-plot projections for the path of interest rates.  In addition, post-meeting comments from Fed Chair Powell will be scrutinized for when the Fed might cut interest rates. 

The markets are discounting the chances for a -25 bp rate cut at 1% for the June 11-12 FOMC meeting and 9% for the following meeting on July 30-31.

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. 

Overseas stock markets Monday settled mixed.  The Euro Stoxx 50 closed down -0.69%.  China's Shanghai Composite was closed for the Dragon Boat Day holiday.  Japan's Nikkei Stock 225 Index rose to a 1-1/2 week high and closed up +0.92%.

Interest Rates

September 10-year T-notes (ZNU24) Monday closed down -7 ticks.  The 10-year T-note yield rose +3.1 bp to 4.465%.  Sep T-note prices Monday extended last Friday’s losses to a 1-week low, and the 10-year T-note yield rose to a 1-week high of 4.477%.  T-notes were under pressure Monday from negative carryover from last Friday’s stronger-than-expected US May payroll report, which dampened the outlook for the Fed to cut interest rates anytime soon.  Also, a jump in European government bond yields on Monday weighed on T-note prices. T-notes fell to their lows Monday afternoon on weak demand for the Treasury’s $58 billion auction of 3-year T-notes with a bid-to-cover ratio of 2.43, well below the 10-auction average of 2.63.

European government bond yields on Monday moved higher.  The 10-year German bund yield rose to a 1-week high of 2.681% and finished up +5.0 bp at 2.670%.  The 10-year UK gilt yield rose to a 1-week high of 4.330% and finished up +6.0 bp at 4.322%. 

The Eurozone Jun Sentix investor confidence index rose +3.9 to a 2-1/4 year high of 0.3, stronger than expectations of -1.7.

Italy's Apr industrial production unexpectedly fell -1.0% m/m versus expectations of +0.2% m/m.

ECB President Lagarde said last week's cut in interest rates by the ECB "doesn't mean interest rates are on a linear declining path and that there might be periods when we keep interest rates on hold."

ECB Governing Council member Kazimir said ECB policymakers haven't yet beaten the "inflation beast" and ruled out another rate cut in July and said, "September will be a pivotal month" when new forecasts are due and "will be the right moment to reassess our stance and decide whether we need to cut rates or not." 

ECB Governing Council member and Bundesbank President Nagel said the ECB may not cut interest rates again for a while as it watches to see how quickly inflation recedes to its 2% target.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 7% for the July 18 meeting and 56% for the September 12 meeting.

US Stock Movers

Energy stocks and energy service suppliers moved higher Monday as the price of WTI crude rose more than +2% to a 1-week high.  As a result, APA Corp (APA) and Baker Hughes (BKR) closed up more than +2%.  Also, Diamondback Energy (FANG), Haliburton (HAL), Schlumberger (SLB), ConocoPhillips (COP), Marathon Oil (MRO), and Occidental Petroleum (OXY) closed up more than +1%.   

Regional bank stocks were under pressure Monday and weighed on the broader market.  Huntington Bancshares (HBAN) closed down more than -6% to lead losers in the S&P 500 after cutting its full-year net interest income estimate to -1% to -4% (with a mid-point of -2.5%) from previous guidance of plus or minus 2% (with a mid-point of zero).  Other regional banks fell on the news, with Regions Financial (RF) and M&T Bank Corp (MTB) closing down more than -2%.  In addition, Fifth Third Bancorp (FITB) and KeyCorp (KEY) closed down more than -1%. 

Advanced Micro Devices (AMD) closed down more than -4% to lead losers in the Nasdaq 100 after Morgan Stanley downgraded the stock to equal weight from overweight. 

Southwest Airlines (LUV) closed up more than +7% after the Wall Street Journal reported that Elliot Investment Management had built an almost $2 billion stake in the company. 

Crowdstrike (CRWD) closed up more than +8% to lead gainers in the Nasdaq 100 after S&P Dow Jones Indices said the stock will join the S&P 500 before trading opens June 24.

Illumina (ILMN) closed down more than -4% after S&P Dow Jones Indices said the stock will leave the S&P 500 and join the S&P Midcap 400 Index before trading opens June 24.

Perion Network Ltd (PERI) closed down more than -30% after cutting its full-year revenue forecast to $490 million-$510 million from a previous forecast of $590 million-$610 million, well below the consensus of $601 million. 

KKR (KKR) closed up more than +11%, and GoDaddy (GDDY) closed up more than +2% after S&P Dow Jones Indices said the stocks will join the S&P 500 before trading opens June 24.

Mohawk Industries (MHK) closed up more than +4% after Raymond James upgraded the stock to strong buy from market perform with a price target of $140. 

Planet Fitness (PLNT) closed up more than +4% after Jeffries upgraded the stock to buy from hold with a price target of $100. 

Broadcom (AVGO) closed up more than +2% after Morgan Stanley resumed coverage on the stock with a recommendation of overweight and a price target of $1,658.

Apple (AAPL) closed down more than -1% to lead losers in the Dow Jones Industrials as analysts said they were unimpressed after the company introduced its long-awaited new artificial intelligence features at its annual Worldwide Developers Conference.

Adobe (ADBE) closed down more than -1% after Citigroup cut its price target on the stock to $520 from $554.

Comerica (CMA) closed down more than -1% after S&P Dow Jones Indices said the stocks will leave the S&P 500 and join the S&P Smallcap 600 Index before trading opens June 24.

Earnings Reports (6/11/2024)

Academy Sports & Outdoors Inc (ASO), Casey's General Stores Inc (CASY), Ocean Biomedical Inc (OCEA), Oracle Corp (ORCL), PetMed Express Inc (PETS), 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.