Stocks Settle Slightly Lower on Higher Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed down -0.04%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.14%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.11%.

Stock indexes Monday gave up early gains and settled slightly lower on the large +15.4 bp rise in the 10-year T-note yield.  The markets are also on guard for a hawkish FOMC meeting this week, with the market pricing in a 95% chance the Fed raises the federal funds target range by 25 bp on Wednesday.  Also, weakness in regional bank stocks Monday weighed on the overall market as sentiment toward the sector remains sour after First Republic Bank became the third U.S. bank this year to fail. 

JPMorgan Chase will pay the Federal Deposit Insurance Corp (FDIC) $10.6 billion to acquire First Republic Bank.  JPMorgan Chase will take over First Republic's assets, including about $173 billion of loans, $30 billion of securities, and $92 billion in deposits.  In addition, JPMorgan Chase and the FDIC agreed to share the burden of losses and any recoveries on First Republic's single-family and commercial loans.

Stocks on Monday initially moved higher, with the S&P 500 climbing to a 2-3/4 month high and the Dow Jones Industrials posting a 2-1/2 month high on optimism the U.S. economy may avoid a recession after Monday’s U.S. construction spending and ISM manufacturing reports were better than expected.

In a negative factor for Chinese and global economic growth, Monday’s Chinese manufacturing and non-manufacturing reports were weaker than expected.  The China Apr manufacturing PMI fell -2.7 to 49.2, weaker than expectations of 51.4 and the weakest level in 4 months.  Also, the Apr non-manufacturing PMI fell -1.8 to 56.4, weaker than expectations of 57.0.

U.S. bond yields Monday moved higher.  The 10-year T-note yield rose +15.4 bp to 3.578%.  German and UK government bonds did not trade Monday, with European markets and the UK closed for holidays.

The U.S. Apr ISM manufacturing index rose +0.8 to 46.1, stronger than expectations of 46.8.

U.S. Mar construction spending rose +0.3% m/m, stronger than expectations of +0.1% m/m and the largest increase in 4 months.

On the negative side for stocks, Newell Brands closed down more than -11% after CEO Peterson said the bankruptcy of Bed Bath & Beyond “is expected to be a slight headwind for Newell as they liquidate inventory and shoppers migrate to other retailers.”  Also, Check Point Software closed down more than -6% after reporting Q1 revenue below consensus.  In addition, regional bank stocks moved lower as sentiment toward the sector remains sour after First Republic Bank became the third U.S. bank this year to fail.

On the bullish side, ON Semiconductor closed up more than +8% after reporting Q1 adjusted EPS above consensus.  Also, Norwegian Cruise Line Holdings closed up more than +8% to lead cruise line stocks higher after reporting a smaller-than-expected Q1 adjusted loss.  Nvidia closed up more than +4% after it said a new computer using its processors for artificial intelligence has begun shipping to customers.

Overseas stock markets Monday settled mixed.  The Euro Stoxx 50 was closed for the May Day holiday. China’s Shanghai Composite was closed for the Golden Week holidays, and Japan’s Nikkei Stock Index closed up +1.92%. 

Today’s stock movers…

Newell Brands (NWL) closed down more than -11% to lead losers in the S&P 500 after CEO Peterson said the bankruptcy of Bed Bath & Beyond “is expected to be a slight headwind for Newell as they liquidate inventory and shoppers migrate to other retailers.”

Global Payments (GPN) closed down more than -8% after the company said CEO Sloan would step down on June 1 and will be replaced by current President and COO Bready.

Check Point Software (CHKP) closed down more than -6% after reporting Q1 revenue of $566.2 million, below the consensus of $568.5 million.

PNC Financial Services Group (PNC) and Citizens Financial Group (CFG) closed down more than -6% after losing out on the bidding to acquire First Republic Bank to JPMorgan Chase. Other regional bank stocks also retreated Monday, with KeyCorp (KEY) closing down more than -4%. Also, US Bancorp (USB), Zions Bancorp (ZION), M&T Bank (MTB), and Truist Financial Corp (TFC) closed down more than -3%.

Exxon Mobil (XOM) closed down more than -3% after Goldman Sachs downgraded the stock to neutral from buy. 

Franklin Resources (BEN) closed down more than -2% after reporting Q2 operating revenue of $1.93 billion, below the consensus of $1.96 billion.

ON Semiconductor (ON) closed up more than +8% after reporting Q1 adjusted EPS of $1.19, better than expectations of $1.09 billion.

Cruise line operators rallied Monday, with Norwegian Cruise Line Holdings (NCLH) closing up more than +8% to lead gainers in the S&P 500 after reporting a Q1 adjusted loss of -30 cents, narrower than the consensus of -43 cents.  Also, Carnival (CCL) closed up more than +3%, and Royal Caribbean Cruises (RCL) closed up more than +2%. 

Loews (L) closed up more than +4% after reporting Q1 EPS of $1.61 versus $1.36 in Q1 of last year, and reporting cash and investments balance was $3.1 billion as of March 31.

Nvidia (NVDA) closed up more than +4% at a 1-1/4 year high to lead gainers in the Nasdaq 100 after it said a new computer using its processors for artificial intelligence has begun shipping to customers.

JPMorgan Chase (JPM) closed up more than +2% to lead gainers in the Dow Jones Industrials after saying it expects to recognize an upfront, one-time, post-tax gain of about $2.6 billion as a result of its acquisition of First Republic Bank.

A O Smith (AOS) closed up more than +2% after reporting Q1 EPS of 84 cents, better than the consensus of 78 cents, and raising guidance on full-year adjusted EPS to $3.30-$3.50 for a prior estimate of $3.15-$3.45, above the consensus of $3.33.

Iveric Bio Inc (ISEE) closed up more than +15% after Japan’s Astellas Pharma Inc agreed to acquire the company for about $5.9 billion.

U.S. casino stocks with exposure to Macau moved higher Monday after Macau gaming revenue in April soared +449.9% y/y to a 3-year high as Chinese tourists returned to the gambling hub following the end of pandemic restrictions.  As a result, Caesars Entertainment (CZR) and MGM Resorts International (MGM) closed up more than +2%. Also, Wynn Resorts (WYNN) and Las Vega Sands (LVS) closed up more than +1%. 

Across the markets…

June 10-year T-notes (ZNM23) on Monday closed down -22.5 ticks, and the 10-year T-note yield rose by +15.4 bp to 3.576%.  June T-notes Monday fell to a 1-week low, and the 10-year T-note yield rose to a 1-1/2 week high of 3.606%. 

June T-note prices retreated Monday as U.S. banking concerns eased slightly after JPMorgan Chase acquired troubled First Republic Bank.  T-note prices also fell as a raft of new corporate bond deals prompted bond dealers to hedge the new supply by shorting T-note futures, with ten companies lined up for new debt issuance, including Meta Platforms with a five-part offering aimed to raise around $7 billion.  Losses in T-notes accelerated to their lows on Monday’s stronger-than-expected U.S. construction spending and ISM manufacturing reports.

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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.