Stocks Settle Higher on Expectations for US Apr CPI to Moderate

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.48%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.32%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.68%. 

US stock indexes on Tuesday settled moderately higher, with the S&P 500 posting a 5-week high and the Nasdaq 100 posting a 1-month high.  Stocks pushed higher as bond yields fell due to dovish comments from Fed Chair Powell, who said he doesn't think it's likely that the Fed's next move would be a rate hike. 

Stock gains were limited after US Apr core producer prices rose more than expected, bolstering the Fed's outlook to keep interest rates higher for longer.  The markets are looking ahead to Wednesday’s US consumer price report, where the Apr core CPI is expected to ease to +3.6% y/y from +3.8% y/y in March. 

US Apr PPI final demand rose +2.2% y/y, right on expectations.  However, the Apr PPI ex-food and energy rose +2.4% y/y, unchanged from March and slightly stronger than expectations of +2.3% y/y.

Fed Chair Powell said, "Q1 in the US was notable for lack of inflation progress, and that told us we'll need to be patient and let restrictive policy do its work."  He added, "I don't think it's likely that the next move would be a rate hike, but it is more likely that we will hold the policy rate where it is."

Generally positive Q1 earnings results are supportive of stocks.  Q1 earnings are expected to climb +6.5% 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 markets are discounting the chances for a -25 bp rate cut at 5% for the June 11-12 FOMC meeting and 29% for the following meeting on July 30-31.

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 closed up +0.03%.  China's Shanghai Composite closed down -0.07%.  Japan's Nikkei Stock Index closed up +0.46%. 

Interest Rates

June 10-year T-notes (ZNM24) on Tuesday closed up +8.5 ticks.  The 10-year T-note yield fell -4.2 bp to 4.445%.  June T-notes Tuesday recovered from a 1-week low, and the 10-year T-note yield fell back from a 1-week high of 4.528%.  T-notes saw support Tuesday on dovish comments from Fed Chair Powell, who said he doesn't think it's likely that the next move by the Fed would be a rate hike.  T-notes on Tuesday initially came under pressure after the US core Apr PPI rose more than expected, which was a hawkish factor for Fed policy. 

European government bond yields Tuesday were mixed.  The 10-year German bund yield rose to a 1-week high of 2.555% and finished up +3.8 bp at 2.548%.  The 10-year UK gilt yield fell back from a 1-week high of 4.207% and finished down -0.1 bp at 4.173%.

The German May ZEW survey expectations of economic growth index rose +4.2 to a 2-1/4 year high of 47.1, stronger than expectations of 46.4.

ECB Governing Council member Wunsch said the ECB shouldn't rush into further interest rate cuts after a likely first cut in June as "wage pressures still persist, which is keeping inflation high in the services sector."

US Stock Movers

Super Micro Computer (SMCI) closed up more than +5% after CQG Partners reported a new position in the stock in Q1 of 1.31 million shares, or 2.2% of the outstanding shares. 

Oracle (ORCL) closed up more than +3% after the Information reported the company is close to a deal for a $10 billion cloud contract with xAI. 

Charles Schwab (SCHW) closed up more than +3% after reporting $10 billion in total net new assets brought to the company by new and existing clients in April.

Tesla (TSLA) closed up more than +3% to lead gainers in the Nasdaq 100 after the Biden administration officially announced it was raising tariffs on a wide range of Chinese imports, including electric vehicles.

On Holding AG (ONON) closed up more than +17% after reporting Q1 gross margin of 59.7%, better than the consensus of 59.2%. 

Paysafe (PSFE) closed up more than +19% after reporting Q1 revenue of $417.7 million, stronger than the consensus of $408.3 million. 

Deckers Outdoor (DECK) closed up more than +3% after CICC initiated coverage on the stock with a recommendation of outperform and a price target of $1.002. 

Western Digital (WDC) closed up more than +3% after Citigroup reinstated coverage of the stock with a buy recommendation and a price target of $90. 

Paramount Global (PARA) closed down more than -5% to lead losers in the S&P 500 after CNBC said Sony and Apollo Global Management’s bid for the company is “fading.” 

Merchants Bancorp (MBIN) closed down more than -10% after launching an underwritten public offering of 2.4 million shares of common stock. 

StoneCo (STNE) closed down more than -8% after reporting Q1 adjusted Ebitda of 1.51 billion reals, weaker than expectations of 1.62 billion reals.

Marathon Petroleum (MPC) closed down more than -1% to lead losers in the S&P 500 after MSCI ESG Research cut the company’s MSCI ESG rating to BBB from A. 

Axon Enterprise (AXON) closed down more than -1% on signs of inside selling after an SEC filing showed President Isner and several board members sold $27.3 million of stock. 

Akamai Technologies (AKAM) closed down more than -1% as analysts have cut their price targets on the stock by an average of 11% since the company reported earnings last Thursday. 

Earnings Reports (5/15/2024)

374Water Inc (SCWO), AST SpaceMobile Inc (ASTS), B Riley Financial Inc (RILY), Bit Digital Inc (BTBT), Cadiz Inc (CDZI), Celcuity Inc (CELC), Cisco Systems Inc (CSCO), Consolidated Water Co Ltd (CWCO), Daily Journal Corp (DJCO), Dole PLC (DOLE), Dynatrace Inc (DT), Empire Petroleum Corp (EP), European Wax Center Inc (EWCZ), Eyenovia Inc (EYEN), Hawkins Inc (HWKN), Ispire Technology Inc (ISPR), Kodiak Sciences Inc (KOD), Omeros Corp (OMER), PDS Biotechnology Corp (PDSB), Quipt Home Medical Corp (QIPT), SWK Holdings Corp (SWKH), Urban One Inc (UONEK), Velo3D Inc (VLD), Verde Clean Fuels Inc (VGAS), Workhorse Group Inc (WKHS).

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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.