Markets Today: Stocks Slightly Higher on Hopes for a Debt Ceiling Deal

Morning Markets

June E-Mini S&P 500 futures (ESM23) this morning are up +0.02% at a 2-week high, and June Nasdaq 100 E-Mini futures (NQM23) are up +0.05% at a 9-month high.

U.S. stock index futures this morning are moderately higher as optimism builds that the U.S. will raise its debt ceiling and avoid a default.  President Biden expressed confidence there will be no U.S. default, and House Speaker McCarthy said reaching an agreement this week is “doable.” 

Stock index futures gave up most of their gains as bond yields jumped after this morning’s economic news showed weekly jobless claims fell more than expected, and the May Philadelphia Fed business outlook survey rose more than expected.

U.S. weekly initial unemployment claims fell -22,000 to 242,000, showing a stronger labor market than expectations of 251,000.  Weekly continuing claims unexpectedly fell -8,000 to 1.799 million, showing a stronger labor market than expectations of an increase to 1.820 million.

The U.S. May Philadelphia Fed business outlook survey rose +20.9 to a 4-month high of -10.4, stronger than expectations of -20.0.

Global bond yields are higher.  The 10-year T-note yield jumped to a 4-week high of 3.623% and is up +5.1 bp at 3.615%.  The 10-year German bund yield rose to a 2-1/2 week high of 2.438% and is up +9.1 bp at 2.427%, and the UK 10-year gilt yield climbed to 6-1/2 month high of 3.929% and is up +8.3 bp at 3.920%.

On the bullish side for stocks, Take-Two Interactive Software jumped more than +10% in pre-market trading after reporting Q4 net bookings above consensus.  Also, Micron Technology is up more than +2% after Bloomberg reported Japan is poised to provide about 200 billion yen ($1.5 billion) in incentives to help build a next-generation DRAM production plant in Hiroshima.   In addition, Walmart is up more than +1% after reporting Q1 adjusted EPS above consensus and raising its full-year adjusted EPS estimate.

On the bearish side, Cisco Systems dropped more than -3% in pre-market trading after reporting Q3 orders tumbled -23%.  Also, Boot Barn is down more than -15% after reporting Q4 net sales below consensus and forecasting 2024 same-store sales well below consensus.   In addition, StoneCo is down more than -2% after reporting Q1 payment volume that was below consensus.

Overseas stock markets are higher.  The Euro Stoxx 50 is up +1.15%.  China’s Shanghai Composite closed down -0.21%, and Japan’s Nikkei Stock Index closed up +0.84%. 

The Euro Stoxx 50 index today climbed to a 3-week high and is moderately higher.  Market sentiment improved in European stocks, following Wednesday’s rally in the U.S., on hopes for an eventual breakthrough in negotiations to raise the debt ceiling by June 1.  Also, European bank stocks rallied as concerns receded over U.S. regional bank stocks after Western Alliance Bancorp reported an increase in deposits. European stocks also garnered support after Sanford C. Bernstein said that they were overweight European stocks and that upward revisions of earnings estimates would provide support for the market. 

On the negative side, BT Group Plc tumbled more than -10% after saying it plans to cut its workforce by as much as 42% over the next seven years as it works to reduce costs.  Also, a jump in European government bond yields today is negative for stocks after ECB Vice President Guindos said inflation in services is most worrying for the ECB, and it is too soon to say where the ECB will pause its interest rate hikes.

China’s Shanghai Composite Stock Index today closed moderately higher.  Chinese state-owned companies rallied today after the Shanghai Securities News reported that the first batch of exchange-traded funds tracking the SOE Shareholder Return Index, launched earlier this week, has seen strong investor demand.  Chinese airline stocks also rose after Morgan Stanley upgraded the sector to equal weight from underweight, citing China’s healthy air travel demand recovery and the sector’s low valuations.  On the negative side, Tencent Holdings fell -1% to weigh on internet stocks after the company’s Q1 advertising business sales were weaker than expected.  

Japan’s Nikkei Stock Index today rallied sharply and extended its bull run to a 20-month high.  Foreign fund flows, low valuations and structural changes continue to attract more investors to Japanese stocks.  Japanese semiconductor-related stocks rallied today amid a continued wave of news on local investments by global chipmakers.  Micron Technology said it expects to invest about 500 billion yen in next-generation DRAM production at its Hiroshima plant over the next few years, and Reuters reported that Japan is arranging subsidies to Samsung Electronics that could be worth around 15 billion yen as the company is considering adding a chip facility near Tokyo.  Japanese exporter stocks also rallied today after the yen fell to a 5-month low against the dollar, bolstering earnings prospects for exporters.

Japanese trade data was weaker than expected after Japan's Apr exports rose +2.6% y/y, weaker than expectations of +3.0% y/y.  Also, Apr imports fell -2.3% y/y, weaker than expectations of -0.6% y/y and the biggest decline in 2-1/4 years.

Pre-Market U.S. Stock Movers

Walmart (WMT) rose more than +1% in pre-market trading after reporting Q1 adjusted EPS of $1.47, above the consensus of $1.31, and raised its full-year adjusted EPS estimate to $6.10-$6.20 from a previous forecast of $5.90-$6.05, the mid-point above the consensus of $6.14.

Micron Technology (MU) climbed more than +2% in pre-market trading after Bloomberg reported Japan is poised to provide about 200 billion yen ($1.5 billion) in incentives to help build a next-generation DRAM production plant in Hiroshima.   

Take-Two Interactive Software (TTWO) jumped more than +10% in pre-market trading after reporting Q4 net bookings of $1.39 billion, above the consensus of $1.34 billion. 

Bath & Body Works (BBWI) rallied more than +9% in pre-market trading after reporting Q1 net sales of $1.40 billion, above the consensus of $1.39 billion. 

Rambus (RMBS) rose more than +2% in pre-market trading after Jeffries upgraded the stock to buy from hold with a price target of $65. 

DLocal Ltd (DLO) jumped more than +7% in pre-market trading after reporting Q1 adjusted Ebitda of $45.5 million, stronger than the consensus of $41.8 million.

Cisco Systems (CSCO) dropped more than -3% in pre-market trading after reporting Q3 orders tumbled -23%. 

Boot Barn (BOOT) sank more than -15% in pre-market trading after reporting Q4 net sales of $425.7 million, below the consensus of $442.4 million and forecasting 2024 same-store sales down -4.5% to -6.5%, weaker than the consensus of a +1.27% increase. 

StoneCo (STNE) dropped more than -2% in pre-market trading after reporting Q1 payment volume that was below consensus.

Essential Utilities (WTRG) fell more than -1% in pre-market trading after Northcoast Research downgraded the stock to neutral from buy.

Procter & Gamble (PG) fell nearly -1% in pre-market trading after Truist Securities downgraded the stock to hold from buy, citing valuation.

Alibaba Group Holding Ltd (BABA) dropped more than -2% in pre-market trading after reporting Q4 revenue of 208.20 billion yuan, weaker than the consensus of 209.19 billion yuan.   

Today’s U.S. Earnings Reports (5/18/2023)

Advanced Drainage Systems Inc (WMS), Applied Materials Inc (AMAT), Bath & Body Works Inc (BBWI), DXC Technology Co (DXC), Eagle Materials Inc (EXP), Flowers Foods Inc (FLO), Globant SA (GLOB), Ross Stores Inc (ROST), Walmart Inc (WMT).

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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.