Stocks Mixed After Fed-Friendly Economic Reports

The S&P 500 Index ($SPX) (SPY) today is down -0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.10%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.03%.

Stock indexes today are little changed, with the S&P 500 and Nasdaq 100 posting new record highs and the Dow Jones Industrials posting a 1-week high.  Today’s US economic news was Fed-friendly and supportive for stocks after weekly initial unemployment claims rose more than expected, and Q1 nonfarm productivity was stronger than expected.  Also, Q1 unit labor costs were unexpectedly revised lower.   However, stock gains were limited after the US trade deficit in April widened by the most in 1-1/2 years, a negative factor for GDP.

Higher bond yields today are also limiting gains in stocks.  Bond yields rose since the ECB raised its inflation forecasts in conjunction with its expected -25 bp rate cut. 

US weekly initial unemployment claims rose +8,000 to 229,000, showing a weaker labor market than expectations of 220,000.

US Q1 nonfarm productivity was revised downward to +0.2% from the previously reported +0.3%, better than expectations of 0.0%.  Q1 unit labor costs were unexpectedly revised lower to +4.0% from the previously reported +4.7% versus expectations of an increase to +4.9%. 

The US Apr trade deficit widened to -$74.6 billion from -$69.4 billion in March, the largest deficit in 1-1/2 years and a negative factor for GDP.

The markets are looking ahead to Friday’s monthly US payroll report for May, which will be scoured for clues to the labor market's strength that could decide when the Fed can begin cutting interest rates.  The consensus is for May nonfarm payrolls to increase by +190,000 and for the May unemployment rate to remain unchanged at 3.9%.

The markets are discounting the chances for a -25 bp rate cut at 1% for the June 11-12 FOMC meeting and 17% 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 today are mixed.  The Euro Stoxx 50 rose to a 3-week high and is up +0.73%. China's Shanghai Composite fell to a 6-week low and closed down -0.54%.  Japan's Nikkei Stock 225 Index closed up +0.55%.

Interest Rates

September 10-year T-notes (ZNU24) today are down -3 ticks.  The 10-year T-note yield is up +2.1 bp at 4.297%.  Sep T-notes today are under pressure from negative carryover to a slide in 10-year German bunds.  Losses in T-notes were limited after weekly US jobless claims rose more than expected and Q1 unit labor costs were unexpectedly revised lower, dovish factors for Fed policy. 

European government bond yields today are mixed.  The 10-year German bund yield is up +4.1 bp at 2.553%. The 10-year UK gilt yield is down -0.8 bp at 4.176%. 

As expected, the ECB cut its main refinancing rate by -25 bp to 4.25% and said, "The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction."

The ECB raised its 2024 Eurozone GDP forecast to +0.9% from +0.6% and raised its 2024 Eurozone inflation forecast ex-food and energy to +2.8% from +2.6%.

ECB President Lagarde said the ECB "will keep policy rates sufficiently restrictive for as long as necessary," and the ECB "is not pre-committing" to a particular rate path.

Eurozone Apr retail sales fell -0.5% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 4 months.

German Apr factory orders unexpectedly fell -0.2% m/m versus expectations of a +0.6% m/m increase.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 39% for the July 18 meeting and 57% for the September 12 meeting.

US Stock Movers

J M Smucker (SJM) is up more than +5% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of $2.66, stronger than the consensus of $2.33.

Lululemon Athletica (LULU) is up more than +3% after reporting Q1 EPS of $2.54, stronger than the consensus of $2.39, and raising its 2025 EPS forecast to $14.27-$14.47 from a previous forecast of $14.00-$14.20, above the consensus of $14.17. 

Semtech (SMTC) is up more than +5% after reporting Q1 net sales of $206.1 million, better than the consensus of $200.2 million, and forecasting Q2 net sales of $207 million-$217 million, with the midpoint being above the consensus of $210.2 million. 

StoneCo (STNE) is up more than +2% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $20. 

United Airlines Holdings (UAL) is up more than +1% after Redburn upgraded the stock to buy from neutral with a price target of $70.

Sealed Air (SEE) is up more than +1% after Mizuho Securities upgraded the stocks to buy from neutral with a price target of $50. 

Five Below (FIVE) is down more than 11% after reporting Q1 net sales of $811.9 million, below the consensus of $836.2 million, and cutting its 2025 net sales forecast to $3.79 billion-$3.97 billion from a previous forecast of $3.97 billion-$4.07 billion, weaker than the consensus of $4.03 billion. 

ZIM Integrated Shipping Services (ZIM) is down more than -14% after Citigroup downgraded the stock to sell for neutral on risks from freight rates. 

Old Dominion Freight Line (ODFL) is down more than -3% to lead losers in the Nasdaq 100 after reporting May revenue/day rose +5.6% y/y, a deceleration from April when revenue/day rose +6/3% y/y.

CarMax (KMX) is down more than -2% after Evercore ISI added the stock to its Tactical Underperform list.

Fastenal (FAST) is down more than -1% after Bloomberg Intelligence said the company’s daily sales rose +1.5% in May, 1% below the historical average, and if sales trends continue, Q2 revenue may increase less than 2% to $1.92 billion, -2% below consensus.

Earnings Reports (6/6/2024)

Ciena Corp (CIEN), DocuSign Inc (DOCU), J M Smucker Co (SJM), Toro Co (TTC), Vail Resorts Inc (MTN).

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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.