Stocks Turn Lower on Weak US Manufacturing Activity and Slide in Energy Stocks

The S&P 500 Index ($SPX) (SPY) today is down -0.24 %, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.56%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.03%.

Stocks today gave up an early advance and turned lower.  Economic concerns are weighing on stocks today after US manufacturing activity unexpectedly weakened last month.  Also, energy stocks are under pressure, with the price of WTI crude down more than -2% at a 3-month low. 

Stock indexes today initially moved higher on strength in technology stocks, with Nvidia up more than +3% to lead chip stocks higher after it announced a new generation of AI chips for 2025 and a next-generation platform in development called Rubin for 2026 at a Computex conference in Taiwan.  Also, a decline in bond yields today is bullish for stocks after the 10-year T-note yield fell to a 1-1/2 week low.

The US May ISM manufacturing index unexpectedly fell -0.5 to 48.7, weaker than expectations of an increase to 49.5.  The May ISM price paid sub-index fell -3.9 to 57.0, weaker than expectations of 59.0.

US Apr construction spending unexpectedly fell -0.1% m/m, weaker than expectations of +0.2% m/m.

M&A activity is supporting stocks after Waste Management agreed to buy Stericycle for about $5.8 billion, or $62 per share in cash.  Also, Becton Dickinson decided to buy the critical care unit of Edwards Lifesciences for $4.2 billion.

Some positive Chinese manufacturing news bolstered global economic prospects and supported stocks after the China May Caixin manufacturing PMI rose +0.3 to 51.7, stronger than expectations of 51.6 and the highest level in 23 months.

The markets are looking ahead to Thursday’s ECB meeting, with the ECB expected to cut its main refinancing rate by 25 bp to 4.25%.  In addition, Friday’s monthly US payroll report for May 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%.

Minneapolis Fed President Kashkari told the Financial Times that the Federal Reserve will likely keep interest rates on hold for an "extended period of time" until new economic data convinces policymakers that inflation is on the way down.

The markets are discounting the chances for a -25 bp rate cut at 1% for the June 11-12 FOMC meeting and 15% 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 is up +0.38%.  China's Shanghai Composite closed down -0.27%.  Japan's Nikkei Stock 225 Index closed up +1.13%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +22 ticks.  The 10-year T-note yield is down -8.9 bp at 4.410%.  Sep T-notes today rallied to a 1-1/2 week high, and the 10-year T-note yield fell to a 1-1/2 week low of 4.402%.  T-notes are moving higher today on carryover support from gains in European government bonds.  Gains in T-notes accelerated today after the May ISM manufacturing index and May ISM price paid sub-index declined more than expected, dovish factors for Fed policy.

Eurozone government bond yields today are moving lower.  The 10-year German bund yield is down -8.3 bp at 2.581%.  The 10-year UK gilt yield is down -8.2 bp at 4.237%.

The Eurozone May S&P manufacturing PMI was revised downward by -0.1 to 47.3 from the previously reported 47.4.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 97% for Thursday’s meeting.  If the ECB cuts rates by -25 bp on Thursday as expected, then the markets are expecting a 0% chance of another rate cut at the following meeting on July 18 and a 59% chance of a -25 bp rate cut at the September 12 meeting.

US Stock Movers

Nvidia (NVDA) is up more than +3% after CEO Huang announced a Blackwell Ultra AI chip for 2025 and a next-generation platform in development called Rubin for 2026 at a Computex conference in Taiwan.

Energy stocks and energy service providers are falling today, with the price of WTI crude down more than -2% to a 3-month low.  As a result, Diamondback Energy (FANG) is down more than -4%.  Also, Haliburton (HAL), Schlumberger (SLB), Devon Energy (DVN), and Baker Hughes (BKR) are down more than -3%.  Chevron (CVX), Occidental Petroleum (OXY), and Hess Corp (HES) are down more than -2%.

Autodesk (ADSK) is up more than +8% to lead gainers in the S&P 500 and Nasdaq 100 after it said no financial statements will be restated or adjusted following the results of an investigation by the board’s audit committee. 

Paramount Global (PARA) is up more than +7% after Bloomberg reported that Sydance Media’s latest offer for the company includes an option for non-voting shareholders to cash out a portion of their stock for about $15 a share. 

Boeing (BA) is up more than +2% to lead gainers in the Dow Jones Industrials after Shenzhen TV reported the company resumed deliveries of new aircraft to China.

MongoDB (MDB) is up more than +2% after Guggenheim Securities upgraded the stock to neutral from sell.

Stericycle (SRCL) is up more than +14% after Waste Management agreed to buy the company is a deal valued at about $5.8 billion.

Best Buy (BBY) is up more than +1% after Citigroup double upgraded the stock to buy from sell with a price target of $100. 

Science Applications International (SAIC) is down more than -10% after reporting Q1 adjusted EPS of $1.92, below the consensus of $1.94. 

Tractor Supply (TSCO) is down more than -6% after Loop Capital said a widening price gap versus competitors and the stock’s lofty valuation raise concerns.

Boston Beer (SAM) is down more than -5% after Suntory Holdings said it is not in talks to acquire the company. 

Waste Management (WM) is down more than -4% after acquiring Stericycle for $5.8 billion, or $62 per share in cash.

Cava Group (CAVA) is down more than -4% after JPMorgan Chase downgraded the stock to neutral from overweight.

Target (TGT) is down more than -2% after BNP Paribas Exane initiated coverage on the stock with a recommendation of underperform and a price target of $116. 

Earnings Reports (6/3/2024)

Gitlab Inc (GTLB), Science Applications International (SAIC).

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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.