Stocks See Pressure from Higher Bond Yields But Energy Stocks Are Higher

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The S&P 500 Index ($SPX) (SPY) today is down -0.09%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.25%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.19%.

Stock indexes today are mixed.  Higher bond yields today are pressuring stocks, with the 10-year T-note yield climbing to a 1-week high on negative carryover from last Friday’s May payroll report that showed May nonfarm payrolls rose more than expected and that May average hourly earnings unexpectedly accelerated, hawkish factors for Fed policy.  On the positive side, energy stocks are climbing today with the price of WTI Crude up more than +1% at a a-week high.

Stocks are looking ahead to Wednesday’s US May consumer price report, which is expected to show that May CPI was unchanged from Apr at +3.4% y/y and that May CPI ex-food and energy eased slightly to +3.5% y/y from +3.6% y/y in April. 

Also, stocks will look for direction from Wednesday’s results of the 2-day FOMC meeting.  The consensus is that the Fed will keep the Fed funds target rate unchanged at 5.25%-5.50%. Post-meeting comments from Fed Chair Powell will be scrutinized for when the Fed might cut interest rates. 

The markets are discounting the chances for a -25 bp rate cut at 1% for the June 11-12 FOMC meeting and 9% 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 down -1.00%.  China’s Shanghai Composite was closed for the Dragon Boat Day holiday.  Japan’s Nikkei Stock 225 Index rose to a 1-1/2 week high and closed up +0.92%.

Interest Rates

September 10-year T-notes (ZNU24) today are down -5 ticks.  The 10-year T-note yield is up +2.8 bp at 4.461%.  Sep T-note prices today extended last Friday’s losses to a 1-week low, and the 10-year T-note yield rose to a 1-week high of 4.467%.  T-notes are under pressure from negative carryover from last Friday’s stronger-than-expected US May payroll report, which dampened the outlook for the Fed to cut interest rates anytime soon.  Also, a jump in European government bond yields today is weighing on T-note prices. In addition, supply pressures are undercutting T-notes as the Treasury will auction $119 billion of T-notes and T-bonds this week, beginning with today’s $58 billion auction of 3-year T-notes.

European government bond yields today are higher.  The 10-year German bund yield rose to a 1-week high of 2.681% and is up +5.4 bp at 2.674%.  The 10-year UK gilt yield rose to a 1-week high of 4.323% and is up +6.0 bp at 4.321%. 

The Eurozone Jun Sentix investor confidence index rose +3.9 to a 2-1/4 year high of 0.3, stronger than expectations of -1.7.

Italy’s Apr industrial production unexpectedly fell -1.0% m/m versus expectations of +0.2% m/m.

ECB Governing Council member Kazimir said ECB policymakers haven’t yet beaten the “inflation beast” and ruled out another rate cut in July and said, “September will be a pivotal month” when new forecasts are due and “will be the right moment to reassess our stance and decide whether we need to cut rates or not.” 

ECB Governing Council member and Bundesbank President Nagel said the ECB may not cut interest rates again for a while as it watches to see how quickly inflation recedes to its 2% target.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 7% for the July 18 meeting and 56% for the September 12 meeting.

US Stock Movers

Energy stocks and energy service suppliers are moving higher today, with the price of WTI crude up more than +1% at a 1-week high.  Chevron (CVX) is up more than +1% to lead gainers in the Dow Jones Industrials.  Also, APA Corp (APA), Baker Hughes (BKR), ConocoPhillips (COP), Diamondback Energy (FANG), Marathon Oil (MRO), and Occidental Petroleum (OXY) are up more than +1%.  

Regional bank stocks are under pressure today and are weighing on the broader market.  Huntington Bancshares (HBAN) down more than -5% to lead losers in the S&P 500 after cutting its full-year net interest income estimate to -1% to -4% (with a mid-point of -2.5%) from previous guidance of plus or minus 2% (with a mid-point of zero).  Other regional banks are falling on the news with Regions Financial (RF), Citizens Financial Group (CFG), KeyCorp (KEY), and M&T Bank Corp (MTB) down more than -2%. 

Illumina (ILMN) is down more than -4% to lead losers in the Nasdaq 100 after S&P Dow Jones Indices said the stock will leave the S&P 500 and join the S&P Midcap 400 Index before trading opens June 24.

Advanced Micro Devices (AMD) is down more than -4% after Morgan Stanley downgraded the stock to equal weight from overweight. 

Comerica (CMA) is down more than -1% after S&P Dow Jones Indices said the stocks will leave the S&P 500 and join the S&P Smallcap 600 Index before trading opens June 24.

Perion Network Ltd (PERI) is down more than -28% after cutting its full-year revenue forecast to $490 million-$510 million from a previous forecast of $590 million-$610 million, well below the consensus of $601 million. 

Adobe (ADBE) is down more than -1% after Citigroup cut its price target on the stock to $520 from $554.

Southwest Airlines (LUV) is up more than +6% to lead gainers in the S&P 500 after the Wall Street Journal reported that Elliot Investment Management has built an almost $2 billion stake in the company. 

Crowdstrike (CRWD) is up more than +8% to lead gainers in the Nasdaq 100 after S&P Dow Jones Indices said the stock will join the S&P 500 before trading opens June 24.

KKR (KKR) is up more than +10%, and GoDaddy (GDDY) is up more than +2% after S&P Dow Jones Indices said the stocks will join the S&P 500 before trading opens June 24.

Mohawk Industries (MHK) is up more than +2% after Raymond James upgraded the stock to strong buy from market perform with a price target of $140. 

Planet Fitness (PLNT) is up more than +3% after Jeffries upgraded the stock to buy from hold with a price target of $100. 

Broadcom (AVGO) is up more than +1% after Morgan Stanley resumed coverage on the stock with a recommendation of overweight and a price target of $1,658.

Earnings Reports (6/10/2024)

Autodesk Inc (ADSK), Calavo Growers Inc (CVGW), Children’s Place Inc/The (PLCE), FuelCell Energy Inc (FCEL), Ocean Biomedical Inc (OCEA), Skillsoft Corp (SKIL), Uranium Energy Corp (UEC), Yext Inc (YEXT).

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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.