The S&P 500 Index ($SPX) (SPY) Wednesday closed up +1.18%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.25%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.04%.
Stock indexes Wednesday settled higher, with the S&P 500 and Nasdaq 100 posting new all-time highs and the Dow Jones Industrials climbing to a 1-week high. The strength of chip stocks on Wednesday led technology stocks higher and was a positive factor for the broader market. Also, some positive corporate news on Wednesday supported technology stocks after Hewlett Packard Enterprise reported stronger-than-expected Q2 revenue and CrowdStrike Holdings reported better-than-expected Q1 EPS.
Wednesday’s US economic news was mixed for bonds and stocks. The May ADP employment report rose less than expected, signaling a slowdown in the US labor market that was dovish for Fed policy. However, the May ISM services index expanded more than expected, a hawkish factor for Fed policy.
US MBA mortgage applications fell -5.2% in the week ended May 31. The purchase mortgage sub-index fell -4.4%, and the refinancing mortgage sub-index fell -6.8%. The average 30-year fixed rate mortgage rose +0.02 bp to 7.07% from 7.05% in the prior week.
The US May ADP employment change rose +152,000, weaker than expectations of +175,000.
The US May ISM services index rose +4.4 to 53.8, stronger than expectations of 51.0 and the highest level in 9 months. The May ISM prices paid sub-index fell -1.1 to 58.2, weaker than expectations of 59.0.
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%.
The markets are discounting the chances for a -25 bp rate cut at 1% for the June 11-12 FOMC meeting and 18% 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 Wednesday settled mixed. The Euro Stoxx 50 rose to a 1-week high and closed up +1.66%. China's Shanghai Composite closed down -0.83%. Japan's Nikkei Stock 225 Index closed down -0.89%.
Interest Rates
September 10-year T-notes (ZNU24) Wednesday closed up +9 ticks. The 10-year T-note yield fell -3.9 bp to 4.287%. Sep T-notes Wednesday rallied to a 2-month high, and the 10-year T-note yield fell to a 2-month low of 4.285%. T-notes recovered from overnight losses and moved higher after the US May ADP employment change rose less than expected, a sign of a slowdown in the labor market that is dovish for Fed policy. Also, a decline in inflation expectations supported T-notes after the 10-year breakeven inflation rate fell to a 2-1/2 week low Wednesday of 2.298%. In addition, T-notes had carryover support from a rally in Canadian government bonds after the BOC cut its main interest rate by 25 bp.
On the bearish side for T-notes was the larger-than-expected increase in the May ISM services index. Also, Wednesday’s rally in the S&P 500 to a new record high curbed safe-haven demand for T-notes.
European government bond yields on Wednesday were mixed. The 10-year German bund yield fell to a 2-week low of 2.496% and finished down -2.2 bp at 2.512%. The 10-year UK gilt yield rose +0.6 bp to 4.184%.
Eurozone Apr PPI fell -1.0% m/m and -5.7% y/y, weaker than expectations of -0.7% m/m and -5.3% y/y.
The Eurozone May S&P composite PMI was revised downward by -0.1 to 52.2 from the previously reported 52.3.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% 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 65% chance of a -25 bp rate cut at the September 12 meeting.
US Stock Movers
The strength of chip stocks Wednesday led technology stocks higher and was positive for the broader market. Broadcom (AVGO) closed up more than +6%. Also, Nvidia (NVDA), Micron Technology (MU), Lam Research (LRCX), and Marvell Technology (MRVL) closed up more than +5%. In addition, ON Semiconductor (ON) closed up more than +4%, and Qualcomm (QCOM) and NXP Semiconductors NV (NXPI) closed up more than +3%.
Hewlett Packard Enterprise (HPE) closed up more than +10% to lead gainers in the S&P 500 after reporting Q2 net revenue of $7.20 billion, well above the consensus of $6.89 billion, and forecasting Q2 net revenue of $7.4 billion-$7.8 billion, with the midpoint being above the consensus of $7.45 billion.
ASML Holding NV (ASML) closed up more than +9% after saying it will ship its latest high-NA extreme ultraviolet chipmaking machine to Taiwan Semiconductor Manufacturing Co and Intel by the end of this year.
Crowdstrike Holdings (CRWD) closed up more than +11% to lead gainers in the Nasdaq 100 after reporting Q1 adjusted EPS of 93 cents, better than the consensus of 90 cents, and raising its 2025 adjusted EPS forecast to $3.93-$4.03 from a previous forecast of $3.77-$3.97, stronger than the consensus of $3.94.
Applied Materials (AMAT) closed up more than +5%, and KLA Corp (KLAC) closed up more than +4% after Barclays upgraded the stocks to equal weight from underweight.
Illumina (ILMN) closed up more than +4% after Nephron Research LLC upgraded the stock to hold from sell.
Meta Platforms (META) closed up more than +3% after Raymond James raised its price target on the stock to $550 from $525.
Intel (INTC) closed up more than +2% to lead gainers in the Dow Jones Industrials after it said Apollo will acquire a 49% equity interest in a joint venture entity related to Intel’s Fab 34 for $11 billion.
Brown-Forman (BF/B) closed down more than -5% to lead losers in the S&P 500 after reporting Q4 net sales of $964 million, weaker than the consensus of $1.03 billion.
Dollar Tree (DLTR) closed down more than -4% to lead losers in the Nasdaq 100 after reporting Q1 net sales of $4.17 billion, weaker than the consensus of $4.24 billion.
Cisco Systems (CSCO) closed down more than -2% to lead losers in the Dow Jones Industrials after it held an investor event, and Citigroup said, “The company’s outlook suggests little acceleration in the core business.”
Fertilizer stocks retreated Wednesday after Egypt said it is set to resume nitrogen output at facilities that were disrupted by natural gas supply shortages. As a result, CF Industries (CF) closed down more than -4%, and Mosaic (MOS) closed down more than -2%.
American Express (AXP) closed down nearly -1% after Bloomberg reported that eBay will drop American Express cards as a payment option because of “unacceptably high fees.”
Earnings Reports (6/6/2024)
Ciena Corp (CIEN), DocuSign Inc (DOCU), J M Smucker Co/The (SJM), Toro Co/The (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.