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Rich Asplund

Stocks Undercut as Regional Bank Stocks Plunge

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.70%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.00%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.34%.

U.S. stocks this morning are moderately lower, with the S&P 500 and Dow Jones Industrials falling to 5-week lows and the Nasdaq 100 dropping to a 1-week low.  Concern about the health of the U.S. banking system is hammering regional bank stocks today. Trading in PacWest Bancorp and Western Alliance Bancorp was halted after they plunged to record lows when they said they were considering strategic options, including a sale.

U.S. stocks are also being weighed down by negative carryover from a fall in European stocks after the ECB raised interest rates and maintained a hawkish tone.  Stocks maintained moderate losses after this morning’s U.S. economic news showed Q1 nonfarm productivity fell more than expected, and Q1 unit labor costs rose more than expected.

Also weighing on stocks is the lack of clarity regarding the U.S. debt ceiling.  Treasury Secretary Yellen Monday said the Treasury Department may run out of cash to pay its bills as soon as June 1 unless the debt ceiling is raised.

U.S. weekly initial unemployment claims rose +13,000 to 242,000, showing a weaker labor market than expectations of 240,000.  However, weekly continuing claims unexpectedly fell -38,000 to 1.805 million, showing a stronger labor market than expectations of an increase to 1.865 million. 

U.S. Q1 nonfarm productivity fell -2.7%, weaker than expectations of -2.0%.  Also, Q1 unit labor costs rose +6.3%, stronger than expectations of +5.6%.

The U.S. Mar trade deficit narrowed to -$64.2 billion from -$70.6 billion in Feb, wider than expectations of -$63.1 billion.

Global bond yields are lower.  The 10-year T-note yield fell to a 4-week low of 3.309% and is down -0.4 bp at 3.332%.  The 10-year German bund yield fell to a 4-week low of 2.178% and is down -4.8 is up 2.1993%, and the UK 10-year gilt is down -1.2 bp at 3.684%.

On the bearish side of stocks, regional bank stocks are selling off as sentiment remains negative in the sector.  Also, Paramount Global is down more than -25% after reporting an unexpected Q1 adjusted loss per share.  Qualcomm is down more than -6% after forecasting weaker-than-expected Q3 revenue. 

On the bullish side, Ball Corp is up more than +11% after reporting Q1 comparable EPS above consensus.  Also, Datadog is up more than +15% after reporting Q1 revenue above consensus and raising guidance on full-year revenue.  In addition, Royal Caribbean Cruises Ltd is up more than +6% after reporting Q1 revenue above consensus and raising guidance on full-year adjusted EPS.

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.64%.  China’s Shanghai Composite closed up +0.82%, and Japan’s Nikkei Stock Index was closed for Greenery Day. 

Today’s stock movers…

Regional bank stocks are falling today on concern about the health of the U.S. banking system.  Trading in PacWest Bancorp (PACW) was halted after it plunged more than -48% after confirming it is weighing strategic options for the company.  Also, trading in Western Alliance Bancorp (WAL) was halted after it sank more than -45% after the Financial Times said the bank was mulling options, including a potential sale.  Comerica (CMA) and Zions Bancorp (ZION) are down more than -17%, and KeyCorp (KEY) and Citizens Financial Group (CFG) are down more than -9%.  Finally, Truist Financial (TFC), Huntington Bancshares (HBAN), and US Bancorp (USB) are down more than -7%. 

Paramount Global (PARA) is down more than -25% to lead losers in the S&P 500 after reporting an unexpected Q1 adjusted loss per share of -$1.81 versus the consensus for a profit of +14 cents.  The company also cut its quarterly cash dividend to 5 cents a share from 24 cents. 

BorgWarner (BWA) is down more than -8% after reporting Q1 adjusted EPS of $1.09, weaker than the consensus of $1.11n. 

MetLife (MET) is down more than -7% after reporting Q1 adjusted EPS of $1.52, weaker than the consensus of $1.81.

Organon & Cos (OGN) is down more than -6% after reporting Q1 adjusted EPS continuing operations of $1.08, below the consensus of $1.16. 

Qualcomm (QCOM) is down more than -6% to lead losers in the Nasdaq 100 after forecasting Q3 revenue of $8.1 billion-$8.9 billion, weaker than the consensus of $9.25 billion.

Mosaic (MOS) is down more than -6% after reporting Q1 adjusted Ebitda of $777 million, weaker than the consensus of $801.3 million.

Ball Corp (BALL) is up more than +11% to lead gainers in the S&P 500 after reporting Q1 comparable EPS of 69 cents, better than the consensus of 50 cents.

Datadog (DDOG) is up more than +15% to lead gainers in the Nasdaq 100 after reporting Q1 revenue of $481.7 million, above the consensus of $468.9 million and raised guidance on full-year revenue to $2.08 billion-$2.10 billion from a prior view of $2.07 billion-$2.09 billion, stronger than the consensus of $2.08 billion. 

FleetCor Technologies (FLT) is up more than +7% after reporting Q1 revenue of $901.3 million, stronger than the consensus of $881.6 million. 

Royal Caribbean Cruises Ltd (RCL) is up more than +6% after reporting Q1 revenue of $2.89 billion, better than the consensus of $2.82 billion, and raising guidance on full-year adjusted EPS to $4.40-$4.80 from a prior view of $3.00-$3.60. 

Vulcan Materials (VMC) is up more than +7% after reporting Q1 adjusted EPS continuing operations of 95 cents, well above the consensus of 63 cents. 

Cognizant Technology Solutions (CTSH) is up more than +6% after reporting Q1 revenue of $4.81 billion, stronger than the consensus of $4.73 billion, and forecasting Q2 revenue of $4.83 billion-$4.88 billion, with the midpoint above the consensus of $4.85 billion.

Martin Marietta Materials (MLM) is up more than +6% after reporting Q1 revenue of $1.35 billion, above the consensus of $1.27 billion.

Across the markets…

June 10-year T-notes (ZNM23) today are up +24 ticks, and the 10-year T-note yield is down -0.4 bp at 3.332%.  Jun T-notes this morning rebounded from early losses and rallied to a 4-week high, and the 10-year T-note yield fell to a 4-week low of 3.309%.   Concerns about the U.S. banking system's health have sparked a surge in safe-haven demand for T-notes.   T-note prices this morning initially moved lower on inflation concerns after U.S. Q1 nonfarm productivity fell more than expected and Q1 unit labor costs rose more than expected.

The dollar index (DXY00) today is up by +0.21%.  The dollar today recovered from a 1-week low and is moderately higher. Weakness in stocks today sparked liquidity demand for the dollar.  The dollar today initially fell after U.S economic news showed a wider-than-expected U.S Mar trade deficit, and after Q1 nonfarm productivity fell more than expected.

EUR/USD (^EURUSD) today is down by -0.57%.  Today’s Eurozone economic news is weighing on the euro after Eurozone Mar producer prices eased to their slowest pace of increase in 2 years, a dovish factor for ECB policy.  Also, Eurozone Apr composite PMI was revised downward, and German Mar exports fell more than expected.  The euro maintained moderate losses despite the ECB raising interest rates by 25 bp and hawkish comments from ECB President Lagarde. 

The ECB, as expected, raised the deposit facility rate by +25 bp to 3.25% and said, "The inflation outlook continues to be too high for too long."  The ECB said that future rate decisions will make rates sufficiently restrictive and will be based on the inflation outlook.  Also, the ECB said it expects to halt reinvestments under its Asset Purchase Program as of July.

ECB President Lagarde said, "we have more ground to cover, and we are not pausing" on interest rate hikes.  "That's extremely clear."  Wage pressures have strengthened further, and the inflation outlook has "upside risks."

Eurozone Mar PPI eased to +5.9% y/y from +13.3% y/y in Feb, the slowest pace of increase in 2 years.

The Eurozone Apr composite PMI was revised downward by -0.3 to 54.1 from the initially reported 54.4.

German trade data was weaker than expected after German Mar exports fell -5.2% m/m, weaker than expectations of -2.2% m/m.  Also, Mar imports fell -6.4% m/m, weaker than expectations of -2.1% m/m and the biggest decline in nearly three years.

USD/JPY (^USDJPY) today is down by -0.36%.  The yen today is climbing as concerns about the health of the U.S. banking sector have sparked safe-haven demand for the yen.  Also, lower higher T-note yields today are supportive of the yen. However, trading activity in the yen is muted, with Japanese markets closed today for the Greenery Day holiday.

June gold (GCM3) this morning is up +14.3 (+0.70%), and July silver (SIN23) is up +0.274 (+1.07%).  Precious metals prices this morning are moderately higher, with gold climbing to a 14-month high. Speculation that the Fed is nearing the end of its interest-rate hiking campaign is a bullish factor for metals. Also, concern about the health of the U.S. banking system is fueling demand for precious metals as a safe haven. The upside for metals today is limited by the strength of the dollar.  Precious metals fell back from their best levels after the ECB raised interest rates and ECB President Lagarde hinted at additional ECB rate hikes.

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.
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