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Rich Asplund

Stocks Decline on Signs the Economy is Slowing

The S&P 500 Index ($SPX) (SPY) today is down -0.31%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.07%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.25%.

Stocks today are moderately lower.  Weakness in energy stocks weighs on the overall market, with WTI crude down more than -1% to a 3-3/4 month low on concern that OPEC+’s plan to return crude production to the market earlier than expected will lead to a glut in global oil supplies. 

Stock indexes remained lower on US economic concerns after job openings in the US fell more than expected in April.  That adds to concerns the economy is slowing after Monday’s May ISM manufacturing report showed manufacturing activity contracted more than expected.

Stocks did find some support after the 10-year T-note yield fell to a 2-week low when the Apr JOLTS job openings fell more than expected to a 3-year low, which bolstered expectations that the Fed will be able to cut interest rates sooner rather than later.

The US Apr JOLTS job openings fell -296,000 to a 3-year low of 8.059 million, showing a weaker labor market than expectations of 8.350 million.

US Apr factory orders rose +0.7% m/m, stronger than expectations of +0.6% m/m.

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 16% 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 fell to a 4-week low and is down -0.79%. China's Shanghai Composite closed up +0.41%.  Japan's Nikkei Stock 225 Index closed down -0.22%.

Interest Rates

September 10-year T-notes (ZNU24) today are up +10 ticks.  The 10-year T-note yield is down -3.7 bp to 4.351%.  Sep T-notes today climbed to a 2-week high, and the 10-year T-note yield fell to a 2-week low of 4.322%.  T-notes today extended Monday’s gains on carryover support from gains in European government bonds.  Also, falling inflation expectations support T-notes as the 10-year breakeven inflation rate fell to a 1-week low today of 2.315%.  T-notes raced to their highs today after the US Apr JOLTS job openings fell more than expected to a 3-year low, a dovish factor for Fed policy.

Eurozone government bond yields today are moving lower.  The 10-year German bund yield fell to a 2-week low of 2.505% and is down -4.3 bp at 2.537%.  The 10-year UK gilt yield fell to a 2-week low of 4.158% and is down -3.4 bp at 4.187%. 

The German May unemployment change rose by +25,000, the largest increase in 7 months, showing a weaker labor market than expectations of +7,000.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 98% 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 64% chance of a -25 bp rate cut at the September 12 meeting.

US Stock Movers

Bath & Body Works (BBWI) is down more than -10% to lead losers in the S&P 500 after forecasting Q2 EPS of 31 cents-36 cents, weaker than the consensus of 39 cents. 

Energy stocks and energy service providers are under pressure today, with the price of WTI crude down more than -1% to a 3-3/4 month low.  As a result, Exxon Mobil (XOM), Haliburton (HAL), Diamondback Energy (FANG), and Occidental Petroleum (OXY) are down more than -2%.  Also, Schlumberger (SLB), Devon Energy (DVN), Marathon Oil (MRO), Phillips 66 (PSX), Hess Corp (HES), and ConocoPhillips (COP) are down more than -1%.  Finally, Chevron (CVX) is down more than -1% to lead losers in the Dow Jones Industrials.

Mining stocks are falling today, with the price of copper down more than -2% to a 4-week low.  As a result, AngloGold Ashanti Plc (AU) is down more than -5%.  Also, Freeport McMoRan (FCX) and Southern Copper (SCCO) are down more than -4%.  In addition, ArcelorMittal (MT) and Newmont (NEM) are down more than -3%. 

Designer Brands (DBI) is down more than -20% after reporting Q1 comparable sales unexpectedly fell -2.5% versus expectations of a +0.59% increase. 

Stanley Black & Decker (SWK) is down more than -2% after Barclays downgraded the stock to equal weight from overweight. 

Cruise line operators are climbing today after Peel Hunt upgraded Carnival to buy from hold.  As a result, Carnival (CCL) is up more than +5%, and Royal Caribbean Cruises (RCL) and Norwegian Cruise Line Holdings (NCLH) are up more than +2%. 

Trucking companies are moving higher today after Saia Inc. gave an operational update that Evercore ISI said shows “volume growth and surprising accelerating for a second consecutive month that sets up 2024 for potential significant revenue upside.”  As a result, Saia (SAIA) is up more than +9%, and Old Dominion Freight Line (ODFL) is up more than +6% to lead gainers in the S&P 500 and Nasdaq 100. 

Airline stocks are moving higher today after crude prices fell to a 3-3/4 month low, which should lower fuel costs and boost earnings.  As a result, United Airlines Holdings (UAL), American Air Lines Group (AAL), and Southwest Airlines (LUV) are up more than +1%. 

HealthEquity (HQY) is up more than +2% after reporting Q1 adjusted EPS of 80 cents, stronger than the consensus of 66 cents, and raising its full-year adjusted EPS forecast to $2.93-$3.10 from a previous forecast of $2.79-$2.96, above the consensus of $2.89. 

Donaldson (DCI) is up more than +2% after reporting Q3 net sales of $927.9 million, better than the consensus of $915.8 million, and raising its full-year EOS estimate to $3.33-$3.39 from a previous estimate of $3.24-$3.32, stronger than the consensus of $3.27. 

Earnings Reports (6/4/2024)

Bath & Body Works Inc (BBWI), Core & Main Inc (CNM), Crowdstrike Holdings Inc (CRWD), Donaldson Co Inc (DCI), Ferguson PLC (FERG), Guidewire Software Inc (GWRE), Hewlett Packard Enterprise Co (HPE), PVH Corp (PVH).

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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