What you need to know…
The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.61%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.41%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.70%.
Stock indexes Wednesday posted moderate losses. Global economic concerns weighed on stocks after Chinese reports showed manufacturing and service sector activity slowed more than expected. Losses in stocks accelerated Wednesday morning after U.S. Apr JOLTS job openings unexpectedly rose, which increases the chances of a Fed rate hike in June. However, stocks recovered from their worst levels on dovish comments from Fed Governor Jefferson and Philadelphia Fed President Harker, who signaled their support for pausing Fed rate hikes.
The debt ceiling agreement struck by White House negotiators and Republican leaders last Saturday goes to a vote in the House later Wednesday after advancing by the House Rules Committee Tuesday night on a 7-6 vote. If the measure passes the House, it will go to the Senate for approval. Congress is under heavy pressure to approve the measure before June 5, when Treasury Secretary Yellen warned the U.S. risks default.
Comments from Cleveland Fed President Mester were hawkish for Fed policy when she said the Fed needs to go further with its interest rate hikes, and she "doesn't see a compelling reason to pause."
However, market expectations for a +25 bp rate hike at the June 13-14 FOMC meeting fell from 63% Wednesday morning to 37% Wednesday afternoon on dovish comments from Philadelphia Fed President Harker, who said, "I am definitely in the camp of thinking about skipping any interest rate increase" at the next FOMC meeting. Also, Fed Governor Jefferson said the Fed is inclined to keep interest rates steady at the next FOMC meeting, but "that should not be interpreted to mean that the Fed has reached the peak rate for this cycle."
The U.S. May MNI Chicago PMI fell -8.2 to 40.4, weaker than expectations of 47.3 and the weakest level in 6 months.
U.S. Apr JOLTS job openings unexpectedly rose +358,000 to 10.103 million, showing a stronger labor market than expectations of a decline to 9.400 million.
The Fed Beige Book said economic activity was little changed overall in April and early May and that employment increased at a slower pace and price increases slowed in many Fed districts.
The China May manufacturing PMI unexpectedly fell -0.4 to 48.8, weaker than expectations of 49.5 and the weakest report in 5 months. Also, the May non-manufacturing PMI fell -1.9 to 54.5, weaker than expectations of 55.2.
Global bond yields Wednesday moved lower and were supportive of stocks. The 10-year T-note yield fell to a 1-1/2 week low of 3.612% and finished down -5.4 bp at 3.633%. The 10-year German bund yield fell to a 2-1/2 week low of 2.241% and finished down -6.0 bp at 2.282%, and the UK 10-year gilt yield slid to a 1-week low of 4.152% and finished down -6.4 bp at 4.183%.
On the bearish side for stocks, Advanced Auto Parts plummeted more than -35% after reporting Q1 comparable store sales unexpectedly fell and lowered guidance on full-year net sales. Also, Hewlett Packard Enterprise closed down more than -7% after reporting Q2 net revenue below consensus and lowering guidance on its full-year revenue estimate. In addition, regional bank stocks fell after comments from bank leaders at a banking conference in New York highlighted woes facing the sector.
On the bullish side, Intel closed up more than +4% after CFO Zinsner said he expects Q2 sales at the upper end of its projected range of $12 billion to $12.5 billion. Also, Verizon Communications closed up more than +2% after it entered into a 10-year digital modernization contract with the United States Postal Service. In addition, Twilio closed up more than +11% after The Information reported that activist investor Legion Partners met with the company’s board of directors and managers to suggest changes to the board.
Overseas stock markets Wednesday settled lower. The Euro Stoxx 50 closed down -1.71%. China’s Shanghai Composite closed down -0.61%, and Japan’s Nikkei Stock Index closed down -1.41%.
Today’s stock movers…
Advanced Auto Parts (AAP) closed down more than -35% to lead losers in the S&P 500 after reporting Q1 comparable store sales unexpectedly fell -0.4% versus expectations of a +0.73% increase and reducing guidance on full-year net sales to $11.2 billion-$11.3 billion from a previous forecast of $11.4 billion-$11.6 billion, weaker than the consensus of $11.4 billion. Other auto part suppliers also retreated on the news, with Genuine Parts (GPC) closing down more than -5% and AutoZone (AZO) and O’Reilly Automotive (ORLY) closing down more than -2%.
Chip stocks that rallied sharply recently retreated today on valuation concerns. Marvell Technology (MRVL) closed down more than -7% to lead losers in the Nasdaq 100. Also, Nvidia (NVDA) and Advanced Micro Devices (AMD) closed down more than -5%. In addition, Micron Technology (MU) closed down more than -4%, and Globalfoundries (GFS) and KLA Corp (KLAC) closed down more than -3%.
Hewlett Packard Enterprise (HPE) closed down more than -7% after reporting Q2 net revenue of $6.97 billion, weaker than the consensus of $7.29 billion, and reducing guidance on its full-year revenue adjusted for currency estimate to +4% to +6% from a previous estimate of +5% to +7%.
Bank stocks moved lower Wednesday after comments from bank leaders at a banking conference in New York highlighted woes facing the sector. KeyCorp (KEY), Zions Bancorp (ZION), and Citizens Financial Group (CFG) closed down more than -5%. Also, Fifth Third Bancorp (FITB) and M&T Bank (MTB) closed down more than -4%. In addition, Comerica (CMA), Lincoln National (LNC), and Regions Financial (RF) closed down more than -3%.
Sealed Air Corp (SEE) closed down more than -4% after Mizuho Securities cut its price target on the stock to $49 from $56.
Intel (INTC) closed up more than +4% to lead gainers in the S&P 500, and Dow Jones Industrials after CFO Zinsner said he expects Q2 sales at about $12 billion to $12.5 billion, compared with a previous forecast of $11.5 billion-$12.5 billion.
Verizon Communications (VZ) closed up more than +2% after it entered into a 10-year digital modernization contract with the United States Postal Service (USPS).
Twilio (TWLO) closed up more than +11% after The Information reported that activist investor Legion Partners met with the company’s board of directors and managers to suggest changes to the board.
American Airlines Group (AAL) closed up more than +1% after raising guidance on Q2 adjusted EPS to $1.45-$1.65 from a previous estimate of $1.20-$1.40.
Equity Residential (EQR) closed up more than +1% after raising guidance on full-year normalized FFO per share to $3.73-$3.83 from a previous forecast of $3.70-$3.80, above the consensus of $3.75.
Xylem (XYL) closed up than +1% after Baird upgraded the stock to outperform from neutral with a price target of $135.
Across the markets…
June 10-year T-notes (ZNM23) on Wednesday closed up +14.5 ticks, and the 10-year T-note yield fell by -5.4 bp to 3.633%. June T-notes Wednesday posted a 2-week high, and the 10-year T-note yield fell to a 1-1/2 week low of 3.612%. T-notes moved higher on positive carryover from a rally in 10-year German bunds to a 2-1/2 week high. T-notes extended their gains Wednesday afternoon on dovish comments from Fed Governor Jefferson and Philadelphia Fed President Harker, who signaled they supported pausing Fed rate hikes. Weak stocks and a decline in inflation expectations also supported T-note prices after the 10-year breakeven inflation rate fell to a 2-week low Wednesday at 2.175%.
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.
