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Rich Asplund

Stocks Under Pressure from U.S. Debt Ceiling Impasse and Weak Chinese Imports

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.44%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.56%.

U.S. stocks this morning are moderately lower.   A drop of more than -8% in PacWest Bancorp is leading regional bank stocks lower amid lingering worries about the health of regional U.S. banks.  Also, market sentiment declined after Chinese Apr imports plunged -7.9% y/y, weaker than expectations of -0.1% y/y and a sign that China’s recovery is weaker than expected, which weighs on global growth prospects. 

The markets are awaiting Wednesday’s news on U.S. April consumer prices.  The consensus is for an Apr CPI report of +5.0% y/y, unchanged from March, and for Apr core CPI to ease to +5.5% y/y from +5.6% y/y in March.

Clarity regarding the U.S. debt ceiling is a bearish factor for stocks.  Treasury Secretary Yellen said Sunday that there are “simply no good options” for solving the debt limit stalemate other than Congress lifting the debt ceiling cap. Yellen has said that the Treasury Department may run out of cash to pay its bills as soon as June 1 unless the debt ceiling is raised.  President Biden is scheduled to meet House Speaker McCarthy and other congressional leaders today to discuss the debt ceiling.

Fed Governor Jefferson said inflation has started to come down, and the U.S. economy has started to slow in an orderly fashion.

Global bond yields are mixed.  The 10-year T-note yield is down -0.6 bp at 3.501%.  The 10-year German bund yield is up +2.0 bp at 2.339%, and the UK 10-year gilt yield rose to a 2-1/2 week high of 3.851% and is up +6.7 bp at 3.848%.

On the bearish side for stocks, PayPal Holdings is down more than -10% after reporting 433 million active customer accounts in Q1, below the consensus of 437.6 million, and warned that its adjusted operating margin wouldn’t grow as quickly as it had anticipated earlier.  Also, regional bank stocks are under pressure today on lingering concerns about the health of the U.S. banking system, led by an -8% fall in PacWest Bancorp.  In addition, Skyworks Solutions is down more than -5% after reporting Q2 adjusted EPS below consensus and forecasting Q3 adjusted EPS below estimates.

On the bullish side, DaVita is up more than +12% after reporting Q1 revenue above consensus and raising its full-year operating income estimate.  Also, McKesson is up more than +7% after reporting Q4 adjusted EPS above consensus and forecasting 2024 adjusted EPS above estimates.  In addition, Jacobs Solutions is up more than +4% after reporting Q2 revenue above consensus. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.70%.  China’s Shanghai Composite closed down -1.10%, and Japan’s Nikkei Stock Index closed up +1.01%. 

Today’s stock movers…

PayPal Holdings (PYPL) is down more than -10% to lead losers in the S&P 500 and Nasdaq 100 after reporting 433 million active customer accounts in Q1, below the consensus of 437.6 million, and warned that its adjusted operating margin wouldn’t grow as quickly as it had anticipated earlier.

Regional bank stocks are under pressure today on lingering concerns about the health of the U.S. banking system.  PacWest Bancorp (PACW) is down more than -8%.  Also, Western Alliance Bancorp (WAL) and First Horizon (FHN) are down more than -4%.  In addition, Comerica (CMA), Truist Financial (TFC), and Zions Bancorp (ZION) are down more than -2%. 

International Flavors & Fragrances (IFF) is down more than -7% after lowering its full-year sales estimate to $12.3 billion from a prior view of $12.5 billion, below the consensus of $12.41 billion.

Waters (WAT) is down more than -6% after reporting Q1 adjusted EPS of $2.49, below the consensus of $2.62, and forecast Q2 adjusted EPS of $2.52-$2.62, weaker than the consensus of $2.89.

Skyworks Solutions (SWKS) is down more than -5% after reporting Q2 adjusted EPS of $2.02, below the consensus of $2.03 million, and forecast Q3 adjusted EPS of $1.67, well below the consensus of $2.10.

Lucid Group (LCID) is down more than -7% after reporting Q1 revenue of $149.4 million, well below the consensus of $197.8 million.

Air Products and Chemicals (APD) is down more than -5% after forecasting Q3 adjusted EOS of $2.85-$2.95, the midpoint below the consensus of $2.91. 

Henry Schein (HSIC) is down more than -5% after reporting Q1 net sales of $3.06 billion, weaker than the consensus of $3.09 billion.

DaVita (DVA) is up more than +12% to lead gainers in the S&P 500 after reporting Q1 revenue of $2.87 billion, stronger than the consensus of $2.83 billion, and raising its full-year operating income estimate to $1.48 billion-$1.63 billion from a previous estimate of $1.40 billion-$1.60 billion, above the consensus of $1.48 billion.

McKesson (MCK) is up more than +7% after reporting Q4 adjusted EPS of $7.19, above the consensus of $7.14, and forecast 2024 adjusted EPS of $26.10-$26.90, the midpoint above the consensus of $26.15.

Jacobs Solutions (J) is up more than +4% after reporting Q2 revenue of $4.10 billion, stronger than the consensus of $3.83 billion.

Zscaler (ZS) is up more than +4%, adding to Monday’s +20% surge to lead gainers in the Nasdaq 100 on positive carryover from when it reported preliminary Q3 revenue above consensus and raised its full-year revenue forecast. 

Boeing (BA) is up more than +3% to lead gainers in the Dow Jons Industrials after Ryanair ordered 300 Boeing 737-MAX-10 aircraft worth more than $40 billion. 

Albemarle (ALB) is up more than +4% after Scotiabank upgraded the stock to sector outperform from sector perform with a price target of $250. 

Fox Corp (FOX) is up more than +2% after reporting Q3 adjusted Ebitda of $833 million, above the consensus of $806.4 million.

Across the markets…

June 10-year T-notes (ZNM23) today are up +2 ticks, and the 10-year T-note yield is down -0.6 bp at 3.501%.  Jun T-notes this morning are slightly higher. Weak stocks and concerns about the health of the U.S. banking system has boosted safe-haven demand for T-notes. Gains are limited by negative carryover from a jump in the 10-year UK gilt yield today to a 2-1/2 week high. Also, supply pressures are undercutting T-notes, as the Treasury will auction $40 billion of 3-year T-notes later today as part of this week’s May quarterly refunding, where the Treasury will auction $96 billion of T-notes and T-bonds. 

The dollar index (DXY00) today is up by +0.28%.  The dollar today is moderately higher.  Concerns about the global economy have boosted safe-haven demand for the dollar after China’s Apr exports fell much more than expected.  Also, the weakness in stocks today has boosted the liquidity demand for the dollar.

EUR/USD (^EURUSD) today is down by -0.45% and dropped to a 2-week low. A stronger dollar today is boosting the euro.  EUR/USD fell today despite hawkish comments from ECB Governing Council members Kazimir and Kazaks, who said the ECB needs to keep raising interest rates. 

ECB Governing Council member Kazimir said, "The battle against inflation is far from won," and the ECB will have to keep raising interest rates for longer than he anticipated.

ECB Governing Council member Kazaks said, "The ECB still has quite some ground to cover, and further rate increases will be necessary to tame inflation."  Also, market bets on ECB rate cuts in the spring of 2024 are "significantly premature."

USD/JPY (^USDJPY) today is up by +0.06%.  The yen today gave up overnight gains and is modestly lower. The yen is under pressure from higher T-note yields and dollar strength.  The yen today initially moved higher on comments from BOJ Governor Ueda, who said he intends to scrap the yield curve control program once “we have an inflation outlook indicating that sustainable and stable 2% inflation will be achieved.”

Today’s economic news was bearish for the yen after Japan's Mar household spending unexpectedly fell -1.9% y/y, weaker than expectations of +0.8% y/y and the biggest decline in a year. Also, Mar labor cash earnings rose +0.8% y/y, weaker than expectations of +1.0% y/y.

June gold (GCM3) this morning is up +1.5 (+0.07%), and July silver (SIN23) is down -0.034 (-0.13%).  Precious metals prices this morning are mixed.  A stronger dollar and higher T-note yields today are bearish for precious.  However, concerns about the health of the U.S. banking system and the U.S. debt limit impasse have boosted safe-haven demand for precious metals.  That has led to strong fund buying of gold as gold holdings in exchange-traded funds (ETFs) rose to a 4-month high on Monday.  Silver prices are under pressure on concerns about industrial metals demand after China’s trade news today showed China Apr imports fell more than expected. 

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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