The S&P 500 Index ($SPX) (SPY) closed up +1.18% on Wednesday, the Dow Jones Industrial Average ($DOWI) (DIA) closed up +0.25% and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.04%.
Stock indexes rose on Wednesday, with the S&P 500 and Nasdaq 100 hitting new all-time highs and the Dow Jones Industrial Average climbing to its highest in a week. Strong performance in semiconductor stocks on Wednesday led technology stocks higher, which was a positive for the overall market. Corporate news was also good on Wednesday, with Hewlett Packard Enterprise reporting better-than-expected second-quarter earnings and CrowdStrike Holdings reporting better-than-expected first-quarter EPS, helping support technology stocks.
U.S. economic news was mixed on Wednesday for both bonds and stocks. The ADP employment report for May came in weaker than expected, suggesting a slowdown in the U.S. labor market and providing dovish support for Fed policy. However, the ISM services index came in stronger than expected for May, providing hawkish support for Fed policy.
U.S. MBA mortgage applications fell 5.2% in the week ending May 31. The mortgage purchase subindex fell 4.4% and the mortgage refinance subindex fell 6.8%. The average 30-year fixed rate mortgage increased 0.02 basis points to 7.07% from 7.05% the previous week.
US ADP employment increased by +152,000 in May, below expectations of +175,000.
The U.S. ISM Services Index rose +4.4 to 53.8 in May, beating the 51.0 expected and the highest level in nine months. The ISM Payments Price Sub-Index fell -1.1 to 58.2 in May, below the 59.0 expected.
Markets are focused on the ECB meeting on Thursday, where the central bank is expected to cut its key refinancing rate by 25 basis points to 4.25%. Additionally, the May U.S. employment report, due on Friday, will provide clues about the strength of the labor market and could determine when the Fed can begin to cut interest rates. The consensus is that nonfarm payrolls rose by 190,000 in May and the unemployment rate remained unchanged at 3.9% in May.
Markets are pricing in a 1% chance of a 25bp rate cut at the FOMC meeting on June 11-12, and an 18% chance at the next meeting on July 30-31.
Stocks are being supported by generally strong first-quarter earnings results. First-quarter revenue is expected to grow 7.1% year over year, well above expectations of a 3.8% increase ahead of earnings season. About 81% of S&P 500 companies beat first-quarter earnings expectations, according to data compiled by Bloomberg Intelligence.
Overseas stock markets closed mixed on Wednesday. The Euro Stoxx 50 rose to its highest level in a week, closing up 1.66%. China's Shanghai Composite Index closed down 0.83%. Japan's Nikkei Stock Average closed down 0.89%.
Interest level
September 10-year Treasury notes (ZNU24) closed 9 ticks higher on Wednesday. The 10-year Treasury yield was down -3.9 basis points to 4.287%. September Treasury notes rebounded to a two-month high on Wednesday, while the 10-year Treasury yield fell to a two-month low of 4.285%. Treasuries recovered from an overnight drop and rose after U.S. May ADP employment growth came in below expectations, signaling a slowdown in the labor market and being dovish for Fed policy. Lower inflation expectations also supported Treasuries, as the 10-year breakeven inflation rate fell to a two-and-a-half-week low of 2.298% on Wednesday. Additionally, Canadian government bonds rose after the Bank of Canada cut its key interest rate by 25 basis points.
Bearing down on T-Notes was a stronger-than-expected increase in the ISM Services Index for May, while the S&P 500 Index hit a record high on Wednesday, dampening safe-haven demand for T-Notes.
European government bond yields were mixed on Wednesday. The 10-year German bund yield fell to a two-week low of 2.496% before closing down 2.2 basis points at 2.512%. The 10-year UK government bond yield rose 0.6 basis points to 4.184%.
The euro area's producer price index fell -1.0% m/m and -5.7% y/y in April, below expectations of -0.7% m/m and -5.3% y/y.
The euro area's S&P composite PMI for May was revised down 0.1 point to 52.2 from the previously announced 52.3.
Swaps markets are pricing in a 99% chance that the ECB will cut rates by 25 bps at Thursday's meeting. If the ECB cuts rates by 25 bps on Thursday as expected, markets are pricing in a 0% chance of another cut at the July 18 meeting and a 65% chance of a 25 bps cut at the September 12 meeting.
US stock trends
Strength in semiconductor stocks led tech stocks higher on Wednesday, which was a positive for the broader market. Broadcom (AVGO) closed up more than 6%, while Nvidia (NVDA), Micron Technology (MU), Lam Research (LRCX) and Marvell Technology (MRVL) all closed up more than 5%. Additionally, ON Semiconductor (ON) rose more than 4%, while Qualcomm (QCOM) and NXP Semiconductors NV (NXPI) closed up more than 3%.
Hewlett Packard Enterprise (HPE) rose more than 10% to be the top gainer in the S&P 500 index after the company reported second-quarter net revenue of $7.2 billion, well above the consensus estimate of $6.89 billion, and forecast second-quarter net revenue of $7.4 billion to $7.8 billion, the midpoint of which beat the consensus estimate of $7.45 billion.
ASML Holdings NV (ASML) closed up more than 9% after it said it would ship its latest high-NA extreme ultraviolet chipmaking equipment to Taiwan Semiconductor Manufacturing Co. (TSMC) and Intel by the end of the year.
CrowdStrike Holdings (CRWD) rose more than 11% to be the top gainer on the Nasdaq 100 index after the company reported first-quarter adjusted EPS of 93 cents, beating the consensus estimate of 90 cents, and raised its 2025 adjusted EPS forecast to $3.93-$4.03 from its previous estimate of $3.77-$3.97, beating the consensus estimate of $3.94.
Applied Materials (AMAT) closed up more than 5%, and KLA Corporation (KLAC) closed up more than 4% after Barclays raised its weightings in both stocks to equal weight from underweight.
Illumina (ILMN) closed up more than 4% after Nephron Research LLC upgraded the company's shares to hold from sell.
Meta Platforms (META) shares closed up more than 3% after Raymond James raised its price target on the stock to $550 from $525.
Intel (INTC) led the Dow Jones Industrial Average gainers, rising more than 2% after the company said Apollo would buy a 49% stake in a joint venture related to Intel's Fab 34 for $11 billion.
Brown-Forman (BF/B) fell more than 5%, the S&P 500's biggest loser, after the company reported fourth-quarter net sales of $964 million, below the consensus estimate of $1.03 billion.
Dollar Tree (DLTR) fell more than 4%, the top decliner on the Nasdaq 100 index, after the company reported first-quarter net sales of $4.17 billion, below the consensus estimate of $4.24 billion.
Cisco Systems (CSCO) fell more than 2% after an investor event, the top loser in the Dow Jones Industrial Average, and Citigroup said the company's “outlook suggests little acceleration in its core business.”
Fertilizer stocks fell on Wednesday after Egypt said it would resume nitrogen production at a facility that had been suspended due to a natural gas supply shortage. 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 discontinue accepting American Express cards as a payment method, citing “unacceptably high fees.”
Earnings Report (June 6, 2024)
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On the date of publication, Rich Asplund did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information please see Barchart's disclosure policy here.
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