The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.21%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.10%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.21%. 

US stock indexes gave up an early advance on Thursday and closed lower.  The S&P 500, Dow Jones Industrials, and Nasdaq 100 initially posted new record highs Thursday on speculation the Fed will be able to cut interest rates this year. Stocks and bonds also found support after weekly initial unemployment claims fell less than expected, a dovish factor for Fed policy.  Other weaker-than-expected economic reports included housing starts and manufacturing production. 

However, stocks gave up their gains and turned lower as comments from Cleveland Fed President Mester and Richmond Fed President Barkin pushed bond yields higher when they said interest rates should stay higher for longer.  Also, signs of persistent price pressures weighed on stocks after the Apr import price index ex-petroleum rose by the most in 16 months.

Hawkish Fed comments Thursday kept bond yields higher and weighed on stocks.  Cleveland Fed President Mester said, "Holding our restrictive stance for longer is prudent at this point as we gain clarity about the path of inflation."  Also, Richmond Fed President Barkin said he believes inflation is coming down, and the Fed needs a "little bit more time" to lower inflation to its 2% target, citing higher prices in the services sector.

Comments Thursday from New York Fed President Williams were dovish and supported stocks when he said the softer tone of April's CPI is "kind of a positive development" and "the overall trend looks reasonably good" for a gradual slowdown in inflation pressures.  He added that monetary policy is "restrictive" and "is in a good place," and he doesn't "see any need to tighten monetary policy today."

US weekly initial unemployment claims fell -10,000 to 222,000, showing a slightly weaker labor market than expectations of 220,000.

US Apr housing starts rose +5.7% m/m to 1.36 million, weaker than expectations of 1.421 million.  Apr building permits (a proxy for future construction) unexpectedly fell -3.0% m/m to a 15-month low of 1.44 million, weaker than expectations of 1.48 million.

The US May Philadelphia Fed business outlook survey fell -11.0 to 4.5, weaker than expectations of 7.8.

The US Apr import price index ex-petroleum rose +0.7% m/m, stronger than expectations of +0.1% m/m and the largest increase in 16 months.

US Apr manufacturing production unexpectedly fell -0.3% m/m, weaker than expectations of +0.1% m/m.

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. 

The markets are discounting the chances for a -25 bp rate cut at 10% for the June 11-12 FOMC meeting and 32% for the following meeting on July 30-31.

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 closed down -0.56%.  China's Shanghai Composite recovered from a 2-week low and closed up +0.08%.  Japan's Nikkei Stock Index rose to a 1-month high and closed up +1.39%. 

Interest Rates

June 10-year T-notes (ZNM24) on Thursday closed down -6.5 ticks.  The 10-year T-note yield rose +3.5 bp to 4.375%.  June T-notes Thursday fell back from a 5-week high and posted moderate losses, and the 10-year T-note yield rebounded from a 5-week low of 4.309% and moved higher.  Concern about persistent price pressures were bearish for T-notes after the Apr import price index ex-petroleum rose more than expected by the most in 16 months.  Also, comments from Cleveland Fed President Mester and Richmond Fed President Barkin weighed on T-notes when they said interest rates should stay higher for longer. 

Losses in T-notes were contained Thursday after Apr housing starts rose less than expected and Apr building permits unexpectedly declined.  Also, the May Philadelphia Fed business outlook survey fell more than expected, and Apr manufacturing production unexpectedly fell. In addition, dovish comments from New York Fed President Williams supported T-notes when he said he doesn't "see any need to tighten monetary policy today.”  

European government bond yields Thursday finished higher.  The 10-year German bund yield recovered from a 1-month low of 2.399% and finished up +3.7 bp at 2.460%.  The 10-year UK gilt yield fell to a 5-week low of 4.041% and finished up +1.3 bp at 4.079%.

ECB Governing Council member de Cos said the "central scenario" is for an interest-rate reduction by the ECB at its next meeting on June 6.

US Stock Movers

Deere & Co (DE) closed down more than -4% after cutting its full-year profit forecast to about $7.0 billion from a prior view of $7.50 billion-$7.75 billion.

Cisco Systems (CSCO) closed down more than -2% to lead losers in the Dow Jones Industrials after forecasting Q4 revenue of $13.40 billion-$13.60 billion, the midpoint weaker than the consensus of $13.54 billion. 

Homebuilders retreated on Thursday’s weaker-than-expected reports on US Apr housing starts and building permits.  As a result, DR Horton (DHI) closed down by more than -4%, and Builders FirstSource (BLDR) and Lennar (LEN) closed down by more than -3%.  In addition, PulteGroup (PHM) and Toll Brothers (TOL) closed down more than +2%.

Civitas Resources (CIVI) closed down more than -3% after holder Canada Pension Plan Investment Board offered 6.96 million shares via Bank of America Securities. 

Biogen (BIIB) closed down more than -2% after it decided to terminate its development with Ionis of BIIB105, a treatment for amyotrophic lateral sclerosis, based on results from a Phase 1-2 study. 

Meta Platforms (META) closed down more than -1% after the European Union announced a probe of the company over concerns its algorithms are illegally exploiting the weakness of children to get them addicted to Facebook and Instagram.

Walmart (WMT) closed up nearly +7% to lead gainers in the S&P 500 and Dow Jones Industrials after reporting Q1 total US comparable sales ex-gas rose +3.90%, stronger than the consensus of +3.42%.  Other retailers also rallied on the Walmart news, with Target (TGT), Dollar Tree (DLTR), and Dollar General (DG) closing up more than +2%.

Chubb (CB) closed up more than +4% after Berkshire Hathaway unveiled a $6.7 billion stake in the company. 

AI hardware providers moved higher on Thursday.  Marvell Technology (MRVL) closed up more than +4% to lead gainers in the Nasdaq 100.  Also, Intel (INTC) closed up more than +2%, and Advanced Micro Devices (AMD) closed up more than +1%.

Trade Desk (TTD) closed up more than +3% after several analysts said the company’s pact to help facilitate automated ad purchases for Netflix is a “huge positive” for the stock.

3M Co (MMM) closed up more than +3% after Vertical Research upgraded the stock to buy from hold with a price target of $140.

Yum!  Brands (YUM) closed up more than +2% after announcing a $2 billion stock buyback plan. 

Earnings Reports (5/17/2024)

Cato Corp/The (CATO), DZS Inc (DZSI), RBC Bearings Inc (RBC).

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