What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.38%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.27%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.75%.

Stock indexes Wednesday settled mixed.  A jump in bond yields undercut mega-cap technology stocks and weighed on the overall market.  Bond yields rose after the Bank of Canada unexpectedly raised interest rates. Stocks were also undercut by concern about slowing global demand after China’s May exports fell more than expected. 

Market expectations for the Fed to raise the fed funds target range by +25 bp at next week’s FOMC meeting rose to 31% from 23% Tuesday after Wednesday’s unexpected BOC rate hike. 

The Bank of Canada unexpectedly raised its key rate by +25 bp to 4.75% from 4.50% and said demand “looks to be more persistent” than it expected, and “concerns have increased” inflation may get stuck above 2%.

The U.S. Apr trade deficit widened to -$74.6 billion from -$64.2 billion in Mar, the largest deficit in six months but smaller than expectations of -$75.8 billion.

U.S. Apr consumer credit rose +$23.01 billion, stronger than expectations of +$22.0 billion and the most in 5 months.

The Organization for Economic Cooperation and Development (OECD) forecast 2023 global GDP of +2.7%, below the +3.3% pace in 2022.

China May exports fell -7.5% y/y, weaker than expectations of -1.8% y/y and the biggest decline in 4 months.  May imports fell -4.5% y/y, a smaller decline than expectations of -8.0%y/y.

Global bond yields Wednesday moved higher.  The 10-year T-note yield rose to a 1-week high of 3.799% and finished up +11.6 bp at 3.776%.  The 10-year German bund yield rose to a 1-week high of 2.456% and finished on that high, and the UK 10-year gilt yield rose to a 1-week high of 4.251% and finished on that high.

On the bearish side of stocks, mega-cap technology stocks retreated Wednesday on higher bond yields.  Also, packaged-food stocks sold off, led by an -8% fall in Campbell Soup after forecasting full-year adjusted EPS below consensus.  In addition, United Natural Foods closed down more than -14% after reporting Q3 adjusted EPS below consensus and cutting its full-year adjusted EPS forecast. 

On the bullish side, Warner Bros Discovery closed up more than +8% after the Wall Street Journal reported a potential deal between Amazon.com, Warner Bros Discovery, and Paramount Global to add the ad-based tiers of Max and Paramount+ on Amazon Channels.  Also, machinery and building products stocks rose for a second day as cyclical stocks outperformed the broader market as recession fears eased.  In addition, energy stocks rallied rose as WTI crude prices rose more than +1%. 

Overseas stock markets Wednesday settled mixed.  The Euro Stoxx 50 closed down -0.08%. China’s Shanghai Composite closed up +0.08%, and Japan’s Nikkei Stock Index closed down -1.82%. 

Today’s stock movers…

Mega-cap technology stocks retreated Wednesday on higher bond yields.  Amazon.com (AMZN) closed down more than -4%, and Alphabet (GOOGL) and Microsoft (MSFT) closed down more than -3%.  Also, Meta Platforms (META) and Nvidia (NVDA) closed down more than -2%.

Packaged-food stocks sold off, with Campbell Soup (CPB) closing down more than -8% to lead losers in the S&P 500 after forecasting full-year adjusted EPS of $2.95-$3.00, below the consensus of $3.02.  Also, General Mills (GIS), Kellogg (K), and Kraft Heinz Foods (KHC) closed down more than -2%. 

Datadog (DDOG) closed down more than -8% to lead losers in the Nasdaq 100 on signs of insider selling after an SEC filing showed CEO Pomel sold $1.87 million of shares last Friday. 

Atlassian (TEAM) closed down more than -5% on signs of insider selling after an SEC filing showed CEO Farquhar sold $1.57 million of shares Monday. 

United Natural Foods (UNFI) closed down more than -14% after reporting Q3 adjusted EPS of 54 cents, well below the consensus of 65 cents, and cut its full-year adjusted EPS forecast to $1.80-$2.30 from a previous forecast of $3.05-$3.90, weaker than the consensus of $3.35.

Couchbase (BASE) closed down more than -28% after forecasting a Q2 operating loss of -$10.1 million to -$10.9 million, wider than the consensus of -$9.79 million. 

Casey’s General Stores (CASY) closed down more than -2% after reporting Q4 revenue of $3.33 billion, below the consensus of $3.38 billion.

Warner Bros Discovery (WBD) closed up more than +8% to lead gainers in the S&P 500 and Nasdaq 100 after the Wall Street Journal reported a potential deal between Amazon.com, Warner Bros Discovery, and Paramount Global to add the ad-based tiers of Max and Paramount+ on Amazon Channels.

Machinery and building products stocks rose for a second day as cyclical stocks outperformed the broader market as recession fears eased.  Stanley Black & Decker (SWK) closed up more than +6%, and United Rentals (URI) closed up more than +4%.  Also, Caterpillar (CAT) closed up more than +3% to lead gainers in the Dow Jones Industrials.  In addition, Carrier Global (CARR), Parker-Hannifin (PH), and Masco (MAS) closed up more than +3%.

Energy stocks and energy service providers moved higher, with WTI crude prices up more than +1%. Marathon Oil (MRO), Phillips 66 (PSX), Marathon Petroleum (MPC), and Haliburton (HAL) closed up more than +4%.  Also, Valero Energy and Hess closed up more than +3%. In addition, Devon Energy (DVN), Exxon Mobil (XOM), ConocoPhillips (COP), and Diamondback Energy (FANG) closed up more than +2%

Brown-Forman (BF/B) closed up more than +3% after reporting Q2 EPS of 43 cents, better than the consensus of 42 cents.   

Tesla (TSLA) closed up more than +1% after the U.S. Treasury Department said the car maker’s Model 3 sedans became eligible for the full $7,500 tax credit under new criteria for battery sourcing.

Across the markets…

September 10-year T-notes (ZNU23) on Wednesday closed down -18 ticks, and the 10-year T-note yield rose by +11.6 bp to 3.776%.  Sep T-notes Wednesday dropped to a 1-week low, and the 10-year T-note yield rose to a 1-1/2 week high of 3.799%.  T-note prices were weighed down by carry-over weakness from a decline in 10-year German bunds to a 1-week low on hawkish ECB comments.  Also, an increase in inflation expectations was bearish for T-notes after the 10-year breakeven inflation rate rose to a 1-week high Wednesday at 2.241%. Losses in T-notes accelerated after the Bank of Canada unexpectedly raised interest rates.   

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