Stocks See Support from Strength in Mega-Cap Tech Stocks

Rich Asplund - Barchart - Mon May 22, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.07%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.41%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.27%.

U.S. stocks this morning are mixed, with the Nasdaq 100 climbing to a 13-month high. The broader market is under pressure as U.S. debt-ceiling talks drag on. Also, higher bond yields are weighing on stocks due to hawkish Fed comments. The Nasdaq 100 is moderately higher today as market uncertainty is prompting investors to park funds in mega-cap technology stocks as a safe haven.

President Biden and House Speaker McCarthy are scheduled to meet later today in a bid to iron out roadblocks for a debt ceiling increase. The leaders' hand-picked negotiators met for more than two hours on Sunday ahead of today’s meeting. Treasury Secretary Yellen said Sunday that the chances the U.S. can pay all its bills by mid-June are “quite low” without a debt ceiling increase.

St. Louis Fed President Bullard said we will have to move interest rates higher to tame inflation, and he's thinking of "two more 25 bp rate hikes this year."

Minneapolis Fed President Kashkari said he might support holding interest rates at current levels at the June FOMC meeting to give Fed officials more time to assess the effects of past rate hikes and the inflation outlook.

Global bond yields are higher. The 10-year T-note yield climbed to a 2-1/4 month high of 3.721% and is up +4.4 bp at 3.717%. The 10-year German bund yield is up +3.0 bp at 2.458%, and the UK 10-year gilt yield is up +6.1 bp at 4.057%.

On the bullish side for stocks, VectivBio is up more than +36% after agreeing to be purchased by Ironwood for $17 a share in a deal valued at about $1 billion. In addition, PacWest Bancorp is up more than +8% to lead a rally in regional bank stocks after agreeing to sell a $2.6 billion portfolio of 74 real estate construction loans as part of its plan to shore up its liquidity. In addition, Albemarle is up more than +2% after the company signed an agreement to supply Ford Motor with more than 100,000 MT of battery-grade lithium hydroxide from 2026 through 2030.

On the bearish side, Micron Technology is down more than -4% after China said the company’s products failed to pass a cybersecurity review in the country. Also, higher bond yields today are weighing on homebuilding stocks. In addition, Foot Locker and Nike are down by more than -2% after Williams Trading downgraded the stocks to sell.

Overseas stock markets are mixed. The Euro Stoxx 50 is down -0.26%. China’s Shanghai Composite closed up +0.39%, and Japan’s Nikkei Stock Index closed up +0.90%.

Today’s stock movers…

Strength in mega-cap technology stocks is pushing the Nasdaq 100 higher. Alphabet (GOOGL), Meta Platforms (META), and Tesla (TSLA) are up more than +2%. Also, Microsoft (MSFT) is up more than +1% to lead gainers in the Dow Jones Industrials.

PacWest (PACW) is up more than +8% to lead regional bank stocks higher after agreeing to sell a $2.6 billion portfolio of 74 real estate construction loans as part of its plan to shore up its liquidity. Also, Comerica (CMA) is up more than +2%, and KeyCorp (KEY), Regions Financial (RF), Huntington Bancshares (HBAN), US Bancorp (USB), and Truist Financial (TFC) are up more than +1%.

VectivBio (VECT) is up more than +36% after agreeing to be purchased by Ironwood for $17 a share in a deal valued at about $1 billion.

Fair Isaac (FICO) is up more than +3% after Barclays raised its price target on the stock to $920 from $820.

Gen Digital (GEN) is up more than +2% on signs of insider buying after an SEC filing showed company President Vlcek bought 300,000 shares last Wednesday.

Albemarle (ALB) is up more than +2% after the company signed an agreement to supply Ford Motor with more than 100,000 MT of battery-grade lithium hydroxide from 2026 through 2030.

Zions Bancorp (ZION) is up more than +1% after Hovde Group initiated coverage on the stock with an outperform rating, saying “misplaced fears” drove a discounted valuation.

Consumer stocks are falling today. Procter & Gamble (PG) and Pepsi Co (PEP) are down more than -2%. Also, General Mills (GIS), Colgate-Palmolive (CL), Cocoa-Cola (KO), Campbell Soup (CPB), Hershey Co (HSY), Hormel Foods (HRL), Conagra Brands (CAG), and JM Smucker (SJM) are down more than -1%.

Micron Technology (MU) is down more than -4% to lead losers in the S&P 500 and Nasdaq 100 after China said the company’s products failed to pass a cybersecurity review in the country.

Higher bond yields today are weighing on homebuilding stocks. As a result, Lennar (LEN), PulteGroup (PHM), DR Horton (DHI), and Toll Brothers (TOL) are all down more than -1%.

Global-e Online (GLBE) is down more than -2% after forecasting Q2 revenue of $125 million-$130 million, the midpoint below the consensus of $127.9 million.

Foot Locker (FL) is down more than -4% after Williams Trading downgraded the stock to sell from hold with a price target of $25.

Nike (NKE) is down more than -2% in pre-market trading after Williams Trading downgraded the stock to sell from hold with a price target of $95.

Across the markets…

June 10-year T-notes (ZNM23) today are down -4 ticks, and the 10-year T-note yield is up +4.4 bp at 3.717%. Jun T-notes this morning are moderately lower, just above last Friday’s 2-month low. The 10-year T-note yield rose to a 2-1/4 month high of 3.721%. T-notes are under pressure from higher European government bond yields after ECB President Lagarde said, "We are not done yet" in raising interest rates. Also, hawkish comments today from St. Louis Fed President Bullard undercut T-note prices when he said he's thinking of "two more 25 bp rate hikes this year." In addition, rising inflation expectations are weighing on T-note prices after the 10-year breakeven inflation expectations rate today rose to a 3-week high of 2.261%.

The dollar index (DXY00) today is up +0.03%. The dollar this morning shook off overnight losses and is slightly higher. Short-covering in the dollar emerged this morning after St. Louis Fed President Bullard said he favored two more 25 bp rate hikes this year. Gains in the dollar are limited due by the ongoing U.S. debt ceiling impasse and strength in EUR/USD on hawkish comments from ECB President Lagarde.

EUR/USD (^EURUSD) today is up by +0.03%. The euro today is slightly higher and found support following a market-friendly election outcome Sunday in Greece that reduced political uncertainty. The euro is also seeing support from hawkish comments from ECB President Lagarde, who said, "We are not done yet" in raising interest rates. Gains in the euro are limited after today’s news that Eurozone Mar construction output fell -2.4% m/m, the biggest decline in more than two years.

Comments today from ECB President Lagarde were bullish for EUR/USD when she said, "We are not done yet" in raising interest rates and "We are not done pausing based on the information I have today" as the "inflation outlook is too high and for too long."

USD/JPY (^USDJPY) today is up by +0.41%. The yen today is moderately lower. Higher T-note yields are pressuring the yen along with today’s rally in the Nikkei Stock Index to a 32-year high that curbs the safe-haven demand for the yen. Today’s weaker-than-expected Japan core machine orders report was dovish for BOJ policy and weighed on the yen.

Japan Mar core machine orders unexpectedly fell -3.9% m/m, weaker than expectations of a +0.4% m/m increase.

June gold (GCM3) this morning is down -5.9 (-0.30%), and July silver (SIN23) is down -0.085 (-0.35%). Precious metals prices this morning are moderately lower. Higher global bond yields today are weighing on precious metals. Also, hawkish central bank comments today signal higher interest rates that are bearish for metals after St. Louis Fed President Bullard said we would have to move interest rates higher to tame inflation. Also, ECB President Lagarde said, "We are not done yet" in raising interest rates.

Silver prices are also weighed down today by industrial metals demand concerns after Eurozone Mar construction output fell by the most in more than two years. However, losses in metals prices were limited as the ongoing U.S. dent-ceiling impasse has sparked safe-haven demand for precious metals.

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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.