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Stocks Rally as Solid U.S. Economic Data Boosts Risk Sentiment

Barchart - Tue May 17, 3:38PM CDT
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What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday closed up +2.02%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.34%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.62%.

U.S. stock indexes on Tuesday rallied to 1-week highs and closed moderately higher. Risk sentiment improved Tuesday and fueled a rally in stocks.  U.S. stocks opened higher Tuesday on carry-over support from a rally in Chinese technology stocks on optimism that China may ease a year-long crackdown on the sector.  In addition, hopes that lockdowns in Shanghai may soon be ended fueled gains in the overall market after Shanghai reported no community Covid infections for a third day. 

A +1.52% rally in the Euro Stoxx 50 Tuesday gave U.S. stocks a boost after the Eurozone economy grew more than expected in Q1.  Also, positive comments Tuesday from Fed Chair Powell and St. Louis Fed President Bullard were bullish for stocks, along with stronger-than-expected U.S. economic data on April retail sales and April manufacturing production.

Fed Chair Powell said the "U.S. economy is strong, and we think it's well-positioned to withstand less accommodative monetary policy."  He added that the FOMC "won't hesitate" to raise interest rates above the neutral level to bring inflation down.

St. Louis Fed President Bullard said a "super-strong" U.S. labor market will help support consumer spending and keep the economy on track, and he sees a "fairly good performance for the U.S. economy through 2022 and 2023." 

U.S. Apr retail sales rose +0.9% m/m, slightly weaker than expectations of +1.0% m/m, but Mar was revised upward to +1.4% m/m from the previously reported +0.5% m/m.  Apr retail sales ex-autos rose +0.6% m/m, stronger than expectations of +0.4% m/m.

U.S. Apr manufacturing production rose +0.8% m/m, stronger than expectations of +0.4% m/m.

U.S. May NAHB housing market index fell -8 to a 23-month low of 69, weaker than expectations of 75.

Today’s stock movers…

Chip stocks rallied Tuesday to lead technology stocks and the overall market higher.  Advanced Micro Devices (AMD) closed up more than +8% Tuesday to lead gainers in the Nasdaq 100 after Piper Sandler upgraded the stock to overweight from neutral.  Also, Lam Research (LRCX) closed up more than +6%, and Applied Materials (AMAT), Micron Technology (MU), Marvell Technology (MRVL), and Nvidia (NVDA) closed up more than +5%

Boeing (BA) closed up more than +6% Tuesday to lead gainers in the Dow Jones Industrials after the Wall Street Journal reported that the black box for a China Eastern Airlines jet that crashed earlier this year suggested the plane took an intentional nosedive.

Paramount Global (PARA) closed up more than +15% Tuesday to lead gainers in the S&P 500 after Warren Buffet’s Berkshire Hathaway reported a stake in the company. 

Take-Two Interactive Software (TTWO) closed up more than +11% Tuesday after reporting Q4 adjusted EPS of $1.09, better than the consensus of 99 cents. 

Citigroup (C) closed up more than +7% Tuesday after a quarterly 13-F filing showed Warren Buffet’s Berkshire Hathaway took a stake in the company. 

Airline stocks rallied Tuesday, led by a +7% jump in United Airlines Holdings (UAL) after it raised its outlook for Q2 passenger revenue to increase 25% over the 2019 level, stronger than an April forecast of 17% above the 2019 level. Also, American Airlines (AAL) closed up by more than +7%, and Delta Air Lines (DAL) closed up by more than +6%.  In addition, Alaska Air Group (ALK) closed up by more than +5%, and Southwest Airlines (LUV) closed up more than +4%.   

U.S.-listed Chinese technology stocks Tuesday moved higher on optimism that a meeting between Chinese government regulators and top corporate executives will result in China easing its year-long clampdown on the sector.   Pinduoduo (PDD) and Alibaba Group Holding (BABA) closed up more than +5%.  Also, JD.com (JD) and Baidu (BIDU) closed up more than +4%, and NetEase (NTES) closed up more than +1%.

Walmart (WMT) closed down more than -11% Tuesday to lead losers in the S&P 500 and Dow Jones Industrials after cutting its full-year EPS growth forecast to a decline of about -1%, weaker than a previous estimate of a mid-single-digit increase. Other retailers fell on the news, with Dollar Tree (DLTR) closing down more than -3% to lead losers in the Nasdaq 100.  Also, Kroger (KR) and Dollar General (DG) closed down more than -3%. 

Across the markets…

June 10-year T-notes (ZNM22) on Monday closed down by -26 ticks, and the 10-year T-note yield rose +8.9 bp to 2.971%.  Higher European government bond yields Tuesday weighed on T-notes, along with a rally in global equity markets that reduced the safe-haven demand for government debt. T-note losses accelerated Tuesday morning after data showed U.S. Apr retail sales and Apr manufacturing production rose more than expected.   In addition, hawkish comments Tuesday from Fed Chair Powell and St. Louis Fed President Bullard were bearish for T-notes.