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Stocks Recover Late on Bullard Comments

Barchart - Fri May 20, 3:45PM CDT
Stocks-Money-Rates - New York Stock Exchange NYSE

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed up +0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.03%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.34%.

U.S. stock indexes Friday settled mixed.  Stock indexes Friday extended the week’s sell-off, with the S&P 500 and Dow Jones Industrials dropping to 14-1/2 month lows and the Nasdaq 100 falling to a 1-1/2 year low.  The S&P 500 this week fell for the seventh consecutive week, the longest stretch of declines since 2001. 

Positive comments on the U.S. economy Friday afternoon from St. Louis Fed President Bullard sparked some late short-covering in stocks.

A slump in retailer stocks this week has weighed on the overall market.  Ross Stores plunged more than -22% Friday after cutting its full-year EPS forecast. Ross Stores joins Walmart and Target as key retailers this week who cut their annual earnings forecasts as rising prices eat into profits. 

Stocks on Friday initially opened higher on carry-over support from a rally in Asian and European stocks after China increased stimulus measures in an attempt to bolster its economy.  The PBOC on Friday cut its five-year loan prime rate by -15 bp to 4.55%, a larger cut than expectations of -10 bp.

Stocks recovered most of their losses Friday afternoon on positive comments from St. Louis Fed President Bullard, who said, "we have a very good economy," and that while U.S. economic growth may slow this year, it will still be above trend for 2022.

Today’s stock movers…

Ross Stores (ROST) closed down more than -22% Friday to lead losers in the S&P 500 and Nasdaq 100 after reporting Q1 sales of $4.33 billion, weaker than the consensus of $4.54 billion, and cutting its 2023 EPS forecast to $4.34-$4.58 from a prior view of $4.71-$5.12, well below the consensus of $5.04.  Other retailer stocks were also under pressure, as Dollar General (DG) closed down more than -7%, and TJX Cos (TJX) and Dollar Tree (DLTR) closed down more than -5%.

Deere & Co. (DE) closed down more than -14% Friday after reporting Q2 net sales of $12.03 billion, below the consensus of $13.23 billion.  The weakness in Deere weighed on Caterpillar (CAT), which closed down more than -4%. 

Boeing (BA) closed down more than -5% Friday to lead losers in the Dow Jones Industrials after China Eastern Airlines outlined several actions Boeing must undertake before operating the 737 Max in China again, dampening hopes the jet will be allowed to fly in China anytime soon. 

Tesla (TSLA) closed down more than -6% Friday after Morgan Stanley warned that the supply-chain turmoil in China could potentially drive a “substantial” miss on auto deliveries in Q2.

Cybersecurity stocks rallied Friday, with Pala Alto Networks (PANW) closing up more than +9% to lead gainers in the Nasdaq 100 after reporting Q3 revenue of $1.39 billion, stronger than the consensus of $1.36 billion, and raising guidance on full-year revenue to $5.48 billion-$5.50 billion from a prior forecast of $5.43 billion-$5.48 billion, above the consensus of $5.46 billion.  Also, Crowdstrike Holdings (CRWD) closed up more than +4%, and Zscaler (ZS) and Fortinet (FTNT) closed up more than +3% on the news.

Homebuilders Friday moved higher as the 10-year T-note yield fell -9.4 bp to 2.776%. Lower T-note yields will knock mortgage rates lower and may support home purchases.  DR Horton (DHI) closed up more than +3%, and Lennar (LEN) and PulteGroup (PHM) closed up more than +2%.

Eli Lilly (LLY) closed up more than +4% Friday after its Olumiant drug received a positive use extension recommendation from the European Medicine’s Agency’s Committee for Medicinal Products. 

Across the markets…

June 10-year T-notes (ZNM22) on Friday closed up by +13.5 ticks, and the 10-year T-note yield fell -9.4 bp to 2.776%.  Jun 10-year T-note futures Friday posted moderate gains but remained below Thursday’s 3-week high, and the 10-year T-note remained just above Thursday’s 3-week low of 2.771%.  A decline in the S&P 500 to a 14-1/2 month low Friday sparked safe-haven demand for T-notes.  Also, falling inflation expectations were bullish for T-notes after the 10-year breakeven inflation rate Friday fell to a 2-1/2 month low of 2.558%.