Stocks Extend Wednesday’s Rout on Economic Growth Concerns
What you need to know…
U.S. stock indexes Thursday extended Wednesday’s sharp losses, with the S&P 500 and Nasdaq 100 falling to 1-week lows and the Dow Jones Industrials dropping to a 14-month low. Stocks fell on concerns about economic growth prospects against a backdrop of rising inflation and tighter Fed policy.
Disappointing earnings results from Cisco Systems and Kohl’s weighed on the overall market Thursday on concern rising inflation is eating into corporate profits. Also, rail stocks tumbled Thursday after Citigroup downgraded the sector. Weaker-than-expected U.S. economic data Thursday also weighed on stocks.
Kansas City Fed President George said inflation is too high, and the Fed needs to bring that down. She said she is "very comfortable" with the Fed raising interest rates by 50 bp.
U.S. weekly initial unemployment claims unexpectedly rose +21,000 to a 3-1/2 month high of 218,000, showing a weaker labor market than expectations of a decline to 200,000.
The U.S. May Philadelphia Fed business outlook survey fell -15.0 to a 2-year low of 2.6, weaker than expectations of 15.0.
U.S. Apr existing home sales fell -2.4% m/m to a 1-3/4 year low of 5.61 million, weaker than expectations of 5.64 million.
U.S. Apr leading indicators unexpectedly fell -0.3% m/m, weaker than expectations of unchanged.
Today’s stock movers…
Cisco Systems (CSCO) closed down more than -13% Thursday to lead losers in the Dow Jones Industrials and Nasdaq 100 after reporting Q3 revenue of $12.84 billion, weaker than the consensus of $13.34 billion and reducing guidance on full-year revenue to up +2% to +3% from a prior view of up +5.5% to +6.5%, well below the consensus of +6.05%. Other networking equipment makers fell on the news, with Juniper Networks (JNPR) and Broadcom (AVGO) closing down by more than -3%.
U.S. rail stocks were under pressure Thursday after Citigroup cut ratings and reduced 2023 earnings estimates “across the board” on the sector. Norfolk Southern (NSC), Union Pacific (UNP), and U.S. Xpress Enterprises (USX) all closed down more than -3% after they were downgraded to neutral from buy.
Under Armour (UAA) closed down more than -15% Thursday to lead losers in the S&P 500 after analysts said the departure of CEO Frisk was a surprise and added uncertainty to the company’s outlook.
Bath & Body Works (BBWI) closed down more than -6% Thursday after lowering guidance for 2023 EPS from continuing operations to $3.80-$4.15 from a prior view of $4.30-$4.70, weaker than the consensus of $4.83. Other big-box retailers fell, with Target (TGT) closing down more than -5% and Walmart (WMT) closing down more than -2% as both stocks extended Wednesday’s sharp losses after they reported weaker-than-expected earnings.
Synopsys (SNPS) closed up more than +10% Thursday to lead gainers in the S&P 500 after reporting Q2 revenue of $1.28 billion, better than the consensus of $1.26 billion, and raised guidance on full-year revenue to $5.00-5.05 billion from a prior view of $4.78-4.83 billion, above the consensus of $4.81 billion.
Lucid Group (LCID) closed up more than +10% Thursday to lead gainers in the Nasdaq 100 after the company said it would receive as much as $3.4 billion in financing and incentives over the next 15 years for its planned factory in Saudi Arabia, which will be able to produce as many as 155,000 electric vehicles a year.
Across the markets…
June 10-year T-notes (ZNM22) on Thursday closed up by +8.5 ticks, and the 10-year T-note yield fell -3.6 bp to 2.848%. Jun 10-year T-note futures Thursday rallied to a 3-week high, and the 10-year T-note yield fell to a 3-week low of 2.771% as weakness in stocks boosted the safe-haven demand for T-notes. T-notes also saw strength on Thursday’s weak U.S. economic data, which included weekly jobless claims, the May Philadelphia Fed business outlook survey, and April existing home sales.
T-notes also garnered support Thursday on comments from Kansas City Fed President George, who said she was "very comfortable" with the Fed raising interest rates by 50 bp, which dampened fears that the Fed will be more aggressive and hike rates by 75 bp or more.
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