Markets Today: Stocks Fall as U.S. Debt Ceiling Deal Remains Elusive

Rich Asplund - Barchart - Tue May 23, 2023

Morning Markets

June E-Mini S&P 500 futures (ESM23) this morning are down -0.27%, and June Nasdaq 100 E-Mini futures (NQM23) are down -0.31%.

U.S. stock index futures this morning are moderately lower as U.S. debt ceiling talks continue. President Biden and House Speaker McCarthy called their discussions on Monday productive, but an agreement to raise the debt ceiling remains elusive.

U.S. stock indexes are also under pressure this morning on negative carryover from a decline in European stocks after the news that manufacturing activity in the Eurozone unexpectedly contracted in May by the most in 3 years.

Hawkish comments today from Minneapolis Fed President Kashkari pushed bond yields higher and weighed on stocks when he said, "If inflation became more entrenched than we realized, then we're going to have to keep interest rates high for longer."

Global bond yields are higher. The 10-year T-note yield climbed to a 2-1/4 month high of 3.757% and is up +4.1 bp at 3.755%. The 10-year German bund yield is up +3.2 bp at 2.491%, and the UK 10-year gilt rose to a 7-month high of 4.154% and is up +8.4 bp at 4.147%.

On the bearish side for stocks, AutoZone dropped more than -2% in pre-market trading after reporting Q3 net sales below consensus. Also, Lowe’s is down more than -1% after reporting weaker-than-expected Q1 same-store comparable sales and cutting its full-year comparable sales estimate.

On the bullish side, PacWest Bancorp is up more than +15% in pre-market trading, adding to Monday’s +19% surge, 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, Yelp is up more than +11% after activist investor TCS Capital Management said it believes “several buyers” would pay a premium for the company after it urged the board of directors to explore a sale. In addition, Zoom Video Communications is up more than +1% after reporting Q1 revenue above consensus and raising its full-year revenue estimate.

Overseas stock markets are lower. The Euro Stoxx 50 is down -0.60%. China’s Shanghai Composite closed down -1.52%, and Japan’s Nikkei Stock Index closed down -0.42%.

The Euro Stoxx 50 index today is moderately lower. Economic concerns are weighing on European equity markets after today’s news that manufacturing activity in the Eurozone unexpectedly contracted at the fastest pace in three years. Also, stocks that are sensitive to economic growth, including miners, industrials, and energy stocks, moved lower on the weak Eurozone economic news. In addition, bank stocks are under pressure, led by an -8% slump in Julius Baer Group Ltd after the lender reported assets under management were below market expectations. Finally, European luxury goods stocks retreated today after Deutsche Bank said the sector is getting crowded and valuations are on the high side.

The Eurozone May S&P manufacturing PMI unexpectedly fell -1.2 to a 3-year low of 44.6, weaker than expectations of an increase to 46.0. Meanwhile, the Eurozone May S&P composite PMI fell -0.8 to 53.3, weaker than expectations of 53.5.

China’s Shanghai Composite Stock Index today fell to a 1-week low and closed sharply lower. Ramped-up geopolitical concerns weighed on Chinese stocks after Japan imposed curbs on the shipment of 23 types of chipmaking technology to China. China’s Ministry of Commerce said the limits would “severely undermine the interest and rights of Chinese and Japanese companies and China-Japan trade and economic cooperation, damage the landscape of the global semiconductor industry, and impact industrial and supply chain security and stability.” Also, Chinese Foreign Ministry spokesman Ning questioned U.S. “sincerity” about President Biden’s attempts to improve ties with China and the U.S. should first roll back sanctions on technology exports to the country. On the positive side, Chinese gaming stocks rallied today after regulators approved 86 new domestic video games this month.

Foreign investors are liquidating their Chinese stock holdings as shares listed on the mainland saw net selling today of 8 billion yuan ($1.1 billion) via the trading links with Hong Kong, the largest amount of Chinese stocks offloaded since October.

Japan’s Nikkei Stock Index today retreated from a new 32-year high and closed moderately lower. Japanese stocks reversed early gains today and moved lower after news about stricter export controls on chip technology to China hurt market sentiment and sparked long liquidation in Japanese stocks. Japanese semiconductor-related stocks sold off today to lead the overall market lower after Japan said as of July 23 it will expand restrictions on exports of 23 types of chipmaking technology to China. Japan joins the U.S. and Netherlands in controlling technology exports to China on concerns Chine is using the technology for military purposes. Strength in Japanese bank stocks today initially pushed the Nikkei Stock Index higher after SMBC Nikko said some regional banks are on track for higher returns.

Japanese economic news today was supportive of stocks. The Japan May Jibun Bank manufacturing PMI rose +1.3 to 50.8, the strongest pace of expansion in 8 months. Also, the May Jibun Bank services PMI rose +0.9 to 56.3, the strongest pace of expansion since the data series began in 2019.

Pre-Market U.S. Stock Movers

AutoZone (AZO) dropped more than -2% in pre-market trading after reporting Q3 net sales of $4.09 billion, weaker than the consensus of $4.12 billion.

Lowes’s (LOW) slid more than -1% in pre-market trading after reporting Q1 same-store comparable sales fell -4.3%, weaker than the consensus of -3.28%, and cut its full-year comparable sales estimate to -2% to -4% from a previous estimate of -2% to 0%, below the consensus of -1.92%.

Ryan Specialty (RYAN) fell more than -1% in pre-market trading after holder Onex offered 8.31 million class A shares via Barclays.

Intercept Pharmaceuticals (ICPT) dropped more than -1% in pre-market trading after Needham downgraded the stock to hold from buy.

PacWest Bancorp (PACW) rallied more than +15% in pre-market trading, adding to Monday’s +19% surge, 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.

Yelp (YELP) jumped more than +11% in pre-market trading after activist investor TCS Capital Management said it believes “several buyers” would pay a premium for the company after it urged the board of directors to explore a sale.

Zoom Video Communications (ZM) rose more than +1% in pre-market trading after reporting Q1 revenue of $1.11 billion, better than the consensus of $1.08 billion, and raised its full-year revenue estimate to $4.47 billion-$4.49 billion from a previous estimate of $4.44 billion-$4.46 billion, above the consensus of $4.45 billion.

Dicks Sporting Goods (DKS) climbed more than +2% in pre-market trading after reporting Q1 adjusted EPS of $3.40, stronger than the consensus of $3.13.

Today’s U.S. Earnings Reports (5/23/2023)

Agilent Technologies Inc (A), AutoZone Inc (AZO), BJ's Wholesale Club Holdings I (BJ), Dick's Sporting Goods Inc (DKS), Intuit Inc (INTU), Lowe's Cos Inc (LOW), New Relic Inc (NEWR), Palo Alto Networks Inc (PANW), Toll Brothers Inc (TOL), VF Corp (VFC), Williams-Sonoma Inc (WSM).

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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.