Stocks Shake off Mostly Negative News to Close Mildly Higher

The S&P 500 Index SPY Friday rose +0.16%, the Dow Jones Industrials Index DIA rose +0.32%, and the Nasdaq 100 Index QQQ rose +0.26%. 

US stocks on Friday gained support from chip stocks and generally positive Q1 earnings results. Q1 earnings are expected to climb +6.5% y/y, well above the pre-earnings season estimate of +3.8%. According to data compiled by Bloomberg Intelligence, about 81% of reporting S&P 500 companies have beaten Q1 earnings estimates. 

Stocks were undercut Friday by higher T-note yields and a disappointing consumer sentiment report that showed both weaker consumer sentiment and higher inflation expectations. 

The University of Michigan’s preliminary-May US consumer sentiment index fell -9.8 points to a 6-month low of 67.4, which was weaker than market expectations for a -1.0 point decline to 76.2.

Also, US consumers’ inflation expectations rose. The University of Michigan’s May US 1-year inflation expectation indicator rose by +0.3 points to 3.5% from April’s 3.2% and was stronger than expectations of unchanged at 3.2%. Also, the May 5-10 year inflation expectation indicator rose to +3.1% from April’s 3.0%.

Hawkish Fed comments Friday undercut stocks and caused reduced expectations for Fed rate cuts. Fed Governor Michelle Bowman said Friday the Fed must maintain its inflation credibility “by proceeding carefully and deliberately to achieve our 2% goal.” She said the Fed needs to keep rates where they are “for a bit longer.” Also, Atlanta Fed President Raphael Bostic told Reuters in an interview that he expects only one 25 bp rate cut this year, coming late in the year. Dallas Fed President Lorie Logan said, “It’s just too early to think about cutting rates.” Minneapolis Fed President Neel Kashkari said the Fed is in a wait and see mode to see if inflation is stalling. He also said he does not rule out the need for another rate hike although he said there would be a high bar for such a decision. On the less hawkish side, Chicago Fed President Austan Goolsbee said there isn’t much evidence that inflation is stalling out as high as 3%.

The markets are discounting the chances for a -25 bp rate cut at 5% for the June 11-12 FOMC meeting and 27% for the following meeting on July 30-31, down from Thursday’s levels of 10% and 36%, respectively.

Stocks were undercut by a Bloomberg report Friday that said President Biden next Tuesday will announce new and elevated tariffs on three Chinese import sectors, including electric vehicles, batteries, and solar cells. Bloomberg said other US tariffs on Chinese imports are expected to be largely maintained. The tariffs may help some domestic US businesses, but tariffs generally increase costs for consumers and are indicative of high US-Chinese geopolitical tensions. Also, China may retaliate with higher tariffs on key US sectors such as agriculture.

Overseas stock markets Friday closed higher. The Euro Stoxx 50 closed up +0.61%. China's Shanghai Composite rose to an 8-month high and closed up +0.01%. Japan's Nikkei Stock Index closed up +0.33%. 

Interest Rates

June 10-year T-notes (ZNM24) Friday closed down -12.5 ticks. The 10-year T-note yield rose +4.7 bp to 4.500%. T-note prices saw downward pressure from hawkish Fed remarks, the increase in US consumers’ inflation expectations, and reduced expectations for Fed rate cuts.

European government bond yields Friday were higher. The 10-year German bund yield rose +2.2 bp to 2.517%. The 10-year UK gilt yield rose +2.4 bp to 4.166%.

US Stock Movers

Chip stocks ranked high on Friday’s Nasdaq 100 leaderboard, with Micron Technology MU rising +2.91%. Applied Materials AMAT, NVIDIA NVDA, ASML Holding ASML, and Marvel Technologies MRVL all rose more than +1%.

There were some notable losers in the Nasdaq 100. Moderna MRNA fell -4.39%, Tesla TSLA fell -2.04%, Amazon AMZN fell -1.07%, and Apple AAPL fell -0.82%, and Alphabet GOOG fell -0.77%.

Novavax NVAX rose by an extraordinary +98% after news that the company signed a $1.2 billion licensing agreement with Sanofi for the commercialization of a combined Covid and flu shot. 

3M MMM rose +1.53% after HSBC raised its rating to buy from hold on a positive view of the company’s restructuring efforts.

Yelp’s YELP fell -7.25% on a downward revision in full-year Ebitda guidance. Also, Jefferies warned that the company’s revenue could be hindered by macro headwinds for restaurants and growing competition from delivery platforms.

Earnings Reports (5/10/2024)

4D Molecular Therapeutics Inc (FDMT), AirSculpt Technologies Inc (AIRS), Alpine Immune Sciences Inc (ALPN), AlTi Global Inc (ALTI), ALX Oncology Holdings Inc (ALXO), AMC Networks Inc (AMCX), American Realty Investors Inc (ARL), AnaptysBio Inc (ANAB), ANI Pharmaceuticals Inc (ANIP), Astria Therapeutics Inc (ATXS), Cabaletta Bio Inc (CABA), CareMax Inc (CMAX), Carrols Restaurant Group Inc (TAST), CBL & Associates Properties In (CBL), Construction Partners Inc (ROAD), Consumer Portfolio Services In (CPSS), Contango ORE Inc (CTGO), Costamare Inc (CMRE), Cullinan Therapeutics Inc (CGEM), DigitalOcean Holdings Inc (DOCN), Dillard's Inc (DDS), DNOW Inc (DNOW), Enliven Therapeutics Inc (ELVN), EVI Industries Inc (EVI), Eyenovia Inc (EYEN), FTC Solar Inc (FTCI), Generation Bio Co (GBIO), Hawaiian Electric Industries Inc (HE), Humacyte Inc (HUMA), I3 Verticals Inc (IIIV), ImmunityBio Inc (IBRX), Inspired Entertainment Inc (INSE), iTeos Therapeutics Inc (ITOS), Kezar Life Sciences Inc (KZR), Lazydays Holdings Inc (GORV), Li-Cycle Holdings Corp (LICY), Lightwave Logic Inc (LWLG), Luna Innovations Inc (LUNA), MarketWise Inc (MKTW), Maui Land & Pineapple Co Inc (MLP), Mitek Systems Inc (MITK), Mondee Holdings Inc (MOND), NextDecade Corp (NEXT), Nkarta Inc (NKTX), Novavax Inc (NVAX), Overseas Shipholding Group Inc (OSG), Park Aerospace Corp (PKE), PepGen Inc (PEPG), Prime Medicine Inc (PRME), ProKidney Corp (PROK), Protalix BioTherapeutics Inc (PLX), Sphere Entertainment Co (SPHR), Star Holdings (STHO), Sylvamo Corp (SLVM), Tenaya Therapeutics Inc (TNYA), Third Harmonic Bio Inc (THRD), Transcontinental Realty Invest (TCI), TruBridge Inc (TBRG), United Homes Group Inc (UHG), Vor BioPharma Inc (VOR).

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.