Closing Stock Market SummaryThe rebound effort that began late in the day last Friday hit a wall today as market participants grappled with concerns about economic and earnings growth prospects. Many stocks got battered and bruised hitting that wall while others fared reasonably well.
The biggest pains came early when the Nasdaq Composite was down as much as 3.8%. The S&P 500 and Dow Jones Industrial Average were down 2.5% and 1.6% at their worst levels of the day. There was some healing, however, that occurred as the day progressed. The Dow Jones Industrial Average rallied into positive territory and closed near its high for the session. Meanwhile, the Nasdaq and S&P 500 ended the session with lesser declines of 2.3% and 0.8%, respectively.
Unlike the early selling, there wasn't a specific news catalyst for the turnaround effort. Ironically, the early losses themselves likely served as the spark for the turnaround bid as market participants came back to the idea that the stock market is oversold and due for a more meaningful recovery bid.
That notion, though, got put to a serious test this morning following a spate of developments that played into existing concerns about a slowdown in growth here and abroad that could lead to an eventual cut in earnings growth estimates:
- Snap (SNAP 12.79, -9.68, -43.1%) said after Monday's close that it expects its Q2 revenue and adjusted EBITDA to be below its prior guidance because the macroeconomic environment has deteriorated further and faster than anticipated.
- Best Buy (BBY 73.65, +1.07, +1.5%) acknowledged that it saw a worsening in macro conditions as it lowered its FY23 comparable sales guidance to (3.0%)-(6.0%) from (1.0%)-(4.0%).
- Small-cap specialty apparel retailer Abercrombie & Fitch (ANF 19.03, -7.70, -28.8%) reported disappointing fiscal Q1 results and issued disappointing guidance, citing higher costs and lower sales due to an assumed inflationary impact on the consumer.
- Preliminary May manufacturing and services PMI readings out of Japan, the eurozone, and the U.S. showed a deceleration in activity versus April.
- The April New Home Sales Report was much weaker than expected and included a downward revision for March.
- UBS and JPMorgan cut their 2022 GDP growth estimates for China; and reports suggested Beijing has stepped up its quarantine efforts to stop the spread of COVID.
The confluence of these developments undercut most sectors, particularly the communication services (-3.7%), consumer discretionary (-2.6%), and information technology (-1.6%) sectors. To be fair, those sectors finished comfortably off their worst levels of the day, as did most sectors.
Nonetheless, the slowdown concerns were evident in the outperformance of the counter-cyclical utilities (+2.0%), consumer staples (+1.6%), and health care (+0.3%) sectors. Real estate (+1.2%) also outperformed, bolstered by the drop in market rates, which was an offshoot of concerns about the economic environment and the ongoing struggles for the stock market.
The 10-yr note yield settled the day down 10 basis points at 2.76% and the 2-yr note yield settled the day down 11 basis points at 2.50%.
The U.S. Dollar Index slipped 0.3% to 101.74, the CBOE Volatility Index jumped 4.2% to 29.67, and the fed funds futures market priced in a noticeably lower probability of 50 basis point rate hikes at the September and November FOMC meetings.
Reviewing today's economic data:
- New home sales decreased 16.6% month-over-month in April to a seasonally adjusted annual rate of 591,000 units (consensus 750,000) from a downwardly revised 709,000 (from 763,000) in March. On a year-over-year basis, new home sales were down 26.9%.
- The key takeaway from the report is that new home sales are counted when a contract is signed. The sharp drop from March, and the large miss versus the consensus estimate, underscores the affordability pressures that quickly emerged with the spike in mortgage rates.
- The preliminary IHS Markit Manufacturing PMI for May decreased to 57.5 from 59.2 in the final reading for April. The preliminary IHS Markit Services PMI for May decreased to 53.5 from 55.6 in the final reading for April.
Looking ahead, market participants will receive the weekly MBA Mortgage Applications Index, April Durable Goods Orders Report, EIA Crude Oil Inventories, and the FOMC Minutes for the May meeting on Wednesday.
- Dow Jones Industrial Average -12.1% YTD
- S&P 500 -17.3% YTD
- S&P 400 -16.2% YTD
- Russell 2000 -21.4% YTD
- Nasdaq Composite -28.0% YTD
After Hours Summary: WEN +19.9% jumps as Trian Fund to explore potential transactions; CAL +12.2%, JWN +11.2%, TOL +5%, A +3.4%, INTU +2.8% higher on earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: CAL +12.2%, JWN +11.2% (also authorizes new $500 mln share repurchase program), TOL +5% (also authorizes new $900 mln share repurchase program), A +3.4%, INTU +2.8%, VNET +1.9%, URBN +1.2%
Companies trading higher in after hours in reaction to news: WEN +19.9% (Trian Fund to explore and evaluate potential transactions), RICK +10.1% (increases share buyback authorization by $25 mln), DDS +5.4% (in sympathy with JWN earnings), M +3.6% (in sympathy with JWN earnings), RKLB +1.6% (Varda will procure a fourth Photon spacecraft), LYFT +0.7% (will slow hiring and reduce budgets for some departments, according to WSJ), QUOT +0.3% (names new CEO), OPY +0.2% (authorizes new 550 mln share repurchase program)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: OOMA -2.6%, ARCE -2.5%, RAMP -0.1% (also intends to repurchase $150 mln of shares by end of calendar 2022)
Companies trading lower in after hours in reaction to news: VRCA -37.9% (PDUFA date passes for VP-102), IDCC -8.7% (announces $350 mln convertible notes offering), KDNY -6.7% (stock offering; also files mixed securities shelf offering), INVZ -3.3% (stock offering), BV -0.2% (files for $500 mln mixed securities shelf offering; also files for 50,633,123 offering by selling shareholders), VVV -0.2% (purchases partner's interest in VCA Solutions JV), JNJ -0.1% (Janssen presents study results showing clinical efficacy for TREMFYA), ABT -0.1% (to release limited quantities of EleCare; plans to restart production at Sturgis facility on June 4)
Chinese and Russian nuclear bombers fly over Sea of Japan as Biden visits Tokyo
Japan condemns joint exercise as ‘provocative’ and ‘unacceptable’
Chinese and Russian strategic bombers flew over the Sea of Japan as Joe Biden attended a Quad summit in Tokyo, in a joint exercise the Japanese government denounced as “unacceptable”.
The nuclear-capable bombers conducted a joint flight on Tuesday that began over the Sea of Japan as the US president was meeting his counterparts from Japan, Australia and India, Japanese and US officials said.
Moscow said the 13-hour flight was carried out “strictly in accordance with the provisions of international law” and was not directed against third countries. But Nobuo Kishi, Japan’s defence minister, condemned the exercise as “provocative” and “unacceptable”.
A US official said the exercise showed China was continuing military co-operation with Russia in the Indo-Pacific “even as Russia brutalises Ukraine”.
“It also shows that Russia will stand with China in the East and South China Seas, not with other Indo-Pacific states,” the official said.
Russia and China conducted joint nuclear bomber exercises over the Sea of Japan in 2019, 2020 and 2021, but Tuesday’s flight was the first time such a manoeuvre occurred with a US president in the region.
The exercises were held on the final day of Biden’s trip to Asia as he participated in a summit of the Quad — the security group of the US, Japan, Australia and India that China has criticised as an Asian “Nato”.
Chinese analysts have previously cited one purpose of the joint bomber patrols with Russia as warning the US against “stirring up trouble” with initiatives such as the Quad.
Russia’s defence minister said the Russian Tu-95MS strategic missile carriers and Chinese H-6 bombers had carried out air patrols over the Japan and East China Seas.
“The aircraft of both countries acted strictly in accordance with the provisions of international law,” the Russian ministry said. “There were no violations of the airspace of foreign states.”
The exercises were conducted as tensions mount over Taiwan, a democratic country over which China claims sovereignty. Over the past year, China has flown increasing large sorties of fighter jets and bombers close to Taiwan, in what US defence secretary Lloyd Austin has described as rehearsals for military action against the island.
Biden on Monday vowed to use military force to intervene if China attacked Taiwan. His comment appeared to overturn the US policy of “strategic ambiguity” in which Washington does not specify whether it would come to Taiwan’s defence.
Asked on Tuesday if his comments meant that “strategic ambiguity” was defunct, Biden said that “the policy has not changed at all”.
In another illustration of the rising concern about Taiwan, particularly in the wake of the war in Ukraine, Admiral Michael Studeman, the top intelligence officer at US Indo-Pacific Command, is visiting Taipei, where he met senior security officials, according to one person familiar with the situation.
Admiral John Aquilino, head of US Indo-Pacific Command, recently told the Financial Times that the invasion of Ukraine should be a reminder to not be complacent about Taiwan.
The joint Russian-Chinese bomber sortie is part of military co-operation that analysts said approached the level between allies, although both countries insist their relationship is not an alliance.
The US has become more vigilant about China-Russia relations since Xi Jinping and Vladimir Putin described their friendship as having “no limits” in February.
The US official said the latest exercises underscored the link between European and Indo-Pacific security and reinforced the need to bolster alliances and propel a vision for freedom shared by like-minded nations.
“The joint statement Putin and Xi released . . . advocated a world where, whether in eastern Europe or the western Pacific, China and Russia would have their own spheres of influence where it would be natural and acceptable to wield their power against their neighbours,” the official added. “They are working together to advance that vision.”
China’s foreign ministry did not immediately respond to a request for comment.
Oh Snap: Social Media Stocks Set To Erase $100 Billion In Market Cap
US equity futures declined Tuesday as Snap Inc.'s profit warning hammered technology shares premarket.
As of 0615 ET, Snap shares plunged 29% in premarket trading -- if losses hold up until the cash session, it would mean an $11.4 billion wipeout in market capitalization. Snap's peers, including Facebook-owner Meta Platforms Inc., Google-owner Alphabet Inc., Twitter Inc., and Pinterest Inc. were all considerably lower, indicating if losses were held until the market opens, the group could see a mind-boggling $100 billion in market cap vanish.
Snap sparked the selloff on Monday after hours when it warned that second-quarter profit and revenue forecasts would miss Wall Street expectations amid deteriorating macroeconomic trends.
"Snap pointing out the obvious macro headwinds was yet another reminder for traders to not get back in too early."On the way down to what's looking increasingly like a full-on S&P bear market, we've seen all dip-buying end in tears for impatient investors," Max Gokhman, chief investment officer at AlphaTrAI.
Snap's profit warning is another sign that technology shares could remain under pressure as digital advertising slumps amid threats of stagflation spilling over into recession. Rising interest rates and soaring inflation have already battered technology companies.
"The market continues to turn itself inside out and back to front as it tries to decide if it has priced all of the impending rate hikes, soft landing or recession, inflation or stagflation, China, Ukraine, US summer driving season, supply chains, the list goes on," Jeffrey Haley, a senior market analyst at Oanda Asia Pacific, wrote in a note.
Nasdaq 100 futures slid about 1.7% at the time of writing this note, and S&P 500 futures tumbled 1.4%, both wiping out most of Monday's gains.
Gapping down
In reaction to earnings/guidance:
- SNAP -29.2% (lowers guidance), ANF -19.6%, WKME -6.7% (also announces partnership with Celonis), API -5.8%, DOLE -3.1%, AAP -2.9%, GFL -1.2% (guidance), ATHM -1.1%
Other news:
- INMB -28.5% (FDA places IND application to initiate Phase 2 trial of XPro in patients with Alzheimer's on clinical hold; FDA reuquests more info on manufacturing process)
- PINS -12.7% (in sympathy with weak SNAP guidance)
- TTD -8.6% (in sympathy with weak SNAP guidance)
- FB -7% (in sympathy with weak SNAP guidance)
- MGNI -5.6% (in sympathy with weak SNAP guidance)
- ROKU -5.4% (in sympathy with weak SNAP guidance)
- RIGL -4.5% (Knight Therapeutics enters into exclusive license and supply agreements with Rigel Pharmaceuticals to commercialize fostamatinib in Latin America)
- GOOG -3.7% (in sympathy with weak SNAP guidance)
- TWTR -3.3% (in sympathy with weak SNAP guidance)
- PUBM -3.2% (in sympathy with weak SNAP guidance)
- HEP -3.1% (files for $2 bln mixed securities shelf offering; also files for 59630030 common unit offering by selling shareholders)
- ARKK -2.5% (in sympathy with strong ZM earnings)
Analyst comments:
- RBLX -5% (downgraded to Neutral from Overweight at Atlantic Equities)
Gapping up
In reaction to earnings/guidance:
- SKY +4.4%, NTES +4.1%, ZM +3.2%, BBY +2.4%, WOOF +1.9%, AZO +1.7%, ALB +1.2% (increases guidance to relflect lithium contract renegotiations), CRMT +1.1%, CSIQ +0.6%
Other news:
- SWTX +19.2% (Nirogacestat Achieved Primary and All Key Secondary Endpoints in Phase 3 DeFi Trial )
- ROIV +7.1% (FDA has approved VTAMA (tapinarof) cream)
- OCGN +5.9% (announces that it is diversifying its innovative pipeline by introducing a Phase 3 cell therapy platform technology called NeoCart)
- ESEA +3.4% (reinstates dividend first time since 2013; also approves $20 mln share repurchase auth reports earnings)
- SMR +2.2% (signs MOU for first small modular reactor site in Romania)
- BRBR +1.1% (authorizes new $50 mln share repurchase program)
Analyst comments:
- MQ +2.8% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
Early premarket gappers
- Gapping up:
- ZM +6.6%, ROIV +5.2%, ESEA +3.4%, SMR +3%, NVGS +2.5%, NTES +2.2%, CSIQ +2%, ALB +1.3%, BRBR +1.1%, HEI +1.1%, CRMT +1.1%, MNKD +0.5%
- Gapping down:
- SNAP -29.4%, INMB -21%, PINS -11.8%, TTD -7.9%, MGNI -7%, FB -6.8%, API -5.8%, ROKU -4.7%, AAP -3.7%, TWTR -3.6%, GOOG -3.5%, PUBM -3.2%, HEP -3.1%, DOLE -2.6%, ARKK -2.3%, WKME -1.9%, GFL -1.2%, ATHM -1.1%, PRA -0.7%, RTX -0.5%
Closing Stock Market SummaryThere were no Monday blues for the stock market. Instead, stock monitors were generally awash in green figures as market participants succeeded in maintaining the momentum of Friday's late rebound effort.
JPMorgan Chase (JPM 124.58, +7.28, +6.2%) raising its net interest income outlook, reports that Broadcom (AVGO 526.36, -16.83, -3.1%) is in talks to acquire VMWare (VMW 119.90, +24.19, +25.3%) in a cash-and-stock deal, and an acknowledgment by President Biden that he is considering lifting some Chinese tariffs to help ease inflation pressures played a supportive role in today's rebound-minded trade.
The featured performer, however, was the stock market's prior performance, which is to say market participants subscribed to the notion that recent selling activity had gotten overdone, leaving the indices ripe for a rebound campaign.
Entering today, the Nasdaq Composite had declined 20.1% since the end of March, the S&P 500 had dropped 13.9%, and the Dow Jones Industrial Average had fallen 9.9%.
Sure enough, today's market narrative included a contention that month-end rebalancing activity would go in favor of stocks. We are not at month end yet, but we are in the home stretch, so that view resonated as a factor behind the stock market's resilience to selling efforts today.
It also fit with the broad-based buying interest seen in today's market. The Russell 3000 Value Index was up 1.5% and the Russell 3000 Growth Index was also up 1.5%.
All 11 S&P 500 sectors closed in positive territory. The financial sector (+3.2%), bolstered by JPMorgan Chase's guidance and some value hunting, led the way. It was joined at the top of the performance table by the energy (+2.7%), information technology (+2.4%), and consumer staples (+2.1%) sectors.
The latter was perhaps the surest sign of the market's rebound-minded bid considering that the consumer staples sector was one of last week's worst-performing sectors. The consumer discretionary sector (+0.6%), also a huge laggard last week, was today's weakest sector, although it managed to recover from an early 1.9% decline.
Treasuries generally tracked lower today, as stock prices tracked higher, in a curve-steepening trade. The 2-yr note yield settled up three basis points at 2.61% while the 10-yr note yield ended up seven basis points at 2.86%. A strong move by the euro against the dollar (EUR/USD +1.2% to 1.0686), after ECB President Lagarde teased the possibility of exiting negative rates by the end of Q3, was another factor weighing on Treasuries.
The U.S. Dollar Index fell 1.0% to 102.09. WTI crude futures settled the session up 0.2% at $110.31/bbl while natural gas futures spiked 7.9% to $8.84/mmbtu.
There was no U.S. economic data of note today. Tuesday's session will feature the preliminary IHS Markit Manufacturing and Services PMIs for May at 9:45 a.m. ET and the New Home Sales Report for April at 10:00 a.m. ET.
- Dow Jones Industrial Average -12.0% YTD
- S&P 500 -16.6% YTD
- Russell 2000 -20.4% YTD
- Nasdaq Composite -26.3% YTD
After Hours Summary: SNAP lowers guidance, dragging down online ad names PINS, GOOG, ROKU, TTD, FB; ZM +6.7% trades higher on earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: ZM +6.7%, SKY +3.4%, ALB +3.2% (increases guidance to relflect lithium contract renegotiations)
Companies trading higher in after hours in reaction to news: ESEA +5.7% (reinstates dividend, first time since 2013; also approves $20 mln share repurchase auth, reports earnings), DOCU +0.3% (in sympathy with strong ZM earnings)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: SNAP -28.4% (lowers guidance), AAP -1.7%, NVGS -0.3%, WKME -0.1% (also announces partnership with Celonis)
Companies trading lower in after hours in reaction to news: INMB -19.7% (FDA places IND application to initiate Phase 2 trial of XPro in patients with Alzheimer's on clinical hold; FDA reuquests more info on manufacturing process), PINS -11.5% (in sympathy with weak SNAP guidance), TTD -10.7% (in sympathy with weak SNAP guidance), MGNI -8.9% (in sympathy with weak SNAP guidance), FB -8.3% (in sympathy with weak SNAP guidance), ROKU -5.7% (in sympathy with weak SNAP guidance), TWTR -4.1% (in sympathy with weak SNAP guidance), PUBM -3.8% (in sympathy with weak SNAP guidance), GOOG -3.5% (in sympathy with weak SNAP guidance), ARKK -1.9% (in sympathy with strong ZM earnings), SMR -0.6% (signs MOU for first small modular reactor site in Romania), RTX -0.2% (awarded $420 mln Navy contract), FIX -0.1% (increases share buyback auth by 1 mln shares), BRBR -0.1% (authorizes new $50 mln share repurchase program), HEP -0.1% (files for $2 bln mixed securities shelf offering; also files for 59,630,030 common unit offering by selling shareholders), CSAN -0.1% (acquires PetroChoice Lubrication Solutions for $479 mln)