Daily Markets: Cautious Optimism Over Debt Ceiling Deal

Today’s Big Picture

Asia-Pacific equity markets finished the day ahead except for India’s SENSEX which shed 0.21%. China’s Shanghai Composite gained 0.40%, Australia’s ASX All Ordinaries added 0.51%, Hong Kong’s Hang Seng rose 0.85%, South Korea’s KOSPI advanced 0.93%, and Taiwan’s TAIEX closed 1.11% higher. Japan’s Nikkei is up 1.60% on optimism about semiconductor chipmakers. It should be noted that the broader TOPIX Index is at a 33-year high and expectations are for Japan’s markets to continue to extend this rally. European markets are up in midday trading, although there are a number of countries celebrating the Christian Ascension Day holiday, marking the day when it is believed Jesus ascended to heaven. U.S. index Futures point to a positive open.

Markets are cautiously optimistic for a U.S. debt ceiling deal following comments from President Joe Biden and top congressional Republican Kevin McCarthy that they are determined to reach a deal that would raise the federal government's $31.4 trillion debt ceiling and avoid an economically catastrophic default. While the market is likely to cheer a solution, details of any such deal, including how much of a lifeline it provides, will be of far greater importance.

Before stocks begin trading this morning, and following quarterly results from Target (TGT) and TJX Companies (TJX) yesterday, we’ll get another take on retail earnings and the consumer courtesy of Walmart (WMT). We also have another helping of Fed officials making the rounds today, including Federal Reserve Board Governor Philip Jefferson, Federal Reserve Vice Chair for Supervision Michael Barr, and Dallas Fed President Lorie Logan. Comments from Fed officials in recent days have underscored the low probability of rate cuts this year, and with little new inflation data since then odds are today’s trio will do the same. Those comments will set up for Fed Chair Powell’s participation in the "Perspectives on Monetary Policy" panel before the Thomas Laubach Research Conference, hosted by the Federal Reserve, in Washington.

Data Download

International Economy

Today is a light day for significant international economic data. 7:30 PM tonight sees the release of Japanese April CPI figures with the top line YoY rate expected to inch up to 3.5% from the previously reported 3.2% while Core CPI is estimated to have risen to 3.9% from the previously announced 3.8% in March.

Domestic Economy

If it’s Thursday, and it is, that means we will get the next iteration of the weekly and continuing jobless claims reports as well as an updated view of Natural Gas Inventories from the Energy Information Administration. Also on tap are the April data for Existing Home Sales and Leading Indicators as well as the May Philadelphia Fed Manufacturing Index.

Markets

Tuesday’s retail sales disappointment was a distant memory after yesterday’s MoM housing starts surprise with the 2.2% growth figure coming in a full 3.6% higher than expectations. All major equity indexes had a strong showing with the S&P 500 gaining 1.19%, the Dow adding 1.24%, the Nasdaq Composite rising 1.28% and the Russell 2000 closing 2.21% higher. If you assumed sectors were up across the board you would, unfortunately, be wrong as investors cycled out of Utilities (-0.36%), and declines in Proctor & Gamble (PG) and Pepsico (PEP) drove Consumer Staples to just under even as the sector declined 0.05%. Both Home Depot (HD) [3.56%] and Lowe’s (LOW) [4.01%] posted strong gains on the housing starts update as investors overlooked Home Depot’s recent revenue miss.

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: 0.83%
• S&P 500: 8.32%
• Nasdaq Composite: 19.43%
• Russell 2000: 0.75%
• Bitcoin (BTC-USD): 65.18%
• Ether (ETH-USD): 52.05%

Stocks to Watch

Before U.S. equity markets begin trading today, Advanced Drainage Systems (WMS), Alibaba (BABA), Canada Goose (GOOS), Dole plc (DOLE), Eagle Materials (EXP), The Children’s Place (PLCE), and Walmart (WMT) are expected to report their quarterly results.

April quarter results at Cisco (CSCO) saw its top and bottom line results modestly beat consensus expectations while its operating margin came in at the higher end of its 33%-34% guidance. Total software revenue was up 18% YoY and software subscription revenue climbed 17% YoY Exiting the quarter, Cisco’s total annual recurring revenue (ARR) with product ARR was up 10%. For the current July quarter, the company sees EPS of $1.05-$1.07 vs. the $1.04 consensus on revenue which equates to $14.94-$15.20 billion vs. the $14.95 billion consensus.

While March quarter bottom line results for Take-Two (TTWO) came in below expectations, the company’s bookings for the period soared 64.7% YoY to $1.39 billion, passing past the $1.34 billion consensus. That bookings figure for the quarter was led by Grand Theft Auto V and Grand Theft Auto Online as well as Red Dead Redemption 2 and Zynga's mobile game portfolio. However, the company issued downside guidance for the current quarter with EPS of $(1.05)-$(0.95) vs. the ($0.80) consensus with bookings in the range of $1.15-$1.20 billion vs. the $1.27 billion consensus. Alongside these results and guidance, management shared that its ”forecast reflects the challenging consumer backdrop, as well as an extension of the development timelines for several high-profile, long-awaited titles in our pipeline.”

Reuters reports the Federal Trade Commission is seeking information from Zinc Health Services LLC, and Ascent Health Services LLC, which are associated with CVS Health (CVS), Cigna's (CI) Express Scripts unit, and Prime Therapeutics associated with CVS Health and Cigna as part of a probe into pharmacy benefit managers.

Reports indicate Google (GOOGL) gave the green light to plans for using generative AI, fueled by large language models (LLMs), to automate advertising and ad-supported consumer services.

The Informationr reports database software provider Snowflake (SNOW) has been in advanced talks to acquire Neeva, a search startup founded by former top Google ad tech executive Sridhar Ramaswamy. The thinking is buying Neeva could help Snowflake offer artificial intelligence software that helps companies search for information in internal documents and data.

Reports suggest PayPal (PYPL) is looking for buyers for Xoom, which allows people to transfer money internationally. PayPal acquired Xoom in 2015 for ~$890 million.

Speaking at a conference, Netflix (NFLX) President of worldwide advertising Jeremi Gorman said the company’s ad-supported tier now has 5 million global monthly active users.

IPOs

Near-term the calendar for such activity looks rather thin. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Applied Materials (AMAT), Deckers Outdoor (DECK), Farfetch (FTCH), Flowers Foods (FLO), and Ross Stores (ROST) are slated to report their quarterly results after equities stop trading. Those looking for more on which companies are reporting when should head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Friday, May 19

• Japan: Consumer Price Index – April
• Germany: Producer Price Index – April

Monday, May 22

• Eurozone: Consumer Confidence - May

Tuesday, May 23

• Japan: Flash Manufacturing PMI – May
• Eurozone: Flash Manufacturing & Services PMI - May
• US: S&P Global Flash Manufacturing & Services PMI – May
• US: New Home Sales – April

Wednesday, May 24

• UK: Consumer Price Index, Producer Price Index – April
• Germany: Business Expectations Index – May
• US: Weekly MBA Mortgage Applications
• US: Weekly EIA Crude Oil Inventories

Thursday, May 25

• Germany: 1Q 2022 GDP
• Germany: GfK Consumer Climate - June
• US: Weekly Initial & Continuing Jobless Claims
• US: GDP (Second Estimate) – 1Q 2023
• US: Pending Home Sales – April
• US: Weekly EIA Natural Gas Inventories

Friday, May 26

• Japan: Tokyo CPI – May
• UK: Retail Sales – April
• US: Personal Income & Spending, PCE Price Index – April
• US: Durable Orders – April
• US: The University of Michigan Consumer Sentiment Index (Final) – May

Thought for the Day

“In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.” ― Theodore Roosevelt

Disclosures

• Dole plc (DOLE) is a constituent of the Foxberry Tematica Research Sustainable Future of Food Index
• PayPal (PYPL), Cisco (CSCO) are constituents of the Tematica BITA Digital Infrastructure & Connectivity Index
• Ross Stores (ROST), Farfetch (FTCH), Walmart (WMT) are constituents of the Tematica BITA Big Spenders & Savers Index
• Pepsico (PEP), Walmart (WMT) are constituents of the Tematica Research Thematic Dividend All-Stars Index

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks Economy Politics Earnings Central Banks