Daily Markets: Stocks Climbing Despite Hawkish Fed

Today’s Big Picture

Asia-Pacific equity markets finished the day mixed. Hong Kong’s Hang Seng closed 1.24% lower on a broad decline led by Retail Trade, and Consumer Non-Durable stocks. South Korea’s KOSPI declined 0.55%, and China’s Shanghai Composite fell 0.22%. Taiwan’s TAIEX and Australia’s ASX All Ordinaries ended the day close to flat, eking out a 0.04% and 0.07% gain, and Japan’s Nikkei rose 0.12%. India’s markets are closed today as the country celebrates Eid Al-Adha, also known as the Fast of the Sacrifice, an Islamic holiday that marks both the Old Testament story of Abraham sacrificing one of his sons in an act of obedience to God and the end of the annual Hajj to Mecca. In midday trading, European markets are up, and U.S. futures point to a positive open.

Despite Fed Chair Powell reiterating the likelihood of further interest rate hikes as the Fed continues to tackle inflation, better-than-feared earnings and signs the economy will skirt the much-anticipated recession are giving stocks a lift this morning. That will add to the market’s gains for June, but tomorrow’s May core Personal Consumption Expenditure (PCE) price data could see the market close out the month and 2Q 2023 on a soft note. As that data is digested, investors will want to gauge the market response via the CME FedWatch Tool, which even after Powell reiterated the Fed’s revised playbook continues to price only one more rate hike this year.

Data Download

International Economy

Retail sales in Japan increased by 5.7% YoY in May, accelerating from a marginally revised 5.1 % gain the prior month and exceeding market expectations of 5.4%. This marked the 15th straight month of growth in retail sales for the country. 

Consumer credit in the UK rose by £1.144 billion in May following a downwardly revised £1.513 billion increase in April. The market had been looking for a £1.5 billion increase in May. For context, the May increase in consumer credit was the smallest since December. Breaking down the May increase, it was split between £0.6 billion of borrowing on credit cards and £0.5 billion of borrowing through other forms of consumer credit, such as car dealership finance and personal loans.

The economic sentiment indicator in the Euro Area declined for a second consecutive month to 95.3 in June, the lowest reading since last November and below market expectations of 96.0. The rapid increase in interest rates by the European Central Bank, coupled with persistently high inflation rates, contributed to a further deterioration in sentiment among manufacturers (-7.2 vs -5.3 in May), constructors (-2.0 vs -0.3), service providers (5.7 vs 7.1) and retailers (-6.0 vs -5.3). In a bit of good news, the consumer inflation expectations index dropped to 6.1 in June, the lowest since March 2016, and selling price expectations among manufacturers decreased to 4.4, the lowest since November 2020.

Domestic Economy

In addition to the regular Thursday data that are weekly Initial & Continuing Jobless Claims and weekly Natural Gas Inventory data from the Energy Information Administration, we also have the third and final look at 1Q 2023 GDP. The consensus view sees it coming in at 1.4% with the PCE Price Index coming in at 4.2%. 

At 10 AM ET, we get another piece of housing data for May in the form of Pending Home Sales, which are expected to fall 0.5% MoM.

Markets

Equities were mixed yesterday as traders flirted with the idea that the Fed might just be able to pull off a soft landing but were also wary about China’s current slump and its implications through the back half of the year. Overall, the tone was optimistic as Utilities (-1.48%), Materials (-0.69%), and Consumer Staples (-0.67%) posted the largest drawdowns while Technology (0.06%), Communications Services (0.45%), and Consumer Discretionary (0.40%) saw gains. Energy saw a 1.01% gain as OPEC production cuts start to work their way through the market. Cruise line companies Carnival Corporation (CCL), and Norwegian Cruise Line Holding (NCLH) saw shares bid up 8.81%, and 7.55%, respectively as traders saw opportunities in the sector after its recent pullback.

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

• Dow Jones Industrial Average: 2.13%
• S&P 500: 14.00%
• Nasdaq Composite: 29.86%
• Russell 2000: 5.53%
• Bitcoin (BTC-USD): 81.34%
• Ether (ETH-USD): 52.72%

Stocks to Watch

Before U.S. equity markets begin trading today, Acuity Brands (AYI), Greenbrier (GBX), Lindsay Corp. (LNN), McCormick & Co. (MKC), MSC Industrial (MSM), Paychex, (PAYX), Rite Aid (RAD), and Simply Good Foods (SMPL) are expected to report their quarterly results. 

All 23 banks met minimum capital requirements under a hypothetical recession in the Federal Reserve's 2023 bank stress tests and would still be able to lend in a severe recession. Under stress, the aggregate common equity risk-based capital ratio — which provides a cushion against losses — is projected to decline by 2.3 percentage points to a minimum of 10.1%, the central bank said. Banks will be allowed to disclose their capital return plans after the market closes on Friday, and this means potential dividend increases from the likes of JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C). 

Micron Technology (MU) reported a third-quarter loss that wasn't as bad as feared with EPS of -$1.43 vs. the -1.57 consensus. Revenue came in at $3.75 billion vs. the expected $3.68 billion. In the , Micron shared most of its customer inventories in the PC and smartphone segments are close to normal levels now. In the data center market, Micron saw strong sequential revenue growth in both cloud and enterprise during the quarter, with AI-driven demand stronger than expected. Micron continues to see data center customer inventory normalizing by the end of 2023. For the current quarter, Micron expects to lose $1.12-$1.26 per share on revenue between $3.7-$4.1 billion.

Blackberry (BB) reported quarterly revenue that jumped to $373 million vs. $168 million in the year-ago quarter primarily due to its Licensing and Other business segment benefiting from a patent sale. On a year-over-year basis, both its Cybersecurity and IoT business posted revenue declines. 

Research firm Wood Mackenzie sees the number of electric vehicle (EV) charging ports in the U.S. increasing four times current levels to 18 million by 2027. According to the firm’s findings, Tesla (TSLA) and ChargePoint (CHPT) currently dominate the charging port market.

Visa (V) agreed to acquire cloud-based payment and banking platform Pismo for $1 billion in cash to provide core banking and issuer processing capabilities across debit, prepaid, credit, and commercial cards for financial institutions and fintech clients.

The Children's Place (PLCE) announced plans to cut its workforce by 17% as part of an ongoing shift from a legacy store operating model to a digital-first retailer.

Autonomous driving technology company TuSimple (TP) shared its board is evaluating strategic alternatives for its U.S. business with the goal of maximizing shareholder value.

Reports suggest the judge who is presiding over the Federal Trade Commission's attempt to block Microsoft's (MSFT) $69 billion acquisition of Activision (ATVI) could rule as soon as next week. The timing of the judge's ruling is important as the deal has a termination deadline of July 18 but following the UK’s antitrust regulator blocking the deal, a UK appeals court is set to hear the appeal next month. 

IPOs

For-profit thrift store operator Savers Value Village (SVV) upsized its IPO to $401.2 million from $300 million and priced its shares at $18 per share, above the expected range of $15-$17. 

Readers looking to dig deeper into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Nike (NIKE) and Progress Software (PRGS) are slated to report their quarterly results after equities stop trading. Those looking for more on upcoming quarterly earnings reports should head on over to Nasdaq’s Earnings Calendar. 

On the Horizon

Friday, June 30

• China: Manufacturing and Non-Manufacturing PMI – June
• UK: Business Investment, GDP – 1Q 2023
• Eurozone: Consumer Price Index - June
• US: Personal Income & Spending, PCE Price Index – May
• US: The University of Michigan Consumer Sentiment Index (Final) – June 

Thought for the Day

“Whatever you do in life, surround yourself with smart people who’ll argue with you.” ~John Wooden

Disclosures

• Blackberry (BB) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
• Tesla (TSLA) is a constituent of the Tematica BITA Cleaner Living Sustainability Screened Index
• Microsoft (MSFT) is a constituent 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 Central Banks Earnings