Stocks On Wall Street Struggle Amid Lack of Catalysts, Global Markets Swing Lower

Alexander Garcia
29 May, 2024
Miami

Stocks and benchmark indexes slipped on Wednesday, and the yield on U.S. Treasury notes advanced for the second day in a row. 

The S&P 500 index and the Nasdaq Composite edged down 0.5%, and megacap technology stocks struggled near recent levels. 

Nvidia attempted to extend gains after rising more than 20% in three previous sessions following the company's earnings report last week, which exceeded the most optimistic outlook. 

Investors are betting that the company at the center of the artificial intelligence technology wave is likely to continue to deliver earnings growth that is ahead of market expectations as the large data center operators ramp up the purchase of servers with advanced chips. 

In addition, the company's release of new products in the third quarter are likely to kick sales in a higher gear. 

Most investors are anticipating Nvidia to deliver at least $23 per share in earnings in the fiscal year ending in January 2025, and the AI chipmaker's earnings in the next fiscal year could range between $30 and $36 per share. 

Abercrombie & Fitch also delivered stellar results in its latest quarter, driving the stock higher by 20%, after sales and earnings surpassed analysts' expectations. 

The bond market sold off after the Treasury Department auction for 2-year and 5-year notes fell short of market expectations, driving the yield on 10-year Treasury notes above the critical level of 4.5%. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index fell 0.7% to 5,286.19, and the Nasdaq Composite dropped 0.9% to 16,731.52. 

The yield on 2-year Treasury notes edged higher to 4.97%, 10-year Treasury notes increased to 4.57%, and 30-year Treasury bonds edged lower to 4.59%.

WTI crude oil increased $0.09 to $80.37 a barrel, and natural gas prices eased 6 cents to $2.77 a thermal unit.

Gold decreased by $16.75 to $2,343.14 an ounce, and silver fell 9 cents to $31.96. 

The dollar index, which weighs the U.S. currency against a basket of foreign currencies, edged lower to 104.73.

 

U.S. Stock Movers

Chewy jumped 6.5% to 18.0 after the online pet food store reported better-than-expected quarterly results. 

Marathon Oil jumped 8.3% to $28.64 after the company agreed to be acquired by ConocoPhillips for $17.1 billion and assume $5.4 billion in debt. 

Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips common stock for each share of Marathon Oil common stock, representing a 14.7% premium to the closing share price of Marathon Oil on May 28, 2024, and a 16.0% premium to the prior 10-day volume-weighted average price.

The deal is expected to be immediately attractive to ConocoPhillips shareholders. 

After the transaction, the third-largest U.S. oil company plans to increase its dividend by 34% to 78 cents per share starting in the fourth quarter of 2024. 

Upon closing of the transaction, ConocoPhillips expects share buybacks to be over $20 billion in the first three years, with over $7 billion in the first full year, at recent commodity prices.

The oil industry has experienced a wave of transactions in recent months. Exxon Mobil agreed to acquire Pioneer Natural Resources for $60 billion, and Hess' shareholders approved the merger of the company with Chevron. 

 

European Stocks Face Selling Pressure After Bond Yields Advance 

The sharp selloff in the bond market weighed on stock market indexes, and the euro held its ground. 

Bonds in the Euro Area sold off after the U.S. Treasury auction of 2-year and 5-year notes was weaker than anticipated. 

The U.S. Treasury yields jumped following the unexpected weakness in the auction and sparked a selloff in worldwide bonds. 

The yield on the 10-year German Bund increased to a 6-month high, the French bond yield advanced to a one-month high, and the UK 10-year government bond yield jumped to a three-week high. 

Investors also pared back rate-cut expectations amid slow progress on disinflation and hawkish comments from policymakers in the U.S. and Europe. 

Germany's consumer price inflation inched up to 2.4% from 2,2% in the previous two consecutive months, the Federal Statistical Office, Destatis, reported Wednesday. 

Inflation rose for the first time in five months, after food and services prices accelerated in the month, offset by the decline in goods and energy prices. 

Core inflation, which excludes food and energy prices, held steady at 2.0%  

 

Spain's Retail Sales Growth Slowed In April 

Spain's retail sales increase slowed for the third month in a row, according to the data released by the statistical agency INE. 

Retail sales in April rose 0.3% from a year ago, after an upwardly revised 0.9% increase in the previous month. 

Retail sales rose at the slowest pace since November 2022, after spending on food and non-food items rose at a significantly slower pace. 

On a monthly basis, Spain's retail sales rose 0.8%, reversing a 0.4% fall in the previous month. 

In the first four months to April 2024, retail sales rose from a year ago by 0.9%. 

 

Europe Indexes and Yields

Benchmark indexes in London, Paris, and Frankfurt traded down, and crude oil prices advanced amid rising tensions in the Middle East but eased in the afternoon trading.  

The DAX index decreased by 1.1% to 18,473.29; the CAC-40 index fell by 1.5% to 7,935.03; and the FTSE 100 index decreased by 0.9% to 8,183.07. 

The yield on 10-year German bonds edged up to 2.62%; French bonds inched higher to 3.11%; the UK gilts edged lower to 4.35%; and Italian bonds inched higher to 3.93%.

The euro edged higher to $1.084; the British pound inched higher to $1.274; and the U.S. dollar gained to 91.34 Swiss cents.

The euro approached a record high against the Japanese yen on the speculation that the European Central Bank is likely to take a slower approach to lowering its interest rate compared to the U.S. Federal Reserve. 

The yen fell to this month's low of 170.44 and approached a record low of 171.56 against the euro. 

Brent crude decreased $1.10 to $83.52 a barrel, and the Dutch TTF natural gas fell by €0.32 to €33.84 per MWh.

 

Europe Stock Movers

International Distributions Services advanced 4% to 334.0 after the parent company of Royal Mail accepted a £3.57 billion takeover proposal from EP Group, controlled by Czech billionaire Daniel Kretinsky. 

BHP Group gained 2.1% to 2,384.0 pence after the mining company dropped its £39 billion takeover offer for Anglo American.   

Oil explorers and refiners extended gains for the second day in a row amid rising tensions in the Middle East, and traders hoped that the OPEC member nations would extend production cuts at the next meeting this Sunday. 

BP plc gained 1.6% to 493.60 pence, Shell PLC jumped 1.7% to 2,827.0, and TotalEnergies SE gained 0.4% to €66.43. 

 

The Rise In Global Bond Yields Weighs On Japanese Stocks and Yen 

Weak yen and global interest rate worries weighed on market sentiment in Tokyo ahead of the release of the inflation update. 

The Nikkei and the Topix fell as much as 1%, and the yield on Japanese government bonds inched higher than 1% to a 12-year high after hawkish comments from non-voting members of the Federal Reserve's policymaker. 

Market sentiment in Tokyo was also on the defensive after the U.S. Treasury yields unexpectedly rose following the weaker-than-expected auction of 2-year and 5-year Treasury notes. 

The widening yield gap between the U.S. and Japan dragged the Japanese yen lower, and the currency traded at 157.86 against the U.S. dollar in late afternoon trading in Tokyo. 

Investors are also looking ahead to the release of the Tokyo area's inflation data for April, and the city's inflation is generally seen as a bellwether of the nationwide price trends. 

 

Japan Stock Movers 

The Nikkei 225 stock average dropped 0.8% to 38,556.87, and the Topix index declined 1% to 2,741.62. 

Stocks in Tokyo traded down on the ongoing monetary policy uncertainty and the weakness in the yen. 

Mitsubishi UFJ rose 0.6% to ¥1,637.0 and traded at an 18-year high on the expectations of the company benefiting from the weaker yen and rising bond yields. 

Last week, Mitsubishi UFJ reported a record profit of 1.5 trillion yen in the financial year 2024 and announced a stock repurchase program of 50 billion yen. 

The company also announced the CET1 ratio, a measure of risk capital, to range between 9.5% and 10.5%, and a dividend payout ratio of around 40%. 

Utilities and heavy industry-linked stocks were among the leading decliners. 

Tokyo Electric Power dropped 8.3% to ¥926.30, Mitsubishi Heavy Industries declined 3.6% to ¥1,308.0, and Teijin Ltd. fell 5.5% to ¥1,519.0. 

Diversified exporters and financial services were among the leading gainers. 

Sompo Holding, the diversified insurance group, rose 4.2% to ¥3,306.0; Hoya Corp., the maker of optical products for the semiconductor industry, gained ¥18,635.0; and Konami Group, the video game publisher, gained 3.3% to ¥10,905.0. 

 

China Indexes Extend Losses, Yuan Weakens to a 6-month Low 

Market indexes headed lower and extended recent losses as investors assessed the impact of policymakers' plans to revive property market transactions and stabilize economic growth. 

Shenzhen and Guangzhou joined other top-tier cities to ease restrictions on home purchases, following efforts by the politburo and the People's Bank of China to encourage more activities in the sector. 

Investors are increasingly worried that policymakers' focus on encouraging real estate purchases may fall flat amid a lack of consumer confidence, a lack of credibility among real estate developers, and elevated home prices. 

Despite the added incentives to buy real estate, most families are parking their money in bank savings or purchasing precious metals, avoiding the purchase of new and unfinished houses. 

Investors are also looking ahead to the release of purchasing managers' index data on Friday, and expectations are high that the manufacturing sector will remain in expansion. 

China's top leadership has emphasized advanced manufacturing as one of the key drivers of economic growth, and exports of electric vehicles, renewable energy, and advanced electronics are expected to contribute to job market expansion. 

The Chinese yuan drifted to a six-month low of 7.2658 against the U.S. dollar ahead of the release of the manufacturing sector update on Friday. 

The People's Bank of China also set the exchange rate near the bottom of its trading range to facilitate exports and stem the growing tide of capital outflow. 

Currency traders are bracing for more devaluation of the yuan amid persistent weakness in the Japanese yen, pressuring already narrow margins for exported goods. 

 

China Stock Movers 

The CSI 300 index increased 0.1% to 3,614.27, and the Hang Seng index dropped 1.8% to 18,491.92. 

Property developers traded with a downward bias on the worry that the recent measures announced by the government are likely to fall short in reviving the fortunes of companies. 

China Resources Land decreased 1.6% to HK$30.0, China Vanke declined 3% to $5.70, and Longfor Group fell 1% to HK$13.24. 

Property developer stocks have rebounded about 30% in the last three weeks of trading, but stocks in the sector are still down more than 70% from the peak in April 2021. 

Lenovo Group declined 1.9% to HK$11.60 after the personal computer maker signed a deal with Saudi Arabia's sovereign wealth fund to sell $2 billion of convertible bonds. 

Stock declined on the worry that a higher share count would dilute earnings per share. 

BYD soared 5.3% to HK$217.60 after the electric vehicle maker announced an upgrade that could extend the driving range of its hybrid electric vehicle.