Service Sector Strength and Rally In Nvidia Lift S&P 500 and Nasdaq to New Record Highs

Alexander Garcia
05 Jun, 2024
Miami

Stocks on Wall Street moved higher as investors reviewed the latest update on private payroll and the service sector and reaffirmed their bet on at least one rate cut before the year's end. 

After two hours of trading, the market rally broadened beyond semiconductor and leading tech companies, and the two benchmark indexes inched further into record territory.  

The S&P 500 index and the Nasdaq Composite advanced, and the AI chip leader Nvidia soared to a new record high. 

Private payroll expanded by 152,000 in May, according to the latest survey released by ADP. 

The private payroll rose at the slowest pace in four months, and fewer jobs were added compared to the downwardly revised 188,000 in April. 

Most of the job gains were in the service sector, with an increase of 149,000, and goods-producing sector payroll expanded by 3,000 in the month. 

Annual wage gains for those who switched jobs slowed to 7.8%, and for those who continued with their current jobs, they held steady at 5% for the third month in a row. 

A separate report showed that service growth accelerated in May due to faster new order growth and notably higher business activity. 

The service sector's activities expanded at the fastest pace in nine months, according to the latest survey released by ISM. 

The ISM Services PMI in the U.S. jumped to 53.8 in May from 49.4 in April, when it contracted for the first time since December. 

"The majority of survey participants suggested that inflation and the current interest rates are an impediment to improving business conditions,"  Anthony Nieves, chair of the ISM business survey committee, said. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.9% to 5,336.56, and the Nasdaq Composite advanced 0.7% to 17,122.81.

The yield on 2-year Treasury notes edged lower to 4.78%, 10-year Treasury notes decreased to 4.34%, and 30-year Treasury bonds edged higher to 4.47%.

WTI crude oil increased $0.34 to $73.60 a barrel, and natural gas prices rose 9 cents to $2.68 a thermal unit.

Gold increased by $24.65 to $2,353.49 an ounce, and silver rose 37 cents to $29.95. 

The dollar index, which weighs the U.S. currency against a basket of foreign currencies, edged lower to 104.34.

 

U.S. Stock Movers

Hewlett-Packard Enterprise rose 12.4% to $19.79 after the advanced computer system maker reported a better-than-expected fiscal second quarter. 

CrowdStrike Holdings jumped 6.7% to $326.56 after the cyber security firm reported better-than-expected first quarter results and issued a stronger-than-expected outlook for the current quarter. 

Nio Inc. increased 0.01% to $5.22 after the Chinese electric vehicle maker received approval to build its third production facility in China. 

The news was first reported by Reuters but could not be independently verified. 

Deere & Co. declined 0.2% to $368.79 after the farm equipment maker said in a regulatory filing that it plans to trim its "production and salaried workforce" as the company struggles with a global demand slowdown. 

 

European Markets Close Higher Ahead of Thursday's Rate Decisions 

European markets edged higher in cautious trading ahead of the European Central Bank's rate decisions on Thursday. 

Benchmark indexes in Frankfurt, Paris, and London advanced in choppy trading as investors awaited the ECB's first rate cut and insights in timing for additional cuts. 

The ECB is widely expected to cut its policy rates by 25 basis points from a record high of 4% after inflation eased over the last eighteen months from a record high close to 9%. 

 

Industrial Producer Prices Fell Sixth Consecutive Month in May

On the economic front, industrial producer prices in the Euro Area declined 1% from the previous month in April, following a downwardly revised drop of 0.5% in March, Eurostat reported on Wednesday. 

Producer prices, a measure of wholesale inflation, declined for the sixth month in a row. 

The decline in producer prices in May was driven by a 3.6% decline in energy prices (compared to a fall of 2.3% in March). 

Excluding energy, producer prices edged slightly up by 0.2%, slower than an increase of 0.3% in the previous month. 

 

Euro-Area Business Activities Expanded in May

Business activities in the eurozone in May rose, according to the final update released by the HCOB and S&P Global on Wednesday. 

The HCOB eurozone composite PMI edged slightly lower to 52.2 in May from the preliminary reading of 52.3, but rose from 51.7 in April. 

The growth accelerated to the highest level since May 2023, following the decline in inflation in the currency union. 

 

France's Industrial Output Rebounded in May

France's industrial output increased by 0.5% on a monthly basis in April, rebounding from the revised 0.2% decline in March, the statistical office INSEE reported in its monthly update. 

The rebound in manufacturing output by 0.4% from the contraction of 0.4% in March and the acceleration in mining, energy, water supply, and waste management to 1.2% from 0.8% in March drove the French output higher. 

However, construction activity shrank by 1% on a monthly basis in April, reversing the 0.8% increase in March. 

On a yearly basis, industrial production growth accelerated to 0.9% from 0.7% in the previous month. 

 

Europe Indexes and Yields

The DAX index increased by 0.9% to 18,575.94; the CAC-40 index rose by 0.9% to 8,006.57; and the FTSE 100 index advanced by 0.2% to 8,246.95. 

The yield on 10-year German bonds edged lower to 2.52%; French bonds inched lower to 3.01%; the UK gilts edged lower to 4.20%; and Italian bonds inched lower to 3.84%.

The euro edged higher to $1.086; the British pound inched higher to $1.277; and the U.S. dollar weakened to 89.23 Swiss cents. 

Brent crude increased $0.75 to $78.33 a barrel, and the Dutch TTF natural gas fell by €0.74 to €33.37 per MWh.

 

Europe Stock Movers

Inditex jumped 4.5% to €45.94 after the parent company of apparel retailer Zara reported higher sales and earnings in the first quarter. 

Elekta AB plunged 17.5% to SEK 70.25 after the maker of radiation therapy equipment reported lower-than-expected operating earnings in its fiscal fourth quarter. 

Workspace Group plc increased 4.6% to 576.59 pence, despite the office space firm reporting a wider pre-tax loss. 

Centrica PLC decreased 2.9% to 138.10 pence after the UK-based energy service company said the company's performance is in line with market expectations. 

KPN increased 1.5% to €3.53 after the company signed an agreement with the Dutch pension fund ABP, a new wireless communication tower company. 

AstraZeneca increased 1% to 12,532.0 pence after the pharmaceutical company announced the completion of the acquisition of Fusion Pharmaceuticals, a clinical-stage biopharmaceutical company. 

 

Japan's Wage Gains Lag Inflation In April, Safety Certification Falsification Scandal Widens 

Market indexes in Tokyo fell amid a broad market selloff as investors reassessed the rate path outlook and the persistent rate differential between the U.S. and Japan. 

The Nikkei and the Topix index declined more than 1% after banks, tech and industrial companies, and vehicle makers were among the leading decliners. 

Market sentiment was dented after April wage gains lagged inflation, stoking fears of weak consumer spending negatively impacting economic growth in the current quarter. 

Wages in April rose 2.1%, lagging core consumer price inflation of 2.2% in the month as small- and medium-sized businesses struggled to lift wages. 

The Japanese yen edged higher and hovered near 155.73 against the U.S. dollar, reversing the previous week's slide. 

Currency traders are still anticipating the yen to dip to 165 against the dollar due to the persistent yield differential between the U.S. and Japan. 

Moreover, the Bank of Japan is reluctant to lift its interest rates, despite the recent rise in inflation driven by the increase in commodities, energy, and food prices. 

 

Japan Stock Movers 

The Nikkei 225 stock average decreased 1.1% to 38,405.05, and the Topix index declined 1.6% to 38,405.05. 

Tokyo Electron, Advantest, Screen Holdings, and Softbank declined between 1.2% and 3.3%. 

Resource-linked stocks also declined after metals and crude oil prices fell for the second week in a row. 

JFE Holdings, Nippon Steel, and Inpex Corp. fell between 2% and 4%. 

Toyota Motor, Honda Motor, and Nissan Motor fell between 0.7% and 2.8% after the yen edged higher. 

Toyota Motor Corp. declined 2.4% to ¥3,218.0 after the company said it plans to halt the shipment of three models produced in Japan following certification issues and a government raid at its headquarters. 

Honda also fell after the company confirmed that it had falsified safety certification tests after a government action against the company. 

Mazda Motor also temporarily halted shipment of two models after an internal investigation discovered irregularities; however, these models have not been in production since the end of May. 

 

China's Service Growth Accelerates in April, Stock Indexes Extend 3-day Rally 

Stocks in Shanghai and Hong Kong attempted to rebound for the third session in a row, and the yuan struggled amid persistent devaluation worries. 

The CSI 300 and the Hang Seng index edged up 0.3% after the service sector expanded at the fastest pace in May. 

The Caixin-SS&P Global services purchasing managers' index increased to 54.0 in May from 52.5 in April. 

Earlier in the week, the private survey of the manufacturing sector showed an expansion, and together the two reports showed rising business activities last month. 

The Hang Seng index advanced on speculation that the economy is likely to hit the government's target rate of 5% and corporate earnings in the current quarter are likely to be ahead of market expectations. 

China indexes have been on the rebound in the last three months after hitting their lows in late January, but benchmark indexes are still down more than 40% from the peak reached in January 2018. 

Moreover, China's economy is likely to continue to face deceleration, and GDP growth is likely to slow to less than 3% over the next three years. 

The Chinese yuan hovered at 7.252 against the U.S. dollar, and the currency traded near a five-month low. 

 

China Stock Movers 

The CSI 300 index decreased 0.3% to 3,606.94, and the Hang Seng index jumped 0.4% to 18,525.56. 

Meituan declined 0.2% to HK$113.30 ahead of the food delivery company's earnings after the market closed. 

The food delivery company is expected to report a narrower loss in the first quarter as the company prioritizes profitability over sales growth. 

Trip.com declined 1.3% to HK$403.0 after the online travel agency announced a $1.3 billion convertible debt offering to repay its existing debt, fund its foreign expansion, and finance its working capital needs. 

Electric vehicle makers were in focus ahead of the release of international trade data later in the week. 

BYD increased 1.2% to HK$233.60, Li Auto fell 0.4% to HK$79.25, and Xpeng rose 1.7% to HK$32.85.