Yesterday, the dominant pattern of May continued: the Nasdaq rose slightly, lifting the S&P500 in its wake due to the many stocks that the two indices have in common, while the Dow Jones struggled to keep pace. The latter lost -2% in May, while the Nasdaq 100 gained 4.5%. Over the whole of 2023, the gap is even more obvious: +0.8% for the Dow and +26.6% for the tech index.

On Monday, the latest round of negotiations between the teams of Joe Biden and Kevin McCarthy didn’t bear fruit. However, McCarthy reportedly said the talks were productive and that both parties are working on a compromise.

The Dow Jones Industrial Average futures, the S&P 500 futures, and Nasdaq futures were all down about 0.2% in premarket trading on Tuesday.

The slightest bit of news can move markets. If someone says "Joe is optimistic”, indices will rise, but then if another person says "Kevin tells Joe he's getting ahead of himself," the market returns to caution.

Meanwhile, Janet Yellen reminded us that the clock is ticking and that problems are looming, and will probably start as soon as June 1st. At the same time, the Fed let its most hawkish central bankers loose, which led to a rise in the yield on 10-year debt to 3.71%. That's the highest since March. James Bullard and Neel Kashkari estimated that rates could rise again later in the year, even if there is a pause in June. Indeed, there is a somewhat odd mismatch between the renewed strength in yields and market expectations, which are still unwilling to consider additional monetary tightening if the options market is to be believed.

Today’s session sees the return of "macro" statistics, which were on pause yesterday. Starting with the major economies' PMI indicators for May, which take the pulse of purchasing managers and are therefore interesting predictive data.

The PMI for the eurozone has already been published and shows that business activity remained resilient in May but slowed slightly more than expected. The services industry was slightly below expectations and the downturn in the manufacturing sector deepened. The PMI fell to 53.3 in May from April's 54.1 and was below the Reuters consensus of 53.5.

In other news, the pace of quarterly earnings releases is slowing sharply this week, although there are still a few appointments today in the United States, with Intuit and Lowe's. Meta Platforms has been fined €1.2 billion for transferring personal data from Europe to the United States. The American company has appealed, but the market doesn't care anyway. After all, the data has already been used, integrated and monetized and the fine, although impressive, does not weigh much against the company's cash reserves ($31 billion by the end of 2022 according to my findings).

 

Economic highlights of the day

Along with PMIs for the major economies, we have new housing figures and the Richmond Fed manufacturing index. All the agenda is here. 

The dollar is up by 0.3% against the dollar and the pound to EUR 0.9284 and GBP 0.8074. The ounce of gold retreats again to USD 1958. Oil rebounds, with North Sea Brent crude at USD 76.86 a barrel and US WTI light crude at USD 72.97. The yield on 10-year US debt is strengthening 3.71%. Bitcoin is trading at USD 27,300.

 

In corporate news:

  • Lowe’s was down about 2% in pre-market trading after the group lowered its annual like-for-like sales and profit forecasts.
  • Tesla put on sale Tuesday on its website in Canada Model 3 and Model Y produced in China, the first vehicles of the manufacturer from the plant in Shanghai shipped to North America.
  • Zoom Video on Monday raised its full-year revenue and profit forecasts despite a slowdown in growth and business spending. The stock was up 5.5% in after-hours trading.
  • Autozone - The automotive supplier was down 3% in pre-market trading after reporting quarterly sales below Wall Street expectations.
  • Yelp jumped 11.3% in premarket trading as activist investor TCS Capital Management asked the consumer review group to consider its strategic options, including a merger with ANGI, which gained 4.7%.
  • Greenhill, a mergers and acquisitions advisory firm, will be acquired by Japanese bank Mizuho Financial Group for $550 million including debt, the two groups announced Monday.
  • Tegna - The television operator announced Monday that it has terminated its $8.6 billion merger deal with hedge fund Standard General because of regulatory hurdles. Tegna shares were up 3% in after-hours trading.
  • Renaissance Holdings announced Monday that it will buy AIG's treaty reinsurance business, which includes Validus Reinsurance, in a deal valued at nearly $3 billion.
  • Abbott Laboratories succeeded Monday in convincing a court to dismiss some claims by families in a dispute over its infant formula.
  • 3M Company - A federal judge ordered the company's chief executive, Michael Roman, to take part in a mediation process over nearly 260,000 complaints about military earplugs that are suspected of causing hearing loss.

 

Analyst recommendations:

  • Chevron: HSBC upgrades to buy from hold. PT up 24% to $189.
  • Cirrus Logic:  Loop Capital Markets downgrades to hold from buy. PT up 2.4% to $80.
  • Cleveland-Cliffs: J.P. Morgan initiated coverage with a recommendation of neutral. PT up 21% to $18.
  • Deere & Company: Deutsche Bank adjusts price target to $392 from $440, Maintains Hold rating
  • Essentra: RBC starts tracking at Outperform, targeting GBp 260.
  • First Food: Jefferies remains Buy with a price target raised from 140 to 175 GBp.
  • Myriad Genetics: Goldman Sachs upgrades to buy from sell. PT up 25% to $25.
  • Nucor: J.P. Morgan initiated coverage with a recommendation of underweight. PT set to $130.
  • Nvidia: Wedbush raises PT on Nvidia to $290 from $216. Keeps Neutral rating.
  • Steel Dynamics: J.P. Morgan initiated coverage with a recommendation of underweight. PT set to $82.
  • U.S. Steel: J.P. Morgan initiated coverage with a recommendation of neutral. PT set to $24.
  • Victrex: Jefferies remains "Hold" with a price target reduced from 1900 to 1590 GBp.