Today, the US stock market opened on a slightly bearish note, with major indices experiencing moderate losses. The S&P 500 Index ($SPX) (SPY) declined by -0.29%, while the Dow Jones Industrials Index ($DOWI) (DIA) saw a drop of -0.48%, and the Nasdaq 100 Index ($IUXX) (QQQ) decreased by -0.35%. These declines come as investors grapple with concerns over rising labor costs, which have led to an uptick in bond yields. The US Q1 employment cost index surpassed expectations, signaling potential hawkishness in Federal Reserve policy, as higher labor costs could prompt the Fed to consider tightening monetary policy sooner than anticipated.
The impact of rising labor costs on stock prices was evident in the early trading session, with corporate earnings reports adding to market volatility. F5 Inc. faced a significant decline of over -8% after forecasting Q2 adjusted EPS below consensus estimates. Similarly, GE Healthcare experienced a drop of more than -7% following weaker-than-expected Q1 adjusted EBITDA results. McDonald’s also faced downward pressure, falling more than -2% after reporting weaker-than-expected Q1 comparable sales.
However, amidst the mixed earnings landscape, there were notable winners as well. Corning surged more than +7% after reporting stronger-than-expected Q1 core sales, while Eli Lilly saw a gain of over +6% after raising its full-year revenue estimate. NXP Semiconductors also experienced an uptick of more than +5% after reporting stronger-than-expected Q1 adjusted EPS and providing an optimistic forecast for Q2 adjusted EPS.
Overall, the Q1 earnings season has been relatively positive, with earnings surpassing expectations. The projected increase of +4.7% from a year ago exceeds the pre-earnings season estimate of +3.8%. Notably, a significant majority of S&P 500 companies that have reported earnings thus far have beaten Q1 estimates, with approximately 81% exceeding expectations.
Looking ahead, market participants are closely monitoring the outcomes of the Federal Open Market Committee (FOMC) meeting scheduled for Tuesday and Wednesday. Additionally, attention is focused on remarks from Fed Chair Powell regarding the potential trajectory of interest rates. Recent US price data indicating persistent underlying inflation has raised expectations for sustained higher interest rates.
In international markets, mixed economic activity in China is contributing to global uncertainty. While China’s manufacturing PMI slightly exceeded expectations, non-manufacturing PMI fell short, suggesting potential challenges for global growth.
In the bond market, June 10-year T-notes (ZNM24) faced downward pressure, with the 10-year T-note yield rising to 4.665%. Similarly, European government bond yields are trending higher, with the 10-year German bund yield up to 2.589% and the 10-year UK gilt yield up to 4.343%.
In summary, while the US stock market grapples with short-term challenges, positive Q1 earnings results and ongoing economic activity provide resilience. Market participants await further guidance from the Fed and monitor global economic indicators for insights into future market trends.