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Salesforce takes some of the bullish force out of the market

Posted May 30, 2024 at 9:30 am

Patrick J. O’Hare
Briefing.com

It was a losing battle yesterday for the stock market amid rising interest rates and fading strength in the mega-cap stocks. Fortunes won’t improve at today’s open. Equity futures are all pointing to a lower start.

Currently, the S&P 500 futures are down 16 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 40 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average future are down 313 points and are trading 0.8% below fair value.

It isn’t hard to pinpoint why the Dow futures are underperforming. Salesforce (CRM) is down 16% after reporting mixed fiscal Q1 results and issuing disappointing fiscal Q2 guidance with the notation that it is seeing a lengthening in deal cycles.

That has sapped some of the tech sector’s momentum, which slowed yesterday in a consolidation trade catalyzed by rising rates that saw the 2-yr note yield and 10-yr note yield flirt with levels last seen just before Fed Chair Powell said on May 1 that he thinks it is unlikely that the next policy move will be a rate hike.

If we isolate today’s batch of economic data, we would say it supports Mr. Powell’s view.

  • The second estimate for Q1 GDP showed a downward revision to 1.3%, as expected, from the advance estimate of 1.6%. That revision was driven by a downward revision to consumer spending to 2.0% from 2.5%. The GDP Price Deflator was revised to 3.0% (Briefing.com consensus 3.1%) from 3.1%
    • The key takeaway from the report is the weakening in consumer spending activity, yet it should be noted that the 2.0% growth was in-line with average for the prior eight quarters. In other words, spending was weaker than the fourth quarter, but not weak enough to alter the market’s soft landing outlook.
  • Initial jobless claims for the week ending May 25 increased by 3,000 to 219,000 (Briefing.com consensus 219,000). Continuing jobless claims for the week ending May 18 increased by 4,000 to 1.791 million.
    • The key takeaway from the report is that there wasn’t any notable change in initial jobless claims. They continue to comply with a generally solid labor market, the idea of which will comply with the market’s soft landing outlook.
  • The Adv. Intl. Trade in Goods Report for April showed a widening in the deficit to $99.4 billion from a downwardly revised $92.3 billion (from -$91.8 billion). Adv. Retail Inventories jumped 0.7% following a downwardly revised 0.1% increase (from 0.3%) in March. Adv. Wholesale Inventories were up 0.2% following an unrevised 0.4% decline in March.
    • The key takeaway from the report is that it will contribute to expectations for a weaker trade contribution in Q2 GDP as imports of goods were $8.0 billion more than March imports, whereas exports of goods were only $0.9 billion more than March exports.

The knee-jerk reaction in the Treasury market was as expected. Yields went lower. The 2-yr note yield is down four basis points to 4.94% and the 10-yr note yield is down five basis points to 4.57%. Equity futures improved some in response, but not enough to change view for a lower start.

The action in the Treasury market will continue to be watched closely throughout the session, as market participants are cognizant that the PCE Price Indexes for April will be released Friday with the Personal Income and Spending Report. On a related note, the Q1 PCE Price Index was revised to 3.3% from 3.4% while the core-PCE Price Index was revised to 3.6% from 3.7%.

Separately, specialty retailers will also be garnering added attention today after several reported their earnings results and issued guidance. Best Buy (BBY), Birkenstock (BIRK), Burlington Stores (BURL), and Foot Locker (FL) have been taken higher after their reports, but Kohl’s (KSS), American Eagle Outfitters (AEO), and Capri Holdings (CPRI) have been taken lower in pre-market action.

Originally Posted May 30, 2024 – Salesforce takes some of the bullish force out of the market

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