Market Today: Broadcom’s Strong Earnings and Stock Split Boost, Federal Reserve’s Rate Decision,

Market Rally and Inflation Data

The stock market began the session on a high note following positive inflation data. The May Consumer Price Index (CPI) showed some welcome disinflation on a year-over-year basis in total CPI (+3.3% vs. +3.4% prior) and core CPI (+3.4% vs. +3.6% prior).

Fed’s Latest Move

The Federal Open Market Committee (FOMC) left the target range for the fed funds rate unchanged at 5.25-5.50%, as expected. The vote was unanimous, and the directive reiterated that the Committee does not expect it will be appropriate to reduce the target range until it has greater confidence that inflation is moving sustainably toward 2 percent.

The Summary of Economic Projections (SEP) showed a median estimate of only one rate cut this year versus three in the March projections. This caused some market volatility, especially after Fed Chair Powell’s non-committal comments about the policy path.

Market Reaction

Despite the initial turbulence, the S&P 500 (+0.9%) and Nasdaq Composite (+1.5%) settled further into record territory. The Dow Jones Industrial Average (-0.1%) closed slightly lower after late-session choppiness.

The Treasury market also exhibited volatile action, ultimately settling with solid gains. The 10-year note yield fell 11 basis points to 4.30%, and the 2-year note yield fell eight basis points to 4.75%. The fed funds futures market is now pricing in a 63.3% probability of a 25 basis points rate cut at the September FOMC meeting, up from 52.8% yesterday.

Sector Performance

Many stocks participated in today’s gains, leading the equal-weighted S&P 500 to close 0.5% higher, with seven of the 11 S&P 500 sectors closing with gains. The information technology sector logged the biggest gain as influential components reached fresh highs:

• Apple (AAPL, Financial) 213.07, +5.92, +2.9%
• NVIDIA (NVDA) 125.20, +4.29, +3.6%
• Microsoft (MSFT) 441.06, +8.38, +1.9%
• Oracle (ORCL, Financial) 140.38, +16.50, +13.3%

Year-to-Date Performance

• Nasdaq Composite: +17.3% YTD
• S&P 500: +13.7% YTD
• S&P Midcap 400: +6.1% YTD
• Dow Jones Industrial Average: +2.7% YTD
• Russell 2000: +1.5% YTD

Economic Data

Today’s economic data:

• Weekly MBA Mortgage Applications Index 15.6%; Prior -5.2%
• May CPI 0.0% (consensus 0.1%); Prior 0.3%
• May Core CPI 0.2% (consensus 0.3%); Prior 0.3%

The key takeaway from the report is the recognition of year-over-year disinflation, indicating prices moved in the Fed’s desired direction. This suggests there won’t be another rate hike, and a rate cut could come as early as September.

Upcoming Economic Events

Thursday’s economic calendar features:

• 8:30 ET: May PPI (consensus 0.1%; prior 0.5%), Core PPI (consensus 0.3%; prior 0.5%), Weekly Initial Claims (consensus 224,000; prior 229,000), and Continuing Claims (prior 1.792 million)
• 10:30 ET: Weekly natural gas inventories (prior 98 bcf)

Global Markets and Commodities

Overseas markets:

• Europe: DAX +1.5%, FTSE +0.8%, CAC +1.0%
• Asia: Nikkei -0.6%, Hang Seng -1.3%, Shanghai +0.3%

Commodities:

Today’s News

Broadcom (AVGO, Financial) shares surged 9% in extended-hours trading following a robust fiscal second-quarter performance and optimistic guidance. The semiconductor and software giant reported an adjusted EPS of $10.96, beating estimates by $0.12, and revenue of $12.49B, exceeding expectations by $480M. The company also announced a 10-for-1 stock split set to commence on July 15, 2024, and projected fiscal 2024 revenue of $51B, including contributions from VMware.

The Federal Reserve adjusted its interest-rate projection for 2024, now anticipating just one 25-basis-point reduction, down from the three cuts forecasted in March. This decision followed a softer-than-expected inflation report for May, increasing optimism about potential rate cuts. However, policymakers emphasized the need for consecutive months of declining price pressures before considering rate reductions.

Whirlpool Corp. (WHR, Financial) saw its stock rise 7% amid speculation of a potential takeover. This surge in stock price followed an alert suggesting that the home appliance maker might be attracting acquisition interest. Whirlpool has a market cap of $4.8 billion and a short interest of 15.5% of its float.

Elon Musk, CEO of Tesla (TSLA, Financial) and SpaceX, faces multiple allegations of sexual misconduct and harassment from eight former SpaceX engineers. The lawsuit claims the plaintiffs were dismissed at Musk’s direction after raising concerns about his behavior. The allegations include fostering a hostile work environment with inappropriate conduct and demeaning commentary.

Oracle (ORCL, Financial) shares jumped more than 13%, marking their best session since December 2021. Despite a weaker-than-expected fourth-quarter, Wall Street reacted positively to strong bookings and optimistic guidance for the upcoming fiscal year. Oracle signed 30 Oracle Cloud Infrastructure customers, driving $12.5B in AI bookings and bringing its total remaining performance obligations to $98B.

Zscaler (ZS, Financial) continued its upward momentum, closing 0.6% higher on Wednesday, marking seven consecutive sessions of gains. The cloud security firm has seen a 16% increase in its stock value this year. Recently, Zscaler announced a partnership with Nvidia to deliver generative AI-powered security innovations, further boosting investor confidence.

Cara Therapeutics (CARA, Financial) announced it will seek strategic alternatives after its pruritus candidate, difelikefalin, failed to show meaningful clinical benefits in a key trial. The company plans to wind down the phase 2/3 program for the drug, which was under investigation for pruritus associated with notalgia paresthetica. Cara Therapeutics had $70M in cash and equivalents as of March 31.

Johnson & Johnson (JNJ, Financial) faces a new legal challenge as plaintiffs alleging the company’s talc-based baby powder caused their cancers have asked a federal judge to halt J&J’s latest bankruptcy bid to resolve similar claims. The claimants seek to prevent J&J or its subsidiaries from declaring bankruptcy outside New Jersey to settle the lawsuits.

Dave & Buster’s (PLAY, Financial) shares plummeted 14.41% after missing Q1 earnings expectations. The company reported a non-GAAP EPS of $1.12, missing by $0.58, and revenue of $588.1M, which was $27.78M below estimates. Comparable store sales decreased by 5.6%, and adjusted EBITDA fell by 12.6% from the previous year.

Blue Cross Blue Shield of Michigan plans to drop coverage of GLP-1 obesity drugs for certain plans due to concerns over cost, safety, and efficacy. This decision will impact fully insured large group commercial plans starting in January. Novo Nordisk (NVO, Financial) and Eli Lilly (LLY, Financial) market the most prescribed GLP-1 drugs, Wegovy and Zepbound, respectively.

J.Jill (JILL, Financial) announced a proposed offering of 2M shares of its common stock, with 1M shares being offered by the company and 1M by an affiliate of TowerBrook Capital Partners. The company intends to use the proceeds from its share sale to repay debt and for general corporate purposes.

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