Stocks fell Wednesday as investors kept an eye on the federal debt ceiling debate in Washington in the final trading day of May.
The deal, which was reached over the weekend by President Joe Biden and House Speaker Kevin McCarthy, cleared a major test Tuesday night after advancing to the House floor following a 7-6 vote in the House Rules Committee. The floor vote is expected to take place Wednesday evening. "I think we have the votes to pass this today," said Rep. Patrick McHenry, a GOP negotiator on the debt deal, on CNBC's "Squawk Box" Wednesday morning.
Sam Stovall, chief investment strategist at CFRA Research, said a debt ceiling deal will likely pass before the U.S. would default, but investors are wondering if more changes and time are needed before an official agreement can be reached. Once a bill is approved, he said market participants will shift focus to the June Federal Reserve policy meeting.
"Some investors are worried that the high-decibel, dissenting fringes might end up causing this vote to fail and require some adjustments before it ends up passing," Stovall said. "People are taking whatever profits they can ahead of the vote tonight."
Wednesday's close marked the end of the May trading month. The Nasdaq Composite finished the month 5.8% higher, helped by a rally in artificial intelligence-related stocks and other technology names. The S&P 500 added nearly 0.3% in the month, despite at one point relinquishing its month-to-date gains during Wednesday's selloff. The Dow fell almost 3.5% in the month, pulled down by May losses greater than 10% from Nike, Walt Disney, Walgreens, 3M, Chevron and Dow, Inc.
Correction: Nvidia's market cap briefly topped $1 trillion on Tuesday. A previous version misstated the date.
Stocks close lower
The three major indexes closed lower on Wednesday, which marked the end of the May trading month.
With Wednesday's close, the Dow finished the month down almost 3.5%. The S&P 500 finished May up about 0.3%, wile the Nasdaq surged 5.8%.
— Alex Harring
Consumers’ excess savings are on track to dry up as early as this fall, says Roth MKM
U.S. consumers built up their savings during the pandemic era, as stimulus relief payments went out to households. But now, those cash cushions are looking thin, according to an analysis by Roth MKM.
Households gathered excess savings to the tune of $2.1 trillion through August 2021 as the federal government issued stimulus packages to the public, but those cash reserves began to slide since then, according to data from the Federal Reserve Bank of San Francisco. Cumulative drawdowns hit $1.6 trillion as of March 2023.
Roth MKM's analysis of this data showed that excess savings will be gone by October – and companies will feel the pinch.
"This may be around the time that services industries, which have been in the slipstream of a post pandemic spending frenzy… begin to flag," wrote Roth MKM chief economist and market strategist Michael Darda.
He anticipates that a recession is likely to kick off "sometime this summer or fall."
Wells Fargo names American Express as one of its top recession picks
Wells Fargo named American Express one of its top picks for a tougher recession scenario. The firm said the payment card company has an excellent risk-reward valuation — even in the case of revenue growth being cut in half.
"Their ability to flex peak investment expense is a powerful lever," Wells Fargo said in a Wednesday client note.
The firm maintained its overweight rating on shares. It also kept its $200 price target on shares, which implies 26.6% upside from Tuesday's close.
CNBC Pro subscribers can read more about the call here.
— Hakyung Kim
June has historically been a bad month for the Dow and S&P 500
Seasonal weakness could be ahead if history repeats itself.
A typical June since 1950 brings a return of 0.1% for the S&P 500 compared with a 0.72% average gain of all months in the same time period. And an average June has historically resulted in a 0.2% loss for the Dow, while the 30-stock index has advanced 0.67% when averaging all months over the same time period.
— Alex Harring
Franklin Resources announces acquisition of Putnam Investments
The deal is part of a broader partnership between Franklin, the Power Corporation of Canada, and Great-West Lifeco, which is the current parent company of Putnam. Great-West will also allocate $25 billion to Franklin Templeton managers.
Franklin will pay $100 million in cash for Putnam, with the rest of the deal in stock. Shares of Franklin were down about 2.6% on Wednesday.
— Jesse Pound
Indexes remain on pace for losses entering final hour
The three major indexes remain on track to see losses in Wednesday's session.
Wednesday also marks the end of the trading month. The Nasdaq Composite is on pace to finish 6% higher, helped by a rally in tech stocks. The S&P 500 is poised for a relatively modest 0.4% advance.
On the other hand, the Dow is on track for a 3.5% loss. Dow members Nike, Disney, Walgreens, 3M, Chevron and Dow, Inc. are all slated to finish the month more than 10% lower. Just six of the index's 30 stocks are poised for monthly gains, with Salesforce leading the way at 11.7% up.
— Alex Harring
Bank of America says Eli Lilly has a backdoor for coverage of obesity drugs
Bank of America said only 40 million people have "theoretical access" to insurance reimbursement for Novo Nordisk's Wegovy (semaglutide) obesity medication in a target market of approximately 110 million. Eli Lilly is likely to face similar obstacles with insurers when tirzepatide is approved to treat obesity, but analyst Geoff Meacham expects the company is looking at other ways to win coverage.
"We think Lilly and Novo's 'wall of data' strategy makes a lot of sense to achieve broad coverage, underpinning our belief that access is a 'when, not if," Meacham wrote in a research note.
Novo will be sharing results soon in its Select trial, which studies whether taking patients taking semaglutide are reducing their cardiovascular risks. The idea is to convince insurers they are saving money in the long run by helping patients lose weight. Other studies are in the works to look at benefits for obstructive sleep apnea and chronic kidney disease.
—Christina Cheddar Berk
Microsoft shares could rally more than 20% on A.I.-story, says Piper Sandler
Piper Sandler analyst Brent Bracelin raised his price target on Microsoft shares to $400 from $348, saying he was increasing estimates "for an AI All-Star." The new price target implies 20.7% upside from where the stock closed on Tuesday.
He also maintained his overweight rating on the stock, noting the company's AI tailwinds have parallels to its large Cloud division.
"We have increasing confidence that MSFT has the courage, conviction, and history to bring AI to the masses based on bullish commentary coming from 3P data for April and the Build developer conference in Seattle," Bracelin wrote in a Tuesday note.
CNBC Pro subscribers can read more about the price target raise here.
— Hakyung Kim
Disappointing guidance pressure Michael Kors parent Capri
Shares of Capri Holdings, which owns Versace, Jimmy Choo and Michael Kors, dropped more than 10% after the company issued disappointing fiscal first-quarter guidance. Capri sees earnings around 70 cents per share, well below a StreetAccount forecast of $1.41 per share.
— Fred Imbert
Fed's Harker says he supports a rate hike pause
Philadelphia Fed President Patrick Harker said Wednesday that he's leaning toward not raising rates at the central bank's June meeting.
"I am in the camp increasingly coming into this meeting thinking that we really should skip," Harker said. To be sure, he added that Friday's jobs report could change his mind. Following those comments, the CME Group's FedWatch tool showed only a 24% chance of the Fed raising rates.
— Fred Imbert
Warren Buffett bought more Occidental shares
Warren Buffett's Berkshire Hathaway bought more shares of Occidental Petroleum over the last three trading days, boosting its stake in the Houston-based oil and gas producer to 24.9%, according to a regulatory filing.
The Omaha, Nebraska-based conglomerate purchased a total of of 4.7 million shares for $273 million on Thursday, Friday and Tuesday at prices up to $58.85.
Berkshire has been adding to its already-large stake this month even after Buffett knocked down speculation that he would take full control of the oil company. Last year, Berkshire received regulatory approval to purchase as much as a 50% stake.
— Yun Li
Stocks making midday moves
Here are some of the names making the biggest moves in midday trading:
- Advance Auto Parts — The stock dropped about 34% after the car parts retailer reported an adjusted earnings per share of 72 cents, widely missing analysts' estimates of $2.57, per Refinitiv. The company also cut its quarterly dividend and full-year guidance.
- C3.ai — Shares fell nearly 11% ahead of the company's quarterly results after the close. C3.ai, the AI software maker has soared more than 250% so far this year.
- Micron Technology – The chip stock slipped 4% after the company said at a conference its third-quarter trends have been consistent with guidance and the company sees no need to raise it. However, Micron noted revenue growth guidance that is nearer to the high end of its previously stated range.
Click here to read more stocks making midday moves.
— Michelle Fox
Goldman Sachs initiates coverage of SeaWorld
Now is the time to buy SeaWorld shares, according to Goldman Sachs.
Analyst Lizzie Dove initiated coverage on the Florida theme park with a buy rating. She set her price target at $75 per share, implying a 34% rally from Tuesday's close.
Despite investor caution on park stocks amid an uncertain macro environment, Dove said the risk has already been priced into shares.
"We believe ongoing cost-cutting initiatives and growth opportunities from international licensing and domestic resort potential are both underappreciated by investors," Dove wrote in a Wednesday note.
To read more about her call, click here.
— Hakyung Kim
S&P 500 sector performance varies widely in May
Sectors are diverging in monthly performance with just hours left in the May trading period.
Just three of the 11 S&P 500 sectors are set the finish the month higher. Information technology has rallied the most with a 9.7% advance, followed by communication services at 6.1% and consumer discretionary at 1.9%.
The index as a whole, by comparison, is flickering around its monthly flatline despite the majority of sectors trading notably down. Energy, the worst performer of the 11 sectors, is down 10.5% this month.
Here's where the 11 stand, in order from best to worst performing this month:
- Information technology: up 9.7%
- Communication services: up 6.1%
- Consumer discretionary: up 1.9%
- Industrials: down 3.4%
- Financials: down 4.9%
- Health care: down 4.9%
- Real estate: down 5%
- Consumer staples: down 6.1%
- Utilities: down 6.6%
- Materials: down 7%
- Energy: down 10.5%
— Alex Harring
First-quarter deposit outflows were largest since at least 1984, FDIC says
U.S. bank deposits declined by $472.1 billion in first quarter, according to a report released Wednesday by the Federal Deposit Insurance Commission.
FDIC Chairman Martin Gruenberg said in a statement that the first quarter deposit outflow was the largest dating back to at least 1984. It was also the fourth consecutive quarter of outflows.
The outflows were driven by larger accounts. Uninsured deposits declined by 8.2%, while insured deposits actually rose by 2.5%, Gruenberg said.
Bank stocks were falling on Wednesday, with the Financial Select Sector SPDR Fund (XLF) down 1.8%.
— Jesse Pound
Intel pops after bullish comments from CFO
Intel shares popped more than 4% after the chipmaker's finance chief said the company could soon see a turnaround.
Speaking at a conference, CFO David Zinsner said the company's data center division is starting to "turn the corner," while adding that China inventory should start to ease after the third quarter. He also said second-quarter revenue will come in at the high end of of its guidance.
Intel shares have lagged Nvidia this year, as investors see the legacy chipmaker as losing out on its rival in the AI-driven boom. Year to date Intel is up 17%, while Nvidia has more than doubled in that time.
— Fred Imbert