[New York Stock Market] Broad Decline Amid Rising Treasury Yields... Dow Breaks 40,000 Intraday for the First Time Ever

Late-Stage Gains Receded 'Taking a Breather'
Last Week's Unemployment Claims Fell Short of Expectations
April Manufacturing Output Down 0.3% MoM

The three major indices of the U.S. New York stock market all closed lower on the 16th (local time). Following the previous day's record highs for all three indices driven by expectations of interest rate cuts, the market, which continued its rally on this day, gave back its late-session gains and took a breather. Rising U.S. Treasury yields weighed on the indices.

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At the New York Stock Exchange (NYSE) on this day, the blue-chip-focused Dow Jones Industrial Average closed at 39,869.38, down 38.62 points (0.1%) from the previous trading day. Early in the session, the Dow Jones Industrial Average surged past the 40,000 mark intraday for the first time in history, but it gave back those gains and closed below the 40,000 level. The large-cap S&P 500 index ended the day at 5,297.1, down 11.05 points (0.21%). The tech-heavy Nasdaq index closed at 16,698.32, down 44.07 points (0.26%).

By individual stocks, Walmart jumped 6.99% after reporting earnings that exceeded market expectations. Walmart announced first-quarter sales of $161.5 billion and adjusted earnings per share (EPS) of $0.60, surpassing analyst estimates of $159.5 billion and $0.52, respectively. This was driven by a significant increase in e-commerce revenue and purchases by high-income consumers. Canada Goose also surged 15.5% after posting fourth-quarter results for fiscal year 2024 that beat analyst expectations. Under Armour, which issued a disappointing earnings outlook for the year, fell 1.32%. Nvidia, which is scheduled to report earnings after the market close on the 22nd, declined 0.3%.

The number of new unemployment claims in the U.S. last week was reported to have decreased compared to the previous week. According to the U.S. Department of Labor, new unemployment claims for the week of May 5-11 totaled 222,000, exceeding the analyst forecast of 219,000. However, compared to the previous week (232,000), when claims temporarily increased due to New York City's spring break and school workers filing for benefits, the number decreased by 13,000. Continuing claims, which count those filing for unemployment benefits for at least two consecutive weeks, were 1,794,000 for the week of April 28 to May 4, an increase of 13,000 from the prior week.

Indicators also showed that the manufacturing sector is cooling down. U.S. manufacturing output in April fell 0.3% month-over-month, missing the analyst forecast of a 0.1% increase. This also underperformed the previous month's result of a 0.2% increase.

Chris Larkin, Managing Director at Morgan Stanley E-Trade, commented, "The indicators released today are not dramatic but show signs of a steadily cooling economy," adding, "Overall, there is no reason to revert the Federal Reserve (Fed) to an overly hawkish (tightening) stance."

The previous day, the three major New York stock indices all hit record highs. Inflation slowdown data revived optimism about the Fed cutting benchmark interest rates within the year, stimulating investor sentiment. According to the U.S. Department of Labor, the core Consumer Price Index (CPI) for April rose 3.6% year-over-year, the lowest in three years since April 2021. This matched analyst expectations (3.6%) and was below the previous month's increase (3.8%).

Additionally, retail sales, an indicator of U.S. economic momentum, were flat last month. According to the U.S. Department of Commerce, April retail sales totaled $705.2 billion, unchanged from the previous month. This was well below market expectations (0.4% increase) and the prior month's result (0.6% increase). This was interpreted as a signal that household spending is under pressure due to inflation and high interest rates, raising the possibility of an economic slowdown in the U.S.

Mayungyu, Chief Investment Officer (CIO) at BMO Wealth Management, stated, "The market recognizes that the inflation situation is favorable," and added, "Combined with some insights from the earnings season, we can expect fairly robust earnings and generally favorable outlooks."

However, there are also views that the stock market could face corrections at any time. Chris Zaccarelli, Chief Investment Officer (CIO) at Independent Advisor Alliance, said, "The market is now heading into an overvalued area," and advised, "It is a time to be more cautious when investing in stocks."

U.S. Treasury yields are on the rise. The 2-year U.S. Treasury yield, sensitive to monetary policy, rose 6 basis points (bp) from the previous trading day to 4.8%, while the 10-year U.S. Treasury yield, a global bond yield benchmark, increased 2 bp to 4.37%.

International oil prices are also climbing. West Texas Intermediate (WTI) crude oil rose $0.68 (0.86%) from the previous day to $79.31 per barrel, and Brent crude, the global oil price benchmark, increased $0.61 (0.74%) to $83.36 per barrel.