May 31, 2024

In a really strange day for the overall market, most stocks rose yesterday but the three major indices all got knocked sharply lower due to the overweight influence of the largest contributors to those indices.

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For instance, the Dow declined by a large 330 points, adding to its misery this entire week and it was all attributed to a monstrous shellacking in CRM, which fell to its worst day in nearly 20 years on earnings. In addition, highly influential stocks in this price-weighted index like GS, MSFT and UNH all fell sharply as well. But 22 out of its members were higher, so was it an up-day or lower day for this one?

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Ditto for the S&P which dropped sharply again by 31 to 5235 even though the majority of its members were higher as well, with only AAPL showing a nominal gain while all the others, including recently unstoppable NVDA finally taking it on the chin after its record highs in recent days.

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The Nasdaq sank by 183 down to 16,737 while only the Russell 2000 Index of small stocks gained, higher by 20 to 2056 due to some strength in regional banks. The VIX was actually lower for most of the day because of the overall market strength but rose at the end on a late vicious selloff in the major indices and ended at 14.47, which once again proves the durability of the recent support level at around 12.40.

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CRM, which helps businesses manage their customers, lost nearly a fifth of its value after reporting weaker revenue for the latest quarter than analysts expected. The cloud-based software company also gave forecasts for revenue in the current quarter and fiscal year that fell short of estimates.

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KSS fell even more, by 23% after reporting a surprise loss for the latest quarter when analysts were expecting to see a profit. The retailer said sales fell from a year earlier as customers pulled back on clearance items. It cut its forecasts for sales this year because of the stumble.

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And NVDA finally got its comeuppance after it strong report projected it to recent record high and it sank by 3.8% for its first drop since soaring more than 20% following its profit report last week. The chip company was an even heavier weight on the S&P than CRM.

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Helping to support the market were better-than-expected profit reports from a range of retail companies as BBY topped forecasts even though its revenue fell short last quarter, and its stock rose 13%. FL, of all things, gained 15% after likewise reporting better-than-expected profit despite ringing up sales shy of analysts’ forecasts.

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Stocks also broadly got a boost from easing Treasury yields in the bond market after a couple of reports showed the U.S. economy isn’t quite as strong as expected. The hope is that the economy can cool down, but not by too much, so that the Federal Reserve can hit a precise landing where it gets high inflation under control without causing a bad recession.

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Weekly jobless claims came in at 219,000, slightly higher than last week even though the number of layoffs still remains low compared with history. The second estimate of 1Q G.D.P. dropped a bit to 1.3% from the first estimate of 1.6%.

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The yield on the 10-year Treasury fell to 4.54% from 4.62% late Wednesday. The two-year yield, which more closely tracks expectations for Fed action, fell to 4.92% from 4.98%.

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The more important data point will likely arrive today at 8:30am with the P.C.E. report on inflation and this could dominate the thinking until next Friday’s jobs report. Until then, the tail end of earnings reporting season could offer the main drivers for the market. Profits have largely been better than expected for the start of 2024.

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Outside of CRM, other tech-related companies had better market receptions to their latest profit reports as C3.ai jumped 19% after the software company topped expectations for both profit and revenue in the latest quarter. HP gained 17% after edging past forecasts for earnings.

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DG swung from gains to losses after beating profit forecasts and edging past expectations for revenue in the latest quarter. The retailer, which serves many lower-income customers, said it saw strong traffic growth at its stores through the quarter. But it also gave a forecast for profit over the full year that was in line with analysts’ expectations, but its forecast for this quarter’s fell short and as a result, its shares fell by 8%.

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BBW tumbled 14% as the company, which lets customers build their own stuffed animals, reported worse drops in revenue and results for the latest quarter than analysts expected. The company said it had to contend with a “weaker spending environment” overall that dragged on its business.

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In stock markets abroad, indexes rose modestly in much of Europe after struggling in Asia.

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Earnings this week will include: yesterday – Dow component CRM plus A, KS, HRL, NOW, OKTA, DG lower while BBY, FL, HP, BURL, BIRK are higher; today – COST, DELL, MRVL lower and ZS higher.

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Economic reports will see: yesterday – weekly jobless claims were 219K, second estimate of 1Q G.D.P slipped to 1.3%, April pending homes sales off by 7.7%; today – April personal income rose by 0.3%, April P.C.E. which is important to the Fed came in right on the numbers, which were 0.3% and 0.2% for the overall and core rates respectively and year over year were 2.7% and 2.8%.