Morning in New York: external backdrop is supportive of sales

Daily review and forecast of events on the U.S. stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

The foreign policy agenda will be one of the key drivers during the upcoming session. The day before, US President Donald Trump wrote on his Truth Social network that "time is running out for Iran" and it should "urgently move on." Tomorrow, the White House chief will hold a meeting with top national security advisers regarding further military action against the Islamic republic.

Tensions in the region remain high. A drone damaged a power generator at the Barakah nuclear power plant in the UAE, fortunately the radiation background remained normal. Saudi Arabia reported intercepting three UAVs launched from Iraqi territory. The Strait of Hormuz is still closed, which, according to Ma estimates, forms an unprecedented rate of decline in global oil reserves, which by the end of May may already approach historic lows of about 7.6 billion barrels.

The G7 finance ministers and central bankers will meet in Paris on May 18-19, where the key topic will be the impact of the Middle East conflict on the global economy. Against the backdrop of persistent concerns about inflationary pressures due to energy shortages, yields of "long" sovereign bonds of the leading economies reached multi-year highs. An additional factor of revaluation was the market positioning in anticipation of the Fed's policy course correction under the leadership of its new chairman Kevin Warsh.

Monday's macroeconomic calendar does not contain any significant releases. May index of business activity in the service sector from FRB New York (previous value: -14 points) will be published, which can have a limited impact on investor sentiment.

Futures on US stock indices are moving downward. We assess the balance of risks for the upcoming session as negative, with increased volatility amid the continuing rally in oil prices, tougher rhetoric from Washington regarding Iran and pressure from rising treasury bond yields. We focus on the S&P 500 movements in the range of 7350-7450 points.

- China has pledged to buy at least $17 billion of agricultural products in the U.S. in 2026-2028 in addition to previously agreed volumes of soybean imports, as well as continue bilateral consultations on lifting restrictions on imports of U.S. meat. This news can affect the quotes of the agro-industrial sector.

- SpaceX's upcoming initial public offering, consistently a focus of investor attention, has attracted additional interest amid reports of talks with BlackRock (BLK) to buy $5 billion to $10 billion worth of the company's securities.

- The threat of a strike by 47 thousand employees of Samsung Electronics, the world's largest manufacturer of DRAM and NAND memory chips, poses risks for global semiconductor supply chains and for the valuation of Micron (MU) and Sandisk (SNDK) securities. A South Korean court partially granted the company's lawsuit, ordering the union to ensure production continuity. Negotiations over wage demands have entered the final phase.

- NextEra Energy (NEE) and Dominion (D) are in merger talks that could result in a $400 billion company.

- Quotes of Mizuho Financial (MFG) lost up to 1.8% after the refutation of the publication Yomiuri Shimbun about the decision to invest in Rakuten Bank. The management clarified that it is still only considering various options, including the mentioned one.

- Bio-Rad Laboratories (BIO) shares rose on news that activist fund Elliott Investment Management has formed a "significant" equity position in the company.

- A lawsuit has been filed in federal court in Seattle against Amazon (AMZN) seeking refunds for money overpaid due to higher prices on imported goods because of Trump's tariffs, which have been ruled unconstitutional by the Supreme Court.

- Baidu (BIDU) shares gain more than 2% after posting strong quarterly results. The Baidu Core AI segment revenue grew 49% YoY, accounting for more than half of the core business revenue. The Apollo Go drone service made an additional contribution to the overall result, having completed 3.2 million autonomous trips in the reporting period (+120% YoY).

Ma 15 trading on the U.S. stock exchanges ended on the negative territory. S&P 500 lost 1.24%, Nasdaq 100 fell by 1.54%, Dow Jones fell by 1.07%, Russell 2000 fell by 2.44%.

The main pressure on the market was exerted by profit taking in the overheated segment of shares related to the topic of artificial intelligence on the background of technical overbought signals. Global growth of bond yields also contributed to the sell-off. The negative background was supported by the protracted conflict with Iran and ambiguous results of the talks between Donald Trump and Xi Jinping: investors did not receive concrete signals regarding the development of relations between the two countries.

The shares of the "Magnificent Seven" ended the session mixed. The indices were supported by the growth of Microsoft (MSFT: +3.05%) quotations after Bill Ackman published a report that his Pershing Square fund (PSUS: -0.74%) is forming a position in the corporation with "extremely attractive fundamental valuation". Chipmakers showed a deep correction. The SOX index lost 4%. Nvidia (NVDA: -4.42%) and Tesla (TSLA: -4.75%) shares were the biggest selloffs.

The energy sector (XLE: +2.36%) emerged as the leader of the growth thanks to oil prices exceeding the $105 per barrel mark, and it was the only sector to end the day in the plus. The outsiders were the suppliers of raw materials (XLB: -2.65%) and utilities (XLU: -2.29%), which suffered from a sharp jump in Treasury yields.

The Empire State manufacturing activity index from the Federal Reserve Bank of New York (FRB New York) for May rose to 19.6 points from the consensus of 7.5 and the April reading of 11 points, hitting its highest level since Ma 2022. The new orders and shipments subindices improved markedly, with the paid and received price components hitting four-year peaks, indicating continued inflationary pressures. Industrial production for Ma rose 0.7% m/m against a consensus of 0.3%, March's result was revised upward by 0.2 pp.

Treasury bond yields added 7-12 bps at the end of the session, their growth for the week amounted to 18-25 bps. The yields of two-year USTs reached a 14-month high, ten-years - 12-month high. Accelerating inflation and rising energy costs forced the market to radically revise expectations regarding the Fed's monetary policy. If earlier its softening was put into quotations, now the tightening of monetary conditions is expected on the horizon of the next year. WTI crude oil rose by 4.2%, while a large-scale sell-off was observed in protective assets. Gold lost 2.6%, silver collapsed by 9.1%, bitcoin futures fell by 2.9%.

- POET Technologies (POET: -22.36%) reported a loss for the last quarter and also announced a placement of 19 million shares and a similar volume of warrants to a single institutional investor at a combined price of $21. This carries a risk of dilution to current shareholders. An additional negative was the announcement of the company's CFO to retire this year. The growth of POET quotations by 225% since the beginning of the year formed inflated expectations, which were not justified by the report.

- The Board of Directors of Fermi (FRMI: -11.67%) has amended the Articles of Association. According to them, the approval of holders of at least 70% of issued shares will be required to revise the size and composition of the board. The decision comes amid a conflict with the former CEO, who claimed to control about 40% of the capital and intends to approve an alternative board of five directors.

- Infleqtion (INFQ: -10.95%) reported a decrease in loss per share and revenue growth, but its full-year guidance of "at least $40 million" actually matched the consensus of $39.9 million. The inflated expectations of the investment community, which caused the issuer's stock to rise 17.5% since the beginning of the month, did not materialize.

- Nu Holdings' (NU: -5.72%) adjusted net income and revenue for the latest reporting period came in below consensus. The pressure on results was driven by lower gross margins and unfavorable changes in loan portfolio mix. Management emphasized that the fundamental trends of the business are more resilient than the aggregates reflected.

This article was AI-translated and verified by a human editor