Morning in New York: geopolitics will set the vector for trading

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

The situation around Iran is still characterized by high uncertainty. The final version of the peace agreement between Washington and Tehran was not announced the day before, although it was previously expected that the document could appear in the near future. Negotiations continue, but the parties' disagreements on key terms remain. The main issues of contention are related to the stockpiles of enriched uranium and the regime of ships' passage through the Strait of Hormuz. The blockage of this route has caused fears of oil shortages, and oil prices continue to rise.

At the same time, at the initiative of congressmen from the Republican Party, the adoption of a resolution to end the war with Iran was postponed until June. Thus, the White House still has opportunities for further military operations, although the pressure of Congress on the administration of the U.S. president is increasing.

The main macro release of the day will be the final estimate of the consumer sentiment index from the University of Michigan for Ma (consensus: 48.2 points, unchanged from the preliminary data). Given the low initial reading, a slight revision of the final reading is unlikely to change the overall conclusion about the pressure on the consumer backdrop. Also to be released will be the service sector activity index from the FRB of Kansas City for May (April: 3 points). Comments from Fed Governor Christopher Waller will be interesting in terms of assessment of inflation risks, the impact of expensive oil on the economy and the outlook for monetary policy.

BJ's Wholesale Club (BJ) and Booz Allen Hamilton (BAH) will report before the main session opens.

Futures on S&P 500 show moderately positive dynamics. We assess the balance of risks as neutral with moderate volatility.

- Shares of Ross Stores (ROST) are up about 5% on the back of strong earnings reports and higher full-year guidance. EPS came in at $2.02 with a consensus of $1.73 (+16.7%), revenues reached $6 billion, while the average forecast was for $5.64 billion (+6.6%), and comparable sales grew 17%. The positive market reaction was due to the company's strong demand in the discount store segment and raised its EPS guidance for FY 2026 from $7.02-7.36 to $7.50-7.74.

- Take-Two Interactive (TTWO) shares are up about 7% after the release of quarterly results and confirmation of earlier information about the release of Grand Theft Auto VI on November 19, 2026. The company's net bookings for the period came in at $1.58 billion, beating its own forecast, while the full-year figure reached $6.72 billion. For FY 2027, management is targeting net bookings in the range of $8-8.2 billion, reflecting both the impact of the launch of GTA VI and the performance of the rest of its lineup of popular games. Nevertheless, this guidance was below consensus, and the positive reaction in the stock is primarily due to management's confidence in the success of the new product cycle.

- Workday (WDAY) is up about 10% as its results for the latest quarter beat average market expectations. Revenue increased 13.5% YoY, subscription revenue climbed 14.3%, and adjusted EPS was $2.66 with a consensus of $2.51. The company reaffirmed its subscription revenue guidance for the year and raised its adjusted operating margin guideline to 30.5%. Demand for AI functionality is an additional growth driver, with more than 4,000 customers utilizing Workday's own AI agents.

- Estée Lauder (EL) shares appreciate by about 10% after the termination of negotiations on the merger with Puig. The market positively perceived the rejection of the deal, which could have been valued at about $40 bln, as the risks of complex integration and additional financial burden amid ongoing business transformation have disappeared. Estée Lauder reaffirmed the prioritization of its standalone strategy, focus on improving profitability and achieving double-digit adjusted operating margins in the medium term.

- Quotes of Zoom Communications (ZM) add almost 7% amid the publication of reports and the announcement of the expansion of the buyback program. The issuer's revenue for the last quarter grew by 5.5% to $1.239 billion, corporate income increased by 7.2% to $755.7 million. The Board of Directors approved a buyback of $1 billion in addition to the remaining $625 million under the existing program. The annual revenue forecast was slightly increased.

Ma 21 trading on American stock exchanges ended in a slight plus, but below the intraday highs reached after an upward reversal following the morning decline. The S&P 500 added 0.17%, the Nasdaq 100 rose 0.2%, the Dow Jones rose 0.55%, the Russell 2000 rose 0.93%.

In the second half of the session, the market was supported by Saudi media reports that an agreement between the US and Iran, mediated by third parties, could be announced in the coming hours. It was about immediate ceasefire and unblocking of the Strait of Hormuz for the passage of merchant ships. At the same time, parameters related to Iran's nuclear program did not appear in the news. The information background led to the decrease of oil from the daily maximums, growth of quotations of treasury securities (especially on the far end of the curve) and helped the shares to come out in plus. At the same time, doubts remain that a peace agreement between the US and Iran will be reached quickly.

The utilities sector (XLU: +1.10%), IT companies (XLK: +0.82%) and healthcare industry (XLV: +0.69%) were the top gainers. The outsiders were energy (XLE: -1.12%) and consumer staples (XLP: -1.01%).

Strong results from Nvidia (NVDA: -1.77% at the close of trading on May 21), comments about sustained high demand for computing power, and reports of a surge in Anthropic revenue and new agreements in the AI segment supported interest in technology companies and "growth" stocks.

Macroeconomic statistics were mixed. The manufacturing business activity index (PMI) for May beat consensus 53.8 points to a four-year high of 55.3 points, according to preliminary data, while the service PMI fell to its lowest since Ma at 50.9 points with consensus at 51.2. Price components pointed to the strongest inflationary pressures in four years. The employment situation, primarily in the service sector, showed deterioration. The number of initial and second claims for unemployment benefits was almost in line with forecasts. The index of manufacturing activity from FRB Philadelphia unexpectedly fell to -0.4 points, while the average benchmarks suggested an increase to 17.8 points. At the same time, the component of new orders once again went into the contraction zone. At the same time, the number of new housing starts reached 1,465 thousand on a year-over-year basis, and building permits came in at 1,442 thousand with the consensus of 1,410 thousand and 1,384 thousand, respectively.

- The US authorities plan to allocate about $2 bln for the development of quantum computing in exchange for stakes in the capital of companies in the sector, including Infleqtion (INFQ: +31.5% at the close of trading on Ma 21). At the same time, the Department of Commerce announced the allocation of $100 mln for the development of advanced quantum technologies.

- Nebius Group (NBIS: +14.7%) reported an agreement with Bloom Energy (BE: +9.1%) to secure fuel cell-based capacity. The project provides for about 250 MW of guaranteed capacity, and Nebius' cumulative monthly payments over the contract period could total up to $2.6 billion.

- Ralph Lauren (RL: +13.9%) reported better-than-expected revenue and earnings for its fiscal fourth quarter. Comparable sales markedly exceeded forecasts in all regions where the company operates, and its margins were supported by an improved product mix and lower cotton costs. The company raised its dividend. Management announced further expansion of profitability in FY 2027.

- Spotify Technology (SPOT: +13.1%) held its first investor day since 2022. The benchmarks given during the day supported the market's expectations for further scaling of the business and improving the platform's monetization efficiency.

- International Business Machines (IBM: +12.4%) will receive a $1 billion CHIPS Act grant to create a new quantum chip manufacturing facility. The funds should support the formation of Anderon, a new IBM division and the first dedicated quantum fab in the US.

- Eli Lilly (LLY: +2.2%) reported positive final results from its TRIUMPH-1 weight loss trial: primary and secondary endpoints were met, with an average weight loss of 28% for trial participants after 80 weeks. This was higher than typical rates for Zepbound and Wegovy.

- Walmart (WMT: -7.3%) generated revenue above expectations in the quarter with EPS in line with guidance, but its operating margins came under pressure due to fuel cost increases of about 250 bps. Management's EPS outlook for the second quarter was below average market expectations, full-year guidance was confirmed.

- Deere & Co. (DE: -5.2%) reported above consensus on revenue and earnings, but weak performance in the Production & Precision Agriculture segment has investors wary. The company noted a decline in shipments while production costs rose in the large agricultural equipment segment. The net profit guidance for the year was unchanged, but some guidance on selling prices and the South American farm machinery market was revised downward.

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