Morning in New York: investors keep risks on the radar

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

This Wednesday's trading dynamics will continue to be determined by the situation in the Middle East. The U.S. Central Command reported the interception of several Iranian ballistic missiles and drones and retaliatory strikes, including on the ground control station on the island of Qeshm. Secretary of State Marco Rubio said large sections of the Strait of Hormuz are mined and the Iranian military continues to fire on merchant ships.

At the same time, Washington insists on continuing contacts with Tehran, although Iranian media report their suspension.

Against this background, WTI and Brent futures are moving upward for the third consecutive session. The continuation of this trend will strengthen the fears of the investment community about the acceleration of inflation, which will lead to a tightening of the Fed's policy. In this regard, the publication of data on business activity indices and the report of the Ministry of Labor, which will be released on June 5, is of particular importance for market participants.

Foreign trade risks may put pressure on quotations. The U.S. Trade Representative Office proposed to impose duties of up to 12.5% on imports from 60 countries, including China, Japan and EU member states. Chinese authorities have tightened supervision over offshore brokers and announced their intention to crack down on illegal cross-border operations of Tiger Brokers, Futu and Longbridge. According to analysts, this may reduce the inflow of funds into ADRs traded in the U.S. and increase the attractiveness of the Hong Kong exchange. However, the consequences of these actions for global investors look limited so far.

The main macro release of the day is the May ADP employment report (consensus: 120k, April: 109k), which will provide a benchmark before the publication of the Ministry of Labor statistics for the previous month. Also coming out will be the final estimate of the May S&P Global Services PMI (consensus: 51 points, April: 50.9), the ISM (consensus: 53.8 points, April: 53.6) and industrial orders for April (consensus: +4.6%, March: +1.5%).

Macy's (M) and Medtronic (MDT) will report quarterly results before the open. Broadcom (AVGO), CrowdStrike (CRWD), C3.ai (AI), Veeva Systems (VEEV), Five Below (FIVE) and PVH Corp. (PVH) will report after the end of the main session.

The technology sector is still in the center of attention of market participants. After prolonged growth, it has become noticeably more sensitive to any disappointment. The AI segment remains the driving force of the rally. The reaction to today's reports may be sharp. The focus of investors' attention will be primarily on Broadcom's (AVGO) results. This release will show whether demand for networking solutions and custom AI chips from server, computer memory and storage vendors remains strong. A benchmark for the demand for cybersecurity solutions will be the CrowdStrike (CRWD) report. Over-optimism around the prospects of AI persists. In this regard, the under-expectation indicators create a risk of short-term profit taking in the securities of the former growth leaders.

Futures after the closing of the main session show about zero dynamics. We assess the balance of risks for the upcoming session as neutral with increased volatility. S&P 500 remains in the area of the historical maximum of 7600 points, and the technical indicator RSI, which is near 75 points, indicates market overheating. This raises the possibility of a correction on unfavorable news. The base range for the broad market index for the upcoming trading is 7550-7650 points.

- Quotes of Palo Alto Networks (PANW) lose more than 3%, despite strong quarterly reporting and an increase in the forecast for the year, which in the moment led to a jump in shares by 14%. The company's revenue rose to $3 billion in the period, with adjusted EPS reaching $0.85. Management noted a surge in customer interest in defense against AI threats. In the past 12 weeks, the company has held about 800 meetings related to this agenda, compared to 1,200 in the whole of last year. The post-report profit-taking was driven by PANW stock nearly doubling since mid-April.

- GameStop (GME) shares are gaining more than 7% after the company released successful quarterly results and announced a $2 billion buyback program. The company's revenue was boosted by demand for collectibles, but the key positive driver was the return of capital to shareholders.

- GitLab (GTLB) shares are down within 4% despite a 23% increase in quarterly revenue to $264.2 million, which exceeded market expectations. The pressure on the quotes is likely due to the adjusted earnings forecast for the current quarter coming in slightly below consensus. The company is also cutting 350 employees, or about 14% of its workforce, exiting 22 countries and realigning its business around its AI focus.

- Ulta Beauty (ULTA) shares are moving mixed after the release of a strong January-March report. The company beat earnings and revenue expectations, with its comparable sales rising 5.3% with a consensus of 4.6%. At the same time, management raised its full-year EPS guidance. The launch of TikTok Shop and expansion of the brand portfolio provided support to the quotations.

- Yext (YEXT) securities collapsed by more than 11%, reacting to the publication of the quarterly report. The increase in profitability did not compensate for the weak revenue dynamics, so the market once again focused on the quality of demand.

- Shares of TETRA Technologies (TTI) are losing about 12% after announcing a $100 million additional share issue. The funds will support the development of a bromine project in Arkansas, but investors are primarily considering the risk of share dilution.

- Quotes of NRx Pharmaceuticals (NRXP) collapsed by 19% amid the announcement of an additional offering of common stock. This increases concerns about the capital needs of this small biotechnology company. In addition, the negativity is due to the dilution of the current owners' stakes.

Trading on June 2 on American stock exchanges ended in plus. S&P 500 added 0.13%, having updated the historical maximum. Nasdaq 100 grew by 0.48%, Dow Jones rose by 0.45%, Russell 2000 - by 0.9%.

Utilities (XLU: +1.86%), information technology (XLK: +1.25%), and raw materials (XLB: +1.18%) were the top gainers. Telecoms (XLC: -1.76%) and health care (XLV: -0.97%) were the outsiders.

The rally in the quotations of chipmakers, except for Nvidia (NVDA: -0.69%) and Intel (INTC: -1.28%), continued. Shares of the "Magnificent Seven" traded mixed: Alphabet (GOOGL: -3.86%) and Microsoft (MSFT: -4.17%) were affected by the sell-off, while Apple (AAPL: +2.90%) rose.

Alphabet (GOOGL) announced that it has raised about $80 billion through an additional share issue to fund investments in AI infrastructure. Of that amount, $10 billion will come from Berkshire Hathaway (BRK) in a private placement. The news has heightened fears of an oversupply of shares ahead of the upcoming IPO. Market participants believe that the source of funds will be recent growth leaders - the largest technology companies.

WTI oil rose by 1.7% after 5.5% a day earlier. The State Department does not rule out an interim agreement with Iran in the near future. However, uncertainty serves as a growth driver for oil prices and for short-term rates.

Statistics confirmed the stability of the labor market. The number of open vacancies (JOLTS) for April was noticeably above forecasts and reached the highest level since Ma 2024, with growth particularly pronounced in the professional and business services sector, while the shares of voluntary redundancies and employee optimization declined slightly.

The head of the FRB Cleveland Beth Hammack noted persistent inflationary pressures, admitting that in the near future the Fed will have to take measures to contain it.

- Victoria's Secret (VSXY: +47.44%) reported first-quarter better-than-forecast revenue and earnings. Comparable offline and online sales were also above consensus thanks to strong momentum across several product lines.

- Nvidia CEO Jensen Huang predicts Marvell Technology's (MRVL: +32.52%) capitalization to reach $1 trillion, pointing to the important role of the company's networking and communications chips for data centers.

- STMicroelectronics (STM: +15.2%) raised its data center segment revenue forecast for this year from "more than $500 million" to "approximately $1 billion," given the strong demand for AI infrastructure. At the same time, these revenues are expected to double in 2027.

- Generac (GNRC: +5.69%) has entered into an agreement to supply backup power systems to a hyperscale datacenter operator.

- Shake Shack (SHAK: -8.37%) revised downward its revenue, comparable sales and margin guidance for the second quarter and adjusted its full-year guidance amid economic uncertainty and increased competition. At the same time, the company's management assured that the fundamental drivers of business growth remain strong.

- Top executives at Tractor Supply (TSCO: -5.57%) spoke at the Baird Global Consumer conference, pointing to consumers' reticence to spend unnecessarily and noting the negative trend of households refusing to keep dogs for their income.

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