New York morning: the rally is on pause

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

The situation in the Middle East still determines the dynamics on the stock exchanges. Against the background of the exchange of blows between the United States and Iran, the price of oil WTI the day before rose by 2.4% to $96 per barrel. Israeli Prime Minister Benjamin Netanyahu said that Donald Trump warned Tehran about readiness for a "full-scale resumption of military action" if necessary, although "tactical differences" remain between Washington and Jerusalem. The continued rise in oil prices is adding to fears of accelerating inflation and limiting the scope for monetary policy easing.

The agreement between Israel and Lebanon on the ceasefire regime, including Hezbollah, was positively received by the markets. The agreement also provides for the evacuation of its fighters from the area south of the Litani River. The parties intend to accelerate the establishment of pilot zones under the exclusive control of the Lebanese Armed Forces. The fifth round of negotiations is scheduled for the second half of June. Successful implementation of the truce can reduce the geopolitical premium in oil quotations, but the investment community is not confident in a long-term truce.

On the macroeconomic calendar, the main release will be the weekly data on initial jobless claims (consensus: 215k) and jobless claims (consensus: 1780k). These indicators take on additional significance as a reference point before Friday's release of the key Labor Market Report (non-farm payrolls).

Ciena (CIEN) will report quarterly results before the start of the main trading session. After market close, Rubrik (RBRK), Planet Labs (PL), Lululemon Athletica (LULU), DocuSign (DOCU), Samsara (IOT), ServiceTitan (TTN) will publish their results.

Futures on American stock indices demonstrate negative dynamics. We assess the balance of risks for the upcoming session as negative with increased volatility. The pressure is formed by geopolitical uncertainty, high sensitivity of the market to oil prices and profit taking in technological securities after an active and long rally. Signs of Middle East conflict settlement and absence of panic sell-offs remain a supportive factor.

- Broadcom (AVGO) fell by more than 10%, although its first-quarter revenue increased by 48% YoY and its AI semiconductor segment grew by an impressive 143% YoY. The negative market reaction was due to the fact that the AI revenue forecast for the current quarter was below the average analysts' expectations, and management's long-term guidance for AI semiconductors for 2027 remained unchanged. An additional pressure factor was profit taking after strong growth of the stock and renewal of historical highs.

- Shares of CrowdStrike (CRWD) are losing about 10% despite above consensus results. The company's revenue increased 26% YoY, net annualized recurring revenue (ARR) growth was a record for the first quarter, and the guidance for this metric for fiscal 2027 was improved. In addition, management announced a 4-to-1 stock split. Negative dynamics of quotations is explained both by profit taking and overestimated expectations, which caused restrained reaction to the company's forecasts, which turned out to be close to consensus.

- Shares of PVH Corp. (PVH), the parent company of Calvin Klein and Tommy Hilfiger, plummeted nearly 20% after the company revised its full-year revenue guidance. Although the quarterly results were better than the market's average guidance, management now expects revenue for this year to be about the same as last year, whereas it had previously anticipated a slight increase. The main factor behind the revised guidance was the negative impact of the conflict in the Middle East on EMEA business and consumer sentiment.

- Five Below (FIVE) is down about 11%, while the company's quarterly revenue grew 32.5% YoY, comparable sales increased 22.7%, and EPS beat expectations. The company also raised its full-year revenue and EPS guidance. Investors' negative reaction may be explained by profit taking after the rally, as well as more cautious assessments of market participants regarding the short-term dynamics of margins and expenses.

- Shares of Veeva Systems (VEEV) are losing about 4% after the report was released. Its revenue for the quarter rose 16% YoY, subscription revenue was up 15% YoY, and EPS was above average expectations. The company's own revenue forecast for the year was improved. Profit taking and inflated expectations, rather than deterioration of the fundamental picture, put pressure on the quotations.

June 3 trading on the U.S. stock exchanges ended with a decline. S&P 500 interrupted a series of nine consecutive sessions of growth, falling by 0.74%. NASDAQ 100 lost 0.29%, Dow Jones fell by 1.21%, and Russell 2000 fell by 1.31%.

The market was pressured by rising Treasury bond yields, a new round of conflict escalation in the Middle East and investors' general inclination to protect assets after a prolonged rally. The Magnificent Seven stocks closed mostly in negative territory, but Meta Platforms (META: +4.24%) was a notable exception amid the launch of a new AI agent. The energy sector (XLE: +1.29%) emerged as the leader of the growth with the support of oil prices, which rose three days in a row. Telecoms (XLC: -1.31%) were the outsiders amid the fixation of positions in large technology companies.

Macroeconomic statistics was generally positive, confirming the stability of the economy, but increased inflationary concerns. The number of jobs in the private sector, according to ADP, for Ma increased by 122 thousand (consensus: 120 thousand, April: 109 thousand), which corresponds to the maximum since January 2025. The May ISM Services PMI rose to 54.2 points (consensus: 53.8 points), hitting its peak since February, due to a strong inflow of new orders. At the same time, the price component of the index reached its highest level since August 2022, while the employment sub-index remained in contractionary territory for the third consecutive month. Industrial orders for April rose 4.8% (consensus: +4.6%, March: +1.5%). The Fed's released Beige Book recorded an increase in economic activity in 10 of the 12 Districts amid moderately strong price growth and more cautious consumer behavior of middle-income households.

On the back of stronger-than-expected macroeconomic statistics, US Treasury yields rose by 2-4 bps.

FRB New York President John Williams noted a marked acceleration in inflation, predicting that it would peak in the coming months due to the impact of the AI industry and energy costs. Additional pressure on risk appetite came from news of a potential equity supply glut. Alphabet (GOOGL) revised its plan to raise capital from $80 billion to $85 billion, and SpaceX is preparing for an IPO of $75 billion (at a valuation of $1.75 trillion). Investor sentiment was also negatively affected by the US Trade Representative's (USTR) plans to impose broad duties of 10-12.5% due to the use of forced labor.

- At the Conversations conference in London, Meta Platforms (META: +4.2%) unveiled Meta Business Agent, an AI solution for automating customer service on WhatsApp, Instagram and Messenger. The tool can answer questions, recommend products, book customers for appointments, qualify leads and follow up on deals. According to the company, more than 1 million businesses are already using early versions of the agent, with paid subscriptions expected to launch in the coming months.

- Despite gaining access to $1.6 billion in federal funding under the CHIPS Act program, shares of USA Rare Earth (USAR: -8.9%) have come under pressure. Under the agreement with the U.S. Department of Commerce, the company will receive $277 million in direct grants and up to $1.3 billion in secured credit, but as a counter-condition, it will issue 16.1 million shares and about 17.6 million warrants to the government. This has heightened investor fears of share dilution.

- Medtronic (MDT: +5.7%) posted its best annual revenue performance in a decade. Its fiscal fourth-quarter revenues rose 9.9% to $9.8 billion and earnings per share totaled $1.55. The company raised its dividend, filed an application with the FDA to expand the indication of its Hugo robotic surgical system into general surgery and gynecology, and invested in two private equity firms in its catheter technology segment.

- Nippon Paint and Sherwin-Williams (SHW: +1.2%) announced they have called off attempts to jointly acquire AkzoNobel after the Dutch manufacturer rejected both cash offers totaling €12.5 billion. AkzoNobel (AKZOY: -17.2%) shares fell sharply as the market reconsidered the likelihood of an M&A premium. The company, for its part, will proceed with its previously announced merger with Axalta Coating Systems.

- Tyson Foods (TSN: -4.2%) came under pressure over a confirmed case of cattle infected with the carnivorous parasite New World screwworm on a ranch in Texas. According to the USDA, this is the first such case in the U.S. since 1966. Market participants fear that due to the spread of the disease it will be necessary to reduce the number of cattle, which will inflate the already high prices for beef.

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