Yield Surge Puts Logic Behind Stocks Rally to the Test

Equities are showing signs of resilience even as yields jump.

Market Snapshot

Market data as of 06:49 AM ET. Data is subject to provider delays.

Five things you need to know

• Stocks slipped as the stalemate between the US and Iran kept pushing oil prices higher, while bonds found some stability after last week’s global selloff.
• China’s growth slowed across the board in April, calling into question the government’s reluctance to add stimulus to the economy as an energy crisis hits factories and consumers across the world.
• Donald Trump expressed frustration with Iran and told it the “clock is ticking,” hours after drones targeted a nuclear power plant in the United Arab Emirates.
• NextEra Energy is discussing an acquisition of Dominion Energy that would value the Virginia-based utility at about $66 billion, making it by far the largest power deal on record, said people familiar with the matter.
• China agreed to buy at least $17 billion of agricultural products annually through 2028 and establish boards of trade and investment, the US said after last week’s summit.

Thesis test

There are signs that even a surge in bond yields won’t be enough to derail the stocks rally built on AI optimism.

Yes, the S&P 500 dropped more than 1% Friday as global yields jumped, and the market was looking weak again overnight. But index futures have pared their losses in the European day as the bond selloff eased. South Korea’s Kospi index, a barometer of enthusiasm for AI winners, rose today.

In that context, Friday’s drop in stocks is looking more like another wobble rather than the start of a broader repricing that markets have repeatedly postponed.

Morgan Stanley’s Michael Wilson notes that earnings have been surprisingly strong, and growth in profits is likely to broaden as the year goes on. That in turn will lead to a broader rally in stock prices, says Wilson, who last week raised his forecasts for the S&P 500.

But even bulls acknowledge that this year’s stock rally now rests on an increasingly demanding premise: that richly valued assets can keep climbing even as borrowing costs rise and energy prices stay elevated.

Stocks are vulnerable, Wilson says in a fresh report this morning. If the bond market becomes more volatile and long-term interest rates keep rising, “we would expect the first meaningful correction in equity prices since markets bottomed at the end of March,” he and his team wrote. —Phil Serafino, with Denitsa Tsekova, Isabelle Lee and Levin Stamm

On the move

• Publicis shares gain 2.4% in Paris after the media firm agreed to buy LiveRamp for about $2.5 billion in cash, a sign of its continued investment in marketing technology as the advertising industry contracts.
• Regeneron Pharmaceuticals drops 12% in premarket trading after a key late-stage melanoma drug study failed. Citi downgraded its rating.
• Bio-Rad Laboratories gains 5% after the Wall Street Journal reported that Elliott Investment Management has a sizable stake in the company.
• UnitedHealth drops 5.6% after Berkshire Hathaway disclosed that it no longer owns the stock. Berkshire has built a $2.6 billion stake in Delta Air Lines, which is up 2.5%, and also bought shares in Macy’s, up 5.4%.
• Baidu ADRs rise 2.7% after the Chinese internet company’s revenue topped estimates. —Subrat Patnaik

The week ahead

A slew of purchasing manager indexes this week are likely to show a global rush to stockpile goods on fears of an energy-supply crunch. Meanwhile, investors get readings on consumer sentiment from earnings at Home Depot, Lowe’s and Walmart. Click here for the full rundown on the week ahead.

Monday: US cross-border investment. G-7 finance ministers and central bank governors meet in Paris through Tuesday.

Tuesday: Canada CPI, building permits. Japan GDP, tertiary industry index, industrial production. UK jobless claims, unemployment. US pending home sales. Home Depot earnings.

Wednesday: Eurozone CPI, UK CPI. US FOMC minutes, MBA mortgage applications. The Bloomberg Global Markets & Banking Summit in London. Earnings from Nvidia, Lowe’s, Analog Devices.

Thursday: Euro-area S&P Global manufacturing PMI, consumer confidence. India HSBC manufacturing PMI. Japan S&P Global manufacturing PMI. UK S&P Global manufacturing PMI. US housing starts, initial jobless claims, S&P Global manufacturing. Walmart earnings.

Friday: Canada retail sales. Germany IFO business climate, GDP, GfK consumer confidence. Japan CPI. UK consumer confidence, retail sales. US University of Michigan consumer sentiment. ECB’s Lagarde, Fed’s Waller speak.

Waiting on Elon

All eyes are on SpaceX, and not only because its giant Starship rocket is scheduled for its next launch as soon as this week. The public filing for what could be the biggest-ever IPO may come as early as Wednesday, people familiar with the matter have said.

The rocket, satellite and artificial intelligence company has already filed confidentially for its listing, which is targeted to raise as much as $75 billion at a more than $2 trillion valuation. That would be more than twice the size of Aramco’s debut in 2019, the current record holder, and bigger by market value than all but six of the S&P 500 Index members.

SpaceX is targeting the start of formal marketing as soon as June 4, people familiar with the matter have said. A so-called S-1 filing needs to be made public 15 calendar days before that marketing can begin. A public filing on Wednesday would set the company up to kick off roadshows in early June, and to get the IPO priced and trading soon after.

The flurry of activity means the moment when individual investors will be able to buy a stake in Elon Musk’s science-fiction dreams is getting closer.

Of course, IPOs are fickle things — just like rocket launches — and it wouldn’t be too shocking if this week comes and goes without official answers to questions like how tight Musk’s grip on voting control of the company will be. Stay tuned. —David Morris

Word from Wall Street

“We are seeing a world that’s really reckoning with renewed inflation.”

Karen Manna

Fixed-income strategist and portfolio manager, Federated Hermes

One number to start your day

Donald Trump’s latest financial disclosures show that he or his investment advisers made more than 3,700 trades in the first quarter, a flurry totaling tens of millions of dollars and involving major companies that have dealings with his administration.

Written by: Phil Serafino — With assistance from Subrat Patnaik, David Morris (News), Denitsa Tsekova, Isabelle Lee, and Levin Stamm @Bloomberg

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