Stock market today: Dow leads stock market slide as rising Treasury yields rattle nerves

Salesforce (CRM) stock slid as much as 14% in after-hours trading on Wednesday after the company's revenue forecast for the current quarter fell short of Wall Street's estimates.

Salesforce guided revenue in the current quarter at $9.2 billion to $9.25 billion, short of analyst estimates of $9.35 billion. Meanwhile, the company forecast earnings per share in the second quarter at $2.34 to $2.36, below analysts' estimates of $2.40.

The company's revenue in the prior quarter of $9.13 billion was slightly lower than analysts' estimates for $9.15 billion. Salesforce's adjusted earnings per share of $2.44 in the first quarter were above analysts' estimates of $2.38.

Stocks sank on Wednesday after a spike in Treasury yields unsettled investors already weighing whether recent data will shift the needle on interest rates.

The benchmark S&P 500 (^GSPC) fell more than 0.7%, while the Dow Jones Industrial Average (^DJI) drifted about 1% lower, shedding over 400 points. The Nasdaq Composite (^IXIC) declined about 0.6%.

Stocks are sliding as investors contemplate a jump in US bond yields after a government debt auction flopped, reflecting worries that the Federal Reserve will keep rates higher for longer.

The 2-year Treasury yield has added about 10 basis points in the past five days and is now pressing near the 5% level. As seen in the chart below, that mark has been a key level for stocks as it coincided with the three-month stock slide in 2023 and the most recent pullback in April.

Nvidia (NVDA) stock is set to close Wednesday up for a fourth straight day. The more than 20% rally in the stock over the past several trading sessions comes as the company's highly anticipated earnings blew past Wall Street's expectations.

But the widespread stock market rally many thought would follow didn't happen. The S&P 500 (^GSPC) is now off about 0.5% since the chipmaker's earnings release after the closing bell on May 22. To Julian Emanuel, who leads Evercore ISI's equity, derivatives, and quantitative strategy, the recent market action brings an end to a yearlong trend of Nvidia's stock moves driving the market higher.

"NVDA no longer being 'The Stock That Is The Market' will likely end the market’s low volatility 'hush' of the past two weeks," Emanuel warned in a note to clients on Wednesday.

Emanuel, who holds one of the lowest year-end targets for the S&P 500 on Wall Street at 4,750, noted that a stock with a top-five weighting in the S&P 500 has never surged 20% in the three days after earnings with the index not also ending that time period higher. This proved to be a stark difference from Nvidia's perfect correlation with the S&P 500 over the past year, per Emanuel, and could mean the market is poised for a pullback.

"There is no precedent for a stock of NVDA’s size having its post-earnings share surge “ignored” by the broader S&P 500," Emanuel wrote. "This divergence is a catalyst for greater movement at the S&P 500 level in front of other event catalysts."

Emanuel lists upcoming inflation prints such as Friday's Personal Consumption Expenditures index and the June Federal Reserve meeting as examples.

Stocks slid despite a 10% surge in Nvidia the day after its earnings release as a hotter-than-expected reading on economic output had investors scaling back their expectations for interest rate cuts this year. That trend has continued this week as a rise in the 10-year Treasury yield (^TNX) to its highest level since the start of May helped drive a decline in the S&P 500 over the same period.

Inflation has remained stickier than expected to start 2024. And with prices well above their pre-pandemic levels, consumers are pushing back, according to responses in the latest Federal Reserve Beige Book.

"Prices increased at a modest pace over the reporting period," the Beige Book said. "Contacts in most Districts noted consumers pushed back against additional price increases, which led to smaller profit margins as input prices rose on average. Retail contacts reported offering discounts to entice customers."

The Boston Fed reported that businesses are concerned about further consumer pushback should prices increase further. In fact, one "large clothing retailer" went as far as to say it is planning price reductions this fall in an effort to boost sales.

In Philadelphia, consumers "continued to spend less on each trip" as they adjust to higher prices. Meanwhile, one contact in Cleveland noted that passing along price increases to consumers has become "more difficult" as shoppers are closely managing their costs.

Netflix (NFLX) stock climbed 2% on Wednesday following a string of bullish calls on Wall Street as analysts doubled down on the streaming giant's future growth trajectory.

Morgan Stanley analyst Benjamin Swinburne said he sees 30% upside based on current trading levels, writing in a new client note on Wednesday that Netflix is "both a driver and beneficiary of industry disruption."

Swinburne, who maintained his Outperform rating on shares, said his $850 bull case assumes over 30 million subscriber net additions this year with revenue expected to continue a double-digit growth path next year amid initiatives like Netflix's advertising tier and its password-sharing crackdown.

"Mid-teens revenue growth in 2025 likely requires a significant scaling of its advertising business, but we believe it is putting the pieces in place to deliver on this opportunity," the analyst said.

Netflix told advertisers earlier this month that its ad tier has reached 40 million global monthly active users — a significant jump from the 15 million users the company revealed back in November and a 35-million-user increase compared to the year-ago period.

On top of advertising momentum, the company has recently leaned on live events, like the successful Tom Brady roast, along with live sports.

Netflix won the streaming rights to two NFL games set to air Christmas Day as part of a three-season deal. Prior to the NFL agreement, the company announced a 10-year deal with TKO Group Holding's WWE (TKO) that will bring WWE’s flagship program Raw, a live wrestling production, to the streaming service beginning in 2025.

Netflix will also host a live wrestling event between Jake Paul and Mike Tyson in July.

Shares of Netflix have climbed about 35% since the start of the year. Swinburne credited the share appreciation to "its own strong operating execution than industry trends."

Read more here.

Consolidation continues in the US energy market with ConocoPhillips's (COP) plans to acquire independent oil and gas producer Marathon Oil (MRO) in an all-stock deal for $22.5 billion.

Marathon Oil shares jumped roughly 8% in Wednesday's trading while ConocoPhillips dropped more than 5%.

Yahoo Finance's Ines Ferré reports:

The merger follows a wave of consolidation over the past year as oil giants flush with cash look for ways to put it to use. ExxonMobil (XOM) recently closed on its $59.5 billion acquisition of Pioneer Natural Resources, expanding its access in the lucrative Permian Basin region. And on Tuesday, Hess (HES) shareholders voted in favor of a $53 billion buyout by Chevron (CVX). The deal includes Hess's valuable stake in Guyana.

Other deals announced over the past year include Occidental Petroleum's (OXY) $12 billion buyout of privately held oil and gas producer CrownRock and Diamondback Energy's (FANG) $26 billion acquisition of Endeavor Energy.

"They're all the same underpinnings. It's buying acreage, it's buying inventory," Matt Willer, managing director of capital markets and partner at Phoenix Capital, told Yahoo Finance.

Willer says the massive consolidation in the energy space comes after more than a decade of underinvestment by companies amid political and regulatory uncertainty over the oil and gas landscape.

"Now recognizing that oil and gas isn't going anywhere likely during our lifetime, they have to make up for lost time," Willer said.

Citi analysts noted differences between the ConocoPhillips-Marathon deal and other major mergers among oil and gas companies.

“While others have targeted inventory and growth, this transaction looks largely based around optimization of cost and approach,” wrote Alastair Syme and his team on Wednesday.

Two of the top-performing sectors in 2024 are lagging the index on Wednesday.

Energy (XLE) is down nearly 2%, while Utilities (XLU) is off nearly 1.5%. All 11 sectors in the S&P 500 (^GSPC) are in the red for the day.

Below is a look at the sector action midway through the trading session.

Chewy stock (CHWY) led the Yahoo Finance trending tickers page on Wednesday as shares soared more than 26%. The company's adjusted earnings per share of $0.31 came in well above Wall Street's estimate for $0.20. The online seller of pet supplies also announced a $500 million share repurchase program. Once a pandemic darling, Chewy shares are still off more than 80% from their 2021 peak as the business readjusts from its lockdown boom.

American Airlines (AAL) stock fell as much as 15% on Wednesday as the airline carrier cut its earnings guidance for the current quarter. The airline now sees earnings per share in a range of $1 to $1.15 in the current quarter, down from prior guidance of $1.15 to $1.45. It also now sees total revenue per available seat declining by 5% to 6% compared to the year prior. American Airlines had previously expected the metric to decline in a range of 1% to 3%.

Marathon Oil (MRO) stock rose more than 7% as Conoco Phillips (COP) agreed to acquire Marathon in an all-stock deal with an enterprise value of $22.5 billion. Conoco Phillips fell more than 4% on the news.

Back at the end of April, as rising Treasury yields weighed on the S&P 500 to the tune of a 5% pullback in the major index, we highlighted how some Wall Street strategists saw rising yields as a consistent headwind for stocks.

"Higher rates are now a systemic problem for equities," Piper Sandler chief investment strategist Michael Kantrowitz wrote in a weekly note to clients on April 26.

He added, "At this point it's really hard to see equities going up without rates going down."

That thesis played out over the course of May. Soft economic data pushed yields lower, and stocks rallied to new record highs.

But recently, a spike in the 10-year Treasury yield to 4.6%, its highest level since May 2, has corresponded with a decline in the S&P 500 as investors grow increasingly wary about the prospect of Federal Reserve interest rate cuts this year.

This brings us back to Kantrowitz's work for tidbits on what the rise in yields could mean for stocks.

On Tuesday, the 10-year Treasury yield passed 4.5%, a critical level in Kantrowitz's view that could weigh on "lower quality, riskier and expensive" stocks. He added that if the 10-year surges above 5%, that's "probably a problem for most stocks."

Below is a look at the various levels Kantrowitz is watching and what they could mean for equities.

The Federal Reserve Bank of Cleveland named former Goldman Sachs executive Beth Hammack as its next president on Wednesday.

Yahoo Finance's Jennifer Schonberger reports:

The 52-year-old Hammack will replace current president Loretta Mester, who is set to retire on June 30 in accordance with the Fed's mandatory age and length-of-service policies. She is 65 years old.

The change comes at a critical time for the Fed as it weighs whether to cut rates from a 23-year high. Many Fed officials have said they expect rates to stay elevated for longer than expected following some hot inflation reports in the first quarter of the year.

Hammack will take office on Aug. 21 and will become a voting member of the Federal Open Market Committee, the group at the Fed that ultimately decides the direction of monetary policy.

To fill in the gap until her start date, Cleveland Fed first vice president Mark Meder will serve as interim president.

Hammack worked for Goldman for more than 30 years, most recently as co-head of global financing. She previously held jobs as the firm's global treasurer, global head of short-term macro trading, and global head of repo trading.

She left the Wall Street giant earlier this year.

Last week's existing home sales data for April contained a bit of a surprise buried in the release: First-time buyers made up 33% of sales during the month, the largest share since January 2021 and higher than the 29% in the year-earlier period.

"First-time buyers are likely succeeding now because there is slightly less competition when mortgage rates are higher," Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors told Yahoo Finance in an email. "While this does restrict housing affordability and who can purchase, buyers who are able to purchase at higher incomes are finding the chance to do so."

Indeed, last week, executives at Toll Brothers, which bills itself as a luxury builder, said on its quarterly earnings call that 30% of its customers were first-time buyers, reflecting "the financial strength and affluence of our entire customer base."

"Most of these buyers are millennials, many of whom have waited later in life to form families and have accumulated greater wealth when they buy their first home," Douglas Yearley, CEO of Toll Brothers, told investors and analysts on their second quarter earnings call. "Some benefit from the greatest transfer in US history from boomer parents who want to see their kids enjoy the fruits of their success and help them financially."

At first glance, the uptick may seem counterintuitive, as first-time buyers shopping at a lower price point should be more rate- and price-sensitive — and rates are hovering near 7% while home prices are hitting all-time highs.

But it appears that within this group of prospective homeowners, those who can afford homes right now are taking the leap and buying them.

John Lovallo, an analyst at UBS covering homebuilders and building products, told Yahoo Finance some first-time buyers today are better financed than previous generations and largely motivated by necessity rather than rate-shocks.

"We believe that first-time home buyers are becoming a more important driver of demand for the homebuilders in our coverage as millennials and Gen Z reach prime homebuying age," Lovallo said. "Therefore, to the extent they can buy, they will, which arguably makes this cohort less rate sensitive."

American Airlines stock (AAL) fell more than 15% on Wednesday morning as the airline carrier cut its earnings guidance for the current quarter.

The airliner now sees earnings per share in a range of $1 to $1.15 in the current quarter, down from prior guidance of $1.15 to $1.45. It also now sees total revenue per available seat declining by 5% to 6% compared to the year prior. American Airlines had previously expected the metric to decline in a range of 1% to 3%.

The company also announced that chief commercial officer Vasu Raja will leave the company in June.

Bank of America analyst Andrew Didora reasoned that "the cut seems to be a combination of higher domestic competition as well as a loss of corporate share."

And to Didora's point, American Airlines' weak forecast comes as the outlook for demand in the airline industry appears to be robust. As Axios reported this morning, five of the busiest travel days in TSA's data tracking back to 2001 have come in the last two weeks. This includes a record 2.95 million travelers on the Friday leading into Memorial Day Weekend.

Stocks slid at the open after a spike in Treasury yields unsettled investors already weighing whether recent data will shift the needle on interest rates.

The benchmark S&P 500 (^GSPC) fell 0.7%, while the Dow Jones Industrial Average (^DJI) drifted about 0.9% lower, shedding nearly 350 points. The Nasdaq Composite (^IXIC) also slid more than 0.7%.

On Tuesday, the yield on 5-year Treasurys rose to near four-week highs, while the 10-year yield (TNX) topped the key 4.5% level. On Wednesday, the benchmark yield inched up further to trade around 4.57%.

And who doesn't want some sunny, positive macro data on hump day? Not this guy, always on the hunt for upbeat things.

I come armed with a dose of just that.

More than 8 in 10 chief economists expect the global economy to either strengthen or remain stable this year, according to a new survey today from the World Economic Forum (WEF). That's nearly double the proportion in January's report.

The share of those predicting a downturn in global economic conditions declined to 17% from 56% in January.