Telecom stocks under pressure
Debt deal gives tailwind to Wall Street
6/3/2023 1:11 am
The compromise in the US debt dispute between Democrats and Republicans is making Wall Street smile. At the end of the week, the leading indices closed with a plus. The US job market report, however, causes frowns.
A conciliatory end to the US debt dispute boosted Wall Street on Friday. Meanwhile, jobs data from the world’s largest economy was mixed and presented a double-edged sword for equity investors. The Dow Jones Industrial ended trading up 2.12 percent to 33,762.76 points. After losses in May, the most important Wall Street index posted a gain of 2.0 percent in the first week of June.
In the past few days, the impending default by the US government had made investors nervous. Now the issue is closed: After the House of Representatives, the Senate also approved the bill that will temporarily suspend the federal debt ceiling in the USA.
The market-wide S&P 500 ended the last trading day of the week 1.45 percent higher at 4282.37 points. The Nasdaq 100 was up 0.73 percent to 14,546.64 points, bringing it up 1.7 percent for the week. However, it has long since outperformed the blue chip markets: since the turn of the year it has risen by a third, while the Dow has not even gained 2 percent in the same period.
The labor market report for May sent contradictory signals: although the number of employed rose surprisingly sharply, the number of unemployed also increased noticeably – albeit from a low level. “Economic strength is inherently positive for stocks,” said portfolio manager Thomas Altmann of QC Partners. However, the still strong labor market could tempt the US Federal Reserve to raise interest rates overall, which in turn would mean headwind for the stock markets. “All in all, today’s labor market report is difficult to interpret for the stock market.” The Fed’s next rate decision is due in mid-June.
On the corporate side, telecom stocks came under pressure due to potential competition from Amazon. As the Bloomberg news agency reported from informed circles, the online retail giant is negotiating with Verizon, the Telekom subsidiary T-Mobile US and Dish over an offer for a low-cost or possibly free nationwide mobile service for its Prime subscribers in the United States. This news is “clearly too big in its impact on the mobile phone markets to be dismissed,” wrote analyst Usman Ghazi from Berenberg Bank. It should therefore move the industry for a while. However, he assumes that rationality will ultimately win, because mobile operators should “have no incentive to offer Amazon cheap network access at the wholesale level”.
While Amazon shares rose 1.2 percent, T-Mobile US lost 5.6 percent. Verizon lost 3.2 percent and AT&T 3.8 percent. Meanwhile, Dish’s shares jumped 16.2 percent. There was a recent Bloomberg report that Dish was in talks to sell its cell phone plans on Amazon’s website under a non-exclusive agreement, Ghazi wrote.
Also, 3M jumped 8.8 percent and Dupont de Nemours gained 7.3 percent. Corteva was up 3.8 percent and Chemours was up 24.1 percent. Previously, news about settlement payments around pollution from so-called perpetual chemicals had made the rounds. According to the Bloomberg news agency, 3M has agreed to a multi-billion dollar settlement with US cities. The other three companies had officially announced such settlements. Analysts were positive. The agreement gives confidence that previous liability agreements will not be exceeded, according to Credit Suisse about DuPont and its spin-offs Chemours and Corteva. The remaining risk is now much more limited.
Shares of Lululemon jumped 11.3 percent after the sportswear retailer posted strong quarterly results and raised its full-year guidance. Interim results of a cancer study, which are to be presented at the ASCO annual meeting of US oncologists, caused Biontech to rise by 3.9 percent. An antibody candidate against various solid tumors sent “encouraging signals” in a certain form of lung cancer, the Mainz-based researchers said.
The euro was $1.0706 at the close on Wall Street. The European Central Bank had previously set the reference rate in Frankfurt at 1.0763 (Thursday: 1.0697) dollars. The dollar thus cost 0.9291 (0.9348) euros. On the US bond market, the futures contract for ten-year government bonds (T-Note Future) recently fell by 0.80 percent to 113.81 points. In return, the return rose to 3.7 percent.