Stock Market Today: Most Important Economic and Financial Events of Wednesday, May 25

Last Updated 4:30 PM EST

Stocks closed higher in Wednesday’s session as they rebounded following Tuesday’s intense selling. The S&P 500 (SPX) gained 0.95%, while the Dow Jones Industrial Average (DJIA) and Nasdaq 100 (NDX) finished up 0.6% and 1.48%, respectively.

Snap (SNAP), which sparked Tuesday’s sell-off with its 43% plunge, gained 10.7%. Advertising companies such as Meta (FB) and Alphabet (GOOGL), which were impacted by Snap’s decline, saw mixed sessions as Meta finished up 1.41% while Alphabet closed down 0.08%.

Dick’s Sporting Goods (DKS) saw a very volatile day after reporting earnings. Initially, the stock opened down almost 10%, only to finish the day up around 9%. Nordstrom (JWN) also saw big gains as management raised guidance after earnings beat expectations.

Adding to the earnings reports, Snowflake (SNOW) fell over 10% in the after-hours session after beating revenue but disappointing on earnings. Nvidia (NVDA) also fell by around 10% due to a softer-than-expected outlook.

Lastly, the 10-Year Treasury Yield fell slightly to 2.749%, as investors tried to find some safety in this volatile market.

Federal Reserve Reaffirms Hawkish Tone

Last Updated 3:25 PM EST

The Federal Reserve reaffirmed its hawkish tone after the Fed minutes were released today. The minutes stated that most officials believe another two 50-basis point rate hikes would be appropriate over the next two meetings, in line with what was already expected.

It is believed that the neutral rate is somewhere between 2.5% to 2.75%. The Federal Reserve wants to get to the neutral rate as quickly as possible without shocking the economy, hence the gradual rate hikes despite high inflation.

However, the committee believes that it may be appropriate to raise rates above the neutral rate, which would be considered restrictive for the economy’s growth. In addition, the Federal Reserve plans to let $60 billion worth of treasuries and $35 billion in mortgages roll off its balance sheet each month.

Furthermore, the committee discussed concerns about the instability in the Treasury and commodities markets that could arise from tighter monetary policies, citing how risk-management practices could cause increased liquidity demands for banks and broker-dealers.

The S&P 500 ETF (SPY) made new session highs following the release of the Fed minutes.

Shares of Kohl’s Surge after News of Potential Buyout

Last Updated 12:50PM EST

Shares of retailer Kohl’s (KSS) are up 15% in today’s session. The stock is up on news that potential bidders are preparing to make offers to purchase the company. However, these bids will likely be lower than previous bids due to the deteriorating market conditions for retailers.

Previously, The Hudson’s Bay Company indicated that it was willing to pay at least $70 per share. In January, Kohl’s rejected an offer of $64 per share from Acacia Research. Nevertheless, it appears that the highest bid anyone is willing to pay now is $62 per share.

The company had recently cut its guidance for the full year after missing analyst estimates for the first quarter. Despite this, Kohl’s may be an attractive target for a couple of reasons. First off, the company has been consistently profitable on a free cash flow basis over the past decade, even during 2020.

Furthermore, it has a large portfolio of real estate assets, which could allow buyers to borrow against those assets to finance the acquisition. Therefore, Kohl’s makes a good candidate for a leveraged buyout, allowing the buyers to tie up a minimal amount of capital while using KSS’ free cash flow to pay down the debt.

Mortgage and Refinancing Applications Continue to Fall

Last Updated 10:15AM EST

The Mortgage Bankers Association released its weekly mortgage application survey for the previous week. Mortgage loan application volume decreased 1.2% from last week when seasonally adjusted. In addition, refinancing activity fell as well, falling 4% from the previous week. On a year-over-year basis, refinancing was 75% lower.

Out of the past 10 weeks, refinancing applications have dropped in nine of those weeks. As a result, applications are down 66% compared to January 2022.

This slowdown is the result of higher mortgage rates, which remain over 5%. Interestingly, the purchase index is hovering around Spring 2020 lows, a time when the world went into lockdown because of COVID-19. At that time, purchases were low because very few people were willing to sell due to the risk of getting sick.

However, the current slowdown comes despite higher housing inventories. For reference, current inventories are at nine months; the last time it was this high was in 2010.

It appears that these trends may continue as long as the Federal Reserve remains Hawkish, as higher interest rates make it more difficult for people to afford houses that were already very expensive.

Stock Market Today: Most Important Economic and Financial Events of Wednesday, May 25

U.S. stock futures moved higher early on Wednesday as investors remained indecisive about exiting the bear market following signs of a slowdown in consumer demand seeping into the financials of large companies.

Futures contracts tied to the Dow Jones Industrial Average (DJIA) were up 0.16%, while those on the S&P 500 (SPX) inched 0.3% higher, as of 4:01 a.m. EST, Wednesday. Meanwhile, the Nasdaq 100 (NDX) futures moved 0.47% higher in the green zone.

At the end of the regular trading session on Tuesday, the tech-heavy Nasdaq 100 slid 2.2% after social media giant Snap (SNAP) hinted at a deceleration in growth, while the S&P 500 retracted 0.81%. The Dow, on the other hand, inched up 0.15% by market close.

The 43% dive of Snap’s valuation also drove panic among investors of other digital advertising companies on Tuesday, pulling down social media stocks like Meta (FB), Twitter (TWTR), and Alphabet (GOOGL). Snap’s stock price tumbled 43% during the regular session after the company said it will miss its own earnings and revenue targets.

While retailers like Target (TGT) and Walmart (WMT) experienced the pinch of subdued consumer demand due to inflated prices of consumer goods in the March quarter, Nordstrom (JWN) experienced high demand for clothes and accessories among affluent customers going back to offices and social events.

Meanwhile, market participants await key earnings reports this week to gain a better insight on how companies are coping with inflation. Dick’s Sporting Goods (DKS) is scheduled to report earnings Wednesday before the market opens; while Snowflake (SNOW) and Nvidia (NVDA) will post after the market closes for the day.

Elsewhere, the U.S. 10-year Treasury yield declined by 10 basis points on Tuesday to 2.756%, as investors increasingly looked at the bond market to save their money from stock sell-offs.

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