Stocks Rebound as Bond Yields Fall Ahead of Wednesday’s US CPI Report

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.14%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.39%. 

Stock indexes Tuesday mainly closed higher. The broader market found support Tuesday from a decline in bond yields.  Stocks recovered from early losses as short-covering emerged Tuesday afternoon on comments from Atlanta Fed President Bostic, who said he sees one Fed rate cut this year, but he’s open to changing his view to additional rate cuts should the economic picture change.

Stock gains were undercut Tuesday by risk aversion ahead of Wednesday’s US CPI report.  Also, weakness in industrial stocks, insurance companies, and telecom stocks weighed on the overall market.

Investors are nervous about Wednesday’s US CPI, which could affect expectations for the timing of the Fed’s first rate cut.  The consensus is for the US March headline CPI to move higher to +3.4% y/y from Feb’s +3.2% and the 2-3/4 year low of +3.0% posted in June 2023.  However, the consensus is for the March core CPI to ease to what would be a new 2-3/4 year low of +3.7% y/y, taking out the current 2-3/4 year low of +3.8% posted in February.  In any case, Wednesday’s expected headline CPI of +3.4% y/y and core CPI of +3.7% would remain far above the Fed’s 2% inflation target.

Q1 corporate earnings season begins in earnest this Friday with results from big banks, including JPMorgan Chase, Citigroup, and Wells Fargo.  The consensus is that S&P 500 companies will post an average of +3.9% y/y profit growth in Q1, the smallest year-over-year profit growth since 2019.

The markets are discounting the chances for a -25 bp rate cut at 7% for the next FOMC meeting on April 30-May 1 and 60% for the following meeting on June 11-12.

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 closed down -1.09%.  China's Shanghai Composite recovered from a 1-week low and closed up +0.05%.  Japan's Nikkei Stock Index closed up +1.08%.

Interest Rates

June 10-year T-notes (ZNM24) on Tuesday closed up +12 ticks.  The 10-year T-note yield fell -6.0 bp to 4.360%.  Bullish factors for T-note prices include strength in European government bond markets.  Supply pressures limited T-notes' upside as the Treasury auctioned $58 billion of reopened 3-year T-notes Tuesday as part of this week’s $119 billion Treasury auctions of T-notes and T-bonds.

T-notes fell back from their best levels Tuesday on weak demand for the Treasury’s $58 billion 3-year T-note auction that had a bid cover ratio of 2.50, well below the 10-auction average of 2.67.  

European government bond yields on Tuesday moved lower.  The 10-year German bund yield fell -6.4 bp to 2.371%.  The 10-year UK gilt yield fell -5.6 bp to 4.029%.

In its quarterly Bank Lending Survey, the ECB said demand for corporate loans in the Eurozone saw a "substantial decline" in Q1 as the region continues to reel from elevated borrowing costs.

US Stock Movers

Moderna (MRNA) closed up more than +6% to lead gainers in the S&P 500 and Nasdaq 100 after Jeffries said new data from the company’s trial of its experimental vaccine with Merk’s Keytrude in patients with head and neck cancer is “interesting,” saying it validates the individualized neoantigen therapy platform. 

Cisco Systems (CSCO) closed up more than +3% to lead gainers in the Dow Jones Industrials after Morgan Stanley resumed coverage of the stock with an overweight rating and a price target of $58. 

Chip stocks are moving higher today on a decline in T-note yields. ON Semiconductors (ON) and Analog Devices (ADI) closed up more than +3%.  Also, GlobalFoundries (GFS), Texas Instruments (TXN), Microchip Technology (MCHP), and NXP Semiconductors (NXPI) closed up more than +2%. 

Amkor Technology (AMKR) closed up more than +7% after Needham & Co. initiated coverage of the stock with a recommendation of buy and a price target of $40.

Alkermes Plc (ALKS) closed up more than +3% after it said its ALKS 2680 demonstrated clinically meaningful and statistically significant improvements from baseline in mean sleep latency compared to a placebo in a Phase 1b study.

Illumina (ILMN) closed up more than +2% after Barclays raised its price target on the stock to $100 from $85.

Freeport McMoRan (FCX) closed up more than +12 after Bank of America Global Research upgraded the stock to buy from hold with a price target of $59. 

Nasdaq (NDAQ) closed up more than +2% after Morgan Stanley named the stock a top pick with US brokers and exchanges.

Industrial stocks retreated Tuesday, with Eaton Corp Plc (ETN) closing down more than -3%.  Also, Paccar (PCAR) closed down more than -2% to lead losers in the Nasdaq 100.  In addition, General Electric (GE) and WW Grainger (GWW) closed down more than -1%. 

Insurance stocks closed lower Tuesday, with Hartford Financial Services Group (HIG) closing down more than -3% to lead losers in the S&P 500.  Also, Travelers Cos (TRV) closed down more than -2% to lead losers in the Dow Jones Industrials.  In addition, Progressive Corp (PGR), Allstate (ALL), Aflac (AFL), and Chubb Ltd (CB) closed down more than -2%.

Telecommunication stocks were under pressure Tuesday, with Verizon Communications (VZ) closing down more than -2%.  Also, AT&T (T) and Comcast (CMCSA) closed down more than -1%.

Nvidia (NVDA) closed down more than -2% after Intel said it is rolling out a new AI chip called Gaudi 3 that Intel CEO Gelsinger said will be faster and more power-efficient than Nvidia’s H100 chip and would be priced “a lot below” the cost of Nvidia’s current and future chips. 

Defense-related stocks moved lower Tuesday, with Huntington Ingalls Industries (HII) closing down more than -3%.  Also, Martin Marrietta Materials (MLM), Transdigm Group (TDG), and General Dynamics (GD) closed down more than -1%.

Cboe Global Markets (CBOE) closed down more than -1% after Morgan Stanley downgraded the stock to equal weight from overweight.

Inmode Ltd (INMD) closed down more than -6% after cutting its full-year revenue forecast to $485 million-$495 million from a previous forecast of $495 million-$505 million, weaker than the consensus of $498.8 million. 

Neogen (NEOG) closed down more than -9% after cutting its full-year revenue forecast to $910 million-$920 million from a previous forecast of $935 million-$955 million, below the consensus of $938.5 million. 

Earnings Reports (4/10/2024)

Applied Digital Corp (APLD), Delta Air Lines Inc (DAL), Pure Cycle Corp (PCYO), Rent the Runway Inc (RENT), Richardson Electronics Ltd/Uni (RELL).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.