Stocks Sink as US CPI Tops Forecasts

The S&P 500 Index ($SPX) (SPY) this morning is down -1.01%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.00%. 

Stock indexes today are trading lower, with the S&P 500 falling to a 3-week low and the Dow Jones Industrials dropping to a 1-1/2 month low.  A surge in T-note yields today is weighing on stocks after US Mar CPI came in hotter than expected for a third straight month, bolstering expectations the Fed will be in no hurry to cut interest rates.  Fed swaps prices have now priced in only 50 bp of rate cuts for this year, less than the Fed’s dot-plot for 75 bp. 

US Mar CPI rose +0.4% m/m and +3.5% y/y, stronger than expectations of +0.3% m/m and +3.4% y/y.  Also, Mar CPI ex-food and energy rose +0.4% m/m and +3.8% y/y, stronger than expectations of +0.3% m/m and +3.7% y/y.

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 3% for the next FOMC meeting on April 30-May 1 and 21% for the following meeting on June 11-12.

Overseas stock markets today are lower.  The Euro Stoxx 50 is down -0.17%.  China's Shanghai Composite fell to a 1-1/2 week low and closed down -0.70%.  Japan's Nikkei Stock Index closed down -0.48%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are down -1-2/32 points.  The 10-year T-note yield is up +14.1 bp at 4.503%. June T-notes tumbled to a 4-1/2 month low today, and the 10-year T-note yield jumped to a 4-1/2 month high of 4.509%. Today’s stronger-than-expected US Mar CPI report hammered T-note prices and reduced Fed rate cut expectations.  A jump in inflation expectations is also undercutting T-note prices as the 10-year breakeven inflation rate today climbed to a 5-month high of 2.410%.  In addition, supply pressures are bearish for T-notes as the Treasury will auction $39 billion of reopened 10-year T-notes later today as part of this week’s $119 billion Treasury auctions of T-notes and T-bonds.

European government bond yields today are moving higher.  The 10-year German bund yield is up +4.3 bp at 2.414%.  The 10-year UK gilt yield is up +7.6 bp at 4.105%.

US Stock Movers

Deckers Outdoor Group (DECK) is down more than -6% to lead losers in the S&P 500 after Truist Securities downgraded the stock to hold from buy.

Homebuilding stocks are under pressure today after the 10-year T-note yields rose to a 4-1/2 month high, a bearish factor for housing demand. DR Horton (DHI), Builders FirstSource (BLDR), and Toll Brothers (TOL) are down more than -4%.  Also, Lennar (LEN) and PulteGroup (PHM) are down more than -3%.   

Chip stocks are falling today with the jump in bond yields.  As a result,  GlobalFoundries (GFS) and Microchip Technology (MCHP) are down more than -3%.  Also, ON Semiconductors (ON), Analog Devices (ADI), NXP Semiconductors (NXPI), and Texas Instruments (TXN) are down more than -2%. 

Property management stocks and REITs are under pressure today with the jump in bond yields.  As a result, Boston Properties (BXP) and Alexandria Real Estate Equities (ARE) are down more than -5%.  Also, American Tower (AMT), Kimco Realty (KIM), and Crown Castle (CCI) are down more than -4%.  In addition, Healthpeak Properties (PEAK), Realty Income Corp (O), Digital Realty Trust (DLR), and Simon Property Group (SPG) are down more than -3%.

Hexel Corp (HXL) is down more than -10% after Northcoast Research downgraded the stock to neutral from buy.

Adient Plc (ADNT) is down more than -4% after Barclays downgraded the stock to equal weight from overweight.

Monday.com Ltd (MNDY) is down more than -4% after Citigroup downgraded the stock to neutral from buy.   

Linde Plc (LIN) is down more than -1% after Citigroup downgraded the stock to neutral from buy.

Airline stocks are climbing today, with Delta Air Lines (DAL) up more than +2% to lead gainers in the S&P 500 after it reported Q1 adjusted revenue of $12.56 billion, better than the consensus of $12.50 billion.  Also, United Airlines Holdings (UAL) is up more than +2%, and American Airlines Group (AAL) is up more than +1% on the news.

McKesson (MCK) is up more than +1% after Argus Research raised its price target on the stock to $570 from $510.

Nvidia (NVDA) is up more than +1% after Bank of America affirmed a buy rating and a price target of $1,100 for the stock and said, “Fundamentals are solidly on track, and periods of consolidation tend to set the stock up for strong moves later.”

Revolution Medicines (RVMD) is up more than +7% after Raymond James upgraded the stock to strong buy from outperform with a price target of $48. 

Axon Enterprise (AXON) is up more than +1% after Needham & Co. raised its price target on the stock to $400 from $315.

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.