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Stocks End Lower as Hawkish Fed Comments Push Bond Yields Higher
The S&P 500 Index ($SPX) (SPY) Monday closed down -0.31%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.41%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.34%.
Stock indexes on Monday posted moderate losses as some hawkish Fed comments pushed T-note yields higher and undercut stocks. Atlanta Fed President Bostic said if the economy performs as expected, the Fed can be patient on interest rates, and he expects just one 25 bp rate cut this year. Bostic’s projection is less than the three 25 bp rate cuts the FOMC has projected for this year. Also, Fed Governor Cook said restoring price stability may take a "cautious approach to easing monetary policy over time," and cutting interest rates too soon could risk inflation becoming entrenched.
Some negative corporate news also weighed on the broader market. Take-Two Interactive Software closed down more than -6% after gaming news publication Kotaku reported that the company’s Grand Theft Auto VI production has started to fall behind, and the video game could miss its 2025 release window. Also, United Airlines Holdings closed down more than -3% on a report that said the Federal Aviation Administration is considering putting temporary sanctions on the company, including preventing it from adding new routes, following a series of safety incidents. In addition, Intel and Advanced Micro Devices fell after a Financial Times report said that China is seeking to limit the use of US-made microprocessors and servers in government computers.
On the positive side, Super Micro Computer closed up more than +7% after JPMorgan Chase initiated a recommendation of overweight on the stock with a price target of $1,150, saying the company is at the “forefront of the AI revolution.” Also, Micron Technology closed up more than +6% after CEO Mehrota told China’s commerce minister that his company plans to expand investment in China. In addition, Walt Disney closed up more than +3% after Barclays upgraded the stock overweight from equal weight.
The US Feb Chicago national activity index rose +0.59 to 0.05, stronger than expectations of -0.34.
US Feb new home sales unexpectedly fell -0.3% m/m to 662,000, weaker than expectations of an increase to 677,000.
The US Mar Dallas Fed manufacturing outlook survey unexpectedly fell -3.1 to -14.4, weaker than expectations of an increase to -10.0.
The markets are discounting the chances for a -25 bp rate cut at 13% for the next FOMC meeting on April 30-May 1 and 79% for the following meeting on June 11-12.
Overseas stock markets on Monday settled mixed. The Euro Stoxx 50 closed up +0.26%. China's Shanghai Composite fell to a 1-week low and closed down -0.71%. Japan's Nikkei Stock Index closed down -1.16%.
Interest Rates
June 10-year T-notes (ZNM24) on Monday closed down -7.5 ticks. The 10-year T-note yield rose +5.53 bp to 4.212251%. June T-note prices Monday fell back from a 1-week high and posted moderate losses, and the are moderately higher10-year T-note yield rebounded from a 1-week low of 4.188% and moved higher. Hawkish Fed comments weighed on T-note prices Monday after Atlanta Fed President Bostic and Fed Governor Cook warned about cutting interest rates too early. T-notes fell to their lows Monday afternoon on weak demand for the Treasury’s $66 billion auction of 2-year T-notes with a bid-to-cover ratio of 2.62, below the 10-auction average of 2.71.
European government bond yields on Monday moved higher. The 10-year German bund yield rose +4.9 bp to 2.372%. The 10-year UK gilt yield rose7.3 +6.0 bp to 3.922988%.
US Stock Movers
Take-Two Interactive Software (TTWO) closed down more than -4% to lead losers in the S&P 500 and the Nasdaq 100 after gaming news publication Kotaku reported that the company’s production on Grand Theft Auto VI has started to fall behind and the video game could miss its 2025 release window.
United Airlines Holdings (UAL) closed down more than -7% on a report that said the Federal Aviation Administration is considering putting temporary sanctions on the company, including preventing it from adding new routes, following a series of safety incidents.
Lululemon Athletica (LULU) closed down more than -3%, adding to last Friday’s -15% plunge after warning of a slowdown in visits to stores in the US and forecasting 2025 net revenue below consensus.
Intel (INTC) closed down more than -1%, and Advanced Micro Devices (AMD) closed down -0.76% after a Financial Times report said that China is seeking to limit the use of US-made microprocessors and servers in government computers.
Apple (AAPL), Alphabet (GOOGL), and Meta Platforms (META) closed lower as they face the risk of fines after the European Union opened a full-blown investigation into the companies’ compliance with new laws under the Digital Markets Act.
Aehr Test Systems (AEHR) closed down more than -23% after forecasting Q3 revenue of $7.6 million, well below the consensus of $14.3 million, and forecast full-year revenue of $65 million, weaker than the consensus of $77.5 million.
McDonald’s (MCD) closed down more than -1% after Argus Research downgraded the stock to hold from buy, citing weaker customer traffic.
Regeneron Pharmaceuticals (REGN) closed down nearly -1% after the US Food and Drug Administration failed to approve the company’s experimental drug therapy to treat lymphoma.
Super Micro Computer (SMCI) closed up more than +7% to lead gainers in the S&P 500 after JPMorgan Chase initiated a recommendation of overweight on the stock with a price target of $1,150, saying the company is at the “forefront of the AI revolution.”
Micron Technology (MU) closed up more than +6% to lead gainers in the Nasdaq 100 after CEO Mehrota told China’s commerce minister that his company plans to expand investment in China.
Dexcom (DXCM) closed up more than +5% after a federal jury in Delaware found that the company did not infringe on two of four patents held by an Abbott Laboratories subsidiary.
Century Aluminum (CENX) closed up more than +5% after the US Department of Energy (DOE) announced it would receive $500 million as part of a program to reduce greenhouse gas emissions in manufacturing industries.
Walt Disney (DIS) closed up more than +3% to lead gainers in the Dow Jones Industrials after Barclays upgraded the stock overweight from equal weight with a price target of $135.
Constellation Energy (CEG) closed up more than +5% after Guggenheim Securities raised its price target on the stock to $199 from $124.
Sotera Health (SHC) closed up more than +3% after Jeffries upgraded the stock to buy from hold with a price target of $15.50.
Cincinnati Financial (CINF) closed up more than +2% after BMO Capital Markets upgraded the stock to outperform from market perform with a price target of $135.
Earnings Reports (3/26/2024)
Concentrix Corp (CNXC), GameStop Corp (GME), McCormick & Co Inc/MD (MKC), nCino Inc (NCNO), and TD SYNNEX Corp (SNX).
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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.
