Broader Market Retreats on Middle East Strife and Tech Stock Weakness

The S&P 500 Index ($SPX) (SPY) Friday closed down -0.88%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.56%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.05%. 

US stock indexes settled mixed on Friday, with the S&P 500 falling to a 1-3/4 month low and the Nasdaq 100 dropping to a 3-month low.  A sell-off in the “Magnificent Seven” megacap technology stocks Friday weighed on the overall market as investors liquidated long positions ahead of next week’s slew of megacap earnings reports. 

Negative corporate news and escalating geopolitical risks on Friday also undercut stocks.  Super Micro Computer closed down more than -23% on earnings concerns after the company announced the date of its Q3 results but didn’t pre-announce results.  Also, Netflix closed down more than -9% after forecasting Q2 revenue below consensus.  In addition, Jabil closed down more than -8% after CEO Wilson was placed on paid leave pending the completion of an investigation related to corporate policies.

Demand concerns weighed on chip stocks Friday after Taiwan Semiconductor Manufacturing Co, the world’s largest maker of advanced chips, scaled back its expectations for 2024 semiconductor market growth this year. 

An escalation of tensions in the Middle East is bearish for stocks after US officials said Israel launched retaliatory strikes on Iran today following last week’s missile and drone attack from Iran.  However, Israel’s attacks were limited to military sites in Syria and Iran, and an Iranian military official downplayed the severity of the incidents. 

On the positive side, Paramount Global closed up more than +13% after Bloomberg Intelligence said Apollo Global Management and Sony Group are considering a joint offer for the company. Also, American Express closed up more than +6% to keep the Dow Jones Industrials in positive territory after reporting Q1 adjusted EPS above consensus.  In addition, Fifth Third Bank closed up more than +5% after reporting better-than-expected Q1 net interest income.

Friday’s comments from Chicago Fed President Goolsbee were hawkish for Fed policy when he said, "So far in 2024, progress on inflation has stalled, and it makes sense to wait and get more clarity" before cutting interest rates.

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 19% for the following meeting on June 11-12.

Overseas stock markets Friday settled lower.  The Euro Stoxx 50 fell to a 7-week low and closed down -0.37%.  China's Shanghai Composite closed down -0.29%.  Japan's Nikkei Stock Index fell to a 2-1/4 month low and closed down -2.66%.

Interest Rates

June 10-year T-notes (ZNM24) on Friday closed up +6.5 ticks.  The 10-year T-note yield fell -1.4 bp to 4.619%.  June T-notes Friday rose moderately on increased safe-haven demand from geopolitical risks after Israel launched retaliatory air strikes on Iran.  However, T-notes fell back from their best levels in hopes that the conflict between Israel and Iran would be contained.  Hawkish comments Friday from Chicago Fed President Goolsbee undercut T-note prices when he said progress on inflation has stalled, and it makes sense to wait before cutting interest rates.  T-notes also had a negative carryover from Friday’s jump in the 10-year German bund yield to a 4-1/2 month high. 

European government bond yields Friday were mixed.  The 10-year German bund yield rose to a 4-1/2 month high of 2.523% and finished up +0.3 bp at 2.500%.  The 10-year UK gilt yield fell -4.2 bp to 4.230%.

German Mar PPI rose +0.2% m/m and fell -2.9% y/y, stronger than expectations of +0.1% m/m and -3.3% y/y.

ECB President Lagarde said the disinflation process in the Eurozone has continued, and growth prospects remain subpar by historical standards.

ECB Governing Council member Simkus said the Eurozone can afford a "less restrictive monetary policy stance, and I think three rate cuts by the ECB this year is consistent with the baseline.  Whether we'll have four will depend on the data."

US Stock Movers

Super Micro Computer (SMCI) closed down more than -23% to lead losers in the S&P 500 on earnings concerns after the company announced the date of its Q3 results but didn’t pre-announce results.

The” Magnificent Seven” Megacap technology stocks retreated Friday on long liquidation pressures ahead of their earnings results next week. Nvidia (NVDA) closed clown -10% to lead losers in the Nasdaq 100.  Also, Meta Platforms (META) closed down more than -4%, and Tesla (TSLA) closed down more than -2%.  In addition, Amazon.com (AMZN) closed down more than -2% to lead losers in the Dow Jones Industrials.  Finally, Apple (AAPL), Alphabet (GOOGL), and Microsoft (MSFT) closed down more than -1%  

Netflix (NFLX) is down more than 9% after forecasting Q2 revenue of $9.49 billion, below the consensus of $9.51 billion.   

Jabil (JBL) closed down more than -8% after CEO Wilson was placed on paid leave pending the completion of an investigation related to corporate policies.

Demand concerns weighed on chip stocks after Taiwan Semiconductor Manufacturing Co, the world’s largest maker of advanced chips, scaled back its expectations for 2024 semiconductor market growth this year.  As a result, Advanced Micro Devices (AMD) closed down more than -5%.  Also, Micron Technology (MU), Broadcom (AVGO), and Marvell Technology (MRVL) closed down more than -4%.  In addition, ON Semiconductor (ON) and ASML Holding NV (ASML) closed down more than -3%.

Pure Storage (PSTG) closed down more than 4% after Raymond James downgraded the stock to outperform from a strong buy. 

Ulta Beauty (ULTA) closed down more than -2% after Jeffries downgraded the stock to hold from buy.

Paramount Global (PARA) closed up more than +13% to lead gainers in the S&P 500 after Bloomberg Intelligence said Apollo Global Management and Sony Group are considering a joint offer for the company. 

American Express (AXP) closed up more than +6% to lead gainers in the Dow Jones Industrials after reporting Q1 adjusted EPS of $3.33, stronger than the consensus of $2.96.

Fifth Third Bank (FITB) closed up more than +5% after reporting Q1 net interest income of $1.39 billion, better than the consensus of $1.38 billion.

Bank of America (BAC) closed up more than +3% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $42.

Tractor Supply Co (TSCO) closed up more than +2% after Telsey Advisory Group raised its price target on the stock to $275 from $250.

KeyCorp (KEY) closed up more than +1% after reporting Q1 revenue of $1.53 billion, better than the consensus of $1.52 billion.

Earnings Reports (4/22/2024)

Alexandria Real Estate Equities (ARE), Ameriprise Financial Inc (AMP), Brown & Brown Inc (BRO), Cadence Design Systems Inc (CDNS), Globe Life Inc (GL), Nucor Corp (NUE), Packaging Corp of America (PKG), Truist Financial Corp (TFC), Verizon Communications Inc (VZ).

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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.