Stocks Pressured by Hawkish Statement by a Fed Official

The S&P 500 Index ($SPX) (SPY) this morning is up +0.12%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.03%. 

Stock indexes this morning are mixed. Stocks are wavering today, finding some support on this morning’s Q4 GDP report, which was revised higher, while the core PCE price deflator was revised lower, bolstering the outlook for an economic soft landing.

However, hawkish comments made Wednesday night by Fed Governor Waller pushed bond yields higher and are limiting gains in stocks when he said that recent inflation figures were “disappointing,” and he wants to see “at least a couple months of better inflation data” before cutting interest rates.   Bond yields remained higher after this morning’s economic reports showed strength in the economy.

End-of-quarter rebalancing and window dressing by stock fund managers underpinned stock prices ahead of today’s last trading day of Q1.  US stocks also have carryover support from a rally in European stocks, as the Euro Stoxx 50 rose to a new 23-year high today. 

US weekly initial unemployment claims unexpectedly fell -2,000 to 210,000, showing a stronger labor market than expectations of an increase to 212,000.

US Q4 GDP was revised upward to +3.4% (q/q annualized), stronger than expectations of an unrevised +3.2%, as Q4 personal consumption was revised upward to 3.3%, stronger than expectations of an unrevised 3.0%.  The Q4 core PCE price index was revised lower to +2.0% (q/q annualized), weaker than expectations of an unrevised +2.1%.

The US Mar MNI Chicago PMI unexpectedly fell -2.6 to a 10-month low of 41.4, weaker than expectations of an increase to 46.0.

US Feb pending home sales rose +1.6% m/m, stronger than expectations of +1.5% m/m.

The final-March University of Michigan US consumer sentiment index was revised upward to a 2-1/2 year high of 79.4, stronger than expectations of an unrevised 76.5.

The University of Michigan US Mar 1-year inflation expectations index was revised downward by -0.1 to 2.9%, weaker than expectations of a +0.1 point increase to 3.1%.  The Mar 5-10 year inflation expectations fell -0.1 to 2.8%, weaker than expectations of no change at 2.9%.

Wednesday night, Fed Governor Waller said recent inflation figures were "disappointing," and in his view, "it is appropriate to reduce the overall number of rate cuts or push them further into the future in response to the recent data."  He added, "I see economic output and the labor market showing continued strength while progress in reducing inflation has slowed.  Because of these signs, I see no rush in taking the step of beginning to ease monetary policy."

The markets are discounting the chances for a -25 bp rate cut at 10% for the next FOMC meeting on April 30-May 1 and 69% for the following meeting on June 11-12.

Overseas stock markets today are mixed.  The Euro Stoxx 50 rose to a 23-year high and is up +0.16%. China's Shanghai Composite recovered from a 4-week low and closed up +0.59%.  Japan's Nikkei Stock Index fell to a 1-week low and closed down -1.46%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are down -1 tick.  The 10-year T-note yield is up +0.2 bp at 4.192%. June T-note prices this morning are under pressure from comments made Wednesday night by Fed Governor Waller, who said there’s “no rush” for the Fed to ease monetary policy.  T-notes were also undercut by today’s stronger-than-expected US economic reports. 

T-notes recovered from their worst levels today after the Mar MNI Chicago PMI unexpectedly contracted by the most in 10 months and after the University of Michigan March inflation expectations index unexpectedly declined.

European government bond yields today are mixed.  The 10-year German bund yield is up +0.5 bp at 2.297%. The 10-year UK gilt yield is down -0.8 bp at 3.924%.

Eurozone Feb M3 money supply rose +0.4% y/y, stronger than expectations of +0.3% y/y and the biggest increase in 8 months.

German Feb retail sales unexpectedly fell -1.9% m/m, weaker than expectations of a +0.4% m/m increase and the biggest decline in 16 months.

German Mar unemployment rose by +4,000, a smaller increase than expectations of +10,000 and a sign of a resilient labor market.

ECB Governing Council member Panetta said, "Risks for price stability have decreased, and the conditions for a monetary loosening are coming about."

US Stock Movers

Estee Lauder (EL) is up more than +5% to lead gainers in the S&P 500 after Bank of America upgraded the stock to buy from neutral with a price target of $170. 

RH (RH) is up more than +14% after forecasting fiscal 2024 revenue up +8% to +10% and said it expects demand trends to accelerate throughout fiscal 2024.

Omnicom Group (OMC) is up more than +2% after BNP Paribas Exane upgraded the stock to outperform from neutral with a price target of $115.

Kimberly-Calrk (KMB) is up more than +2% after Evercore ISI upgraded the stock to outperform from in line with a price target of $150.

Wayfair (W) is up more than +2% after Citigroup raised its price target on the stock to $85 from $73. 

Snowflake (SNOW) is up more than +1% on signs of insider buying after an SEC filing showed CEO Ramaswamy purchased $5 million of shares on Monday. 

Walgreens Boots Alliance (WBA) is up more than +1% after reporting Q2 sales of $37.05 billion, stronger than the consensus of $35.86 billion. 

Scholar Rock Holding (SRRK) is up more than +3% after Raymond James initiated coverage of the stock with a strong buy recommendation and a price target of $30. 

Carnival (CCL) is down more than -3% to lead losers in the S&P 500 after it said the collapse of Baltimore’s Francs Scott Key Bridge is expected to result in a $10 million hit to its full-year profit.

Molina Healthcare (MOH) is down more than -1% after Bank of America Globa Research downgraded the stock to sell, citing a “deteriorating risk-reward.” 

Charter Communications (CHTR) is down more than -1% after UBS cut its price target in the stock to $325 from $360.

Dentsply Sirona (XRAY) is down more than -1% after S&P Dow Jones Indices said the stock would be replaced by GE Vernova in the S&P 500 effective April 2

Apple (AAPL) is down more than -1% to lead losers in the Dow Jones Industrials after DZ Bank AG downgraded the stock to hold from buy.

Meta Platforms (META) is down more than -1% on signs of insider selling after an SEC filing showed CEO Zuckerberg sold $39.1 million of shares on Monday.

Chemours (CC) is down more than -6% after forecasting Q1 net sales flat to slightly lower and Q1  adjusted Ebitda down about -10% q/q.

MillerKnoll (MLKN) is down more than -17% after reporting Q3 net sales of $872.3 million, weaker than the consensus of $909.5 million, and forecasting Q4 net sales of $880 million-$920 million, well below the consensus of $961.5 million. 

Earnings Reports (3/28/2024)

MSC Industrial Direct Inc (MSM) and Walgreens Boots Alliance Inc (WBA).

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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.