Stocks Close Mixed on Hawkish Fed Comments

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.21%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.04%. 

US stock indexes settled mixed, with the S&P 500 falling to a 1-3/4 month low.  Hawkish Fed comments Tuesday pushed the 10-year T-note yield to a 5-month high and was negative for stocks.  Fed Chair Powell said, "Given the strength of the labor market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us." Also, Fed Vice Chair Jefferson said, "If incoming data suggest that inflation is more persistent than I currently expect it to be, it will be appropriate to hold in place the current restrictive stance of policy for longer."  

Strong Q1 earnings results from UnitedHealth Group and Morgan Stanley Tuesday lifted the overall market and bolstered optimism in the Q1 earnings season.  Also, the strength of chip stocks on Tuesday boosted technology stocks and the Nasdaq 100.

Stocks found some support Tuesday after the International Monetary Fund raised its 2024 global GDP forecast to 3.2% from a 3.1% forecast in January.

Tuesday’s US economic news was mixed with March housing starts and building permits falling more than expected, but March manufacturing production rising more than expected. 

Monday evening, San Francisco Fed President Daly said that there's "no urgency" for the Fed to adjust interest rates.  She said, "The labor market's not giving us any indication it's faltering, and inflation is still above our target, and we need to be confident it is on a path to come down to our target before we would feel the need to react." 

Geopolitical risks in the Middle East continue to be a negative factor for stocks on concern Israel will retaliate after Iran fired a barrage of missiles and drones into Israel over the weekend.

US Mar housing starts fell -14.7% m/m to a 7-month low of 1.321 million, weaker than expectations of 1.485 million.  Mar building permits, a proxy for future construction, fell -4.3% m/m to an 8-month low of 1.458 million, weaker than expectations of 1.510 million.

US Mar manufacturing production rose +0.5% m/m, stronger than expectations of +0.2% m/m.

Concern that China’s economic recovery is fading is a negative factor for global growth prospects.  China's Q1 GDP rose +5.3% y/y, stronger than expectations of +4.8% y/y.  However, most of that growth came from the first two months of this year.  China Mar industrial production rose +4.5% y/y, weaker than expectations of +6.0% y/y, and Mar retail sales rose +3.1% y/y, weaker than expectations of +4.8% y/y.

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 Tuesday settled lower.  The Euro Stoxx 50 fell to a 5-week low and closed down -1.35%.  China's Shanghai Composite closed down -1.65%.  Japan's Nikkei Stock Index fell to a 1-month low and closed down -1.94%.

Interest Rates

June 10-year T-notes (ZNM24) on Tuesday closed down -7 ticks.  The 10-year T-note yield rose +6.2 bp to 4.663%.  June T-notes Tuesday extended Monday’s losses to a new 5-month low, and the 10-year T-note yield rose to a new 5-month high of 4.694%.  T-note prices were under pressure Tuesday from hawkish Fed commentary.  Fed Chair Powell, San Francisco Fed President Daly, and Fed Vice Chair Jefferson all said they supported holding interest rates steady until inflation falls to target.  T-notes also saw negative carry-over from higher European bond yields.  T-notes found underlying support from this morning’s weaker-than-expected US Mar housing starts and building permits reports. 

European government bond yields Tuesday moved higher.  The 10-year German bund yield rose to a 4-1/2 month high of 2.512% and finished up +4.6 bp at 2.486%.  The 10-year UK gilt yield rose to a 5-month high of 4.328% and ended up +5.8 bp at 4.299%.

The German Apr ZEW survey expectations of economic growth rose +11.2 to a 2-year high of 42.9, stronger than expectations of 35.5.

ECB President Lagarde said, "If we don't have a major shock in developments, we are heading towards a moment where we have to moderate the restrictive monetary policy that we have."  That is likely to happen in "reasonably short order."

ECB Governing Council member Makhlouf said the ECB should be able to cut interest rates at its next meeting in June if the trend in inflation persists.

US Stock Movers

Super Micro Computer (SMCI) closed up more than +10% to lead gainers in the S&P 500 after Loop Capital Markets raised its price target on the stock to $1,500 from $600. 

UnitedHealth Group (UNH) closed up more than +5% to lead gainers in the Dow Jones Industrials after reporting Q1 revenue of $99.8 billion, above the consensus of $99.21 billion.  Other health insurers also rose on the news, with Elevance Health (ELV) closing up more than +1% and Humana (HUM) closing up +0.9%. 

Chip stocks rallied Tuesday and were a supportive factor for the overall market.  ASML Holding NV (ASML) closed up more than +2% to lead gainers in the Nasdaq 100.  Also, KLA Corp (KLAC) closed up more than +2%.  In addition, Nvidia (NVDA), Applied Materials (AMAT), Lam Research (LRCX), Broadcom (AVGO), GlobalFoundries (GFS), and Texas Instruments (TXN) closed up more than +1%.

Morgan Stanley (MS) closed up more than +2% after reporting Q1 wealth management net revenue of $6.88 billion, stronger than the consensus of $6.69 billion. 

Advanced Micro Devices (AMD) is up more than +2% after HSBC upgraded the stock to buy from hold with a price target of $225.

Netflix (NFLX) closed up more than +1% after Guggenheim Securities raised its price target on the stock to $700 from $600.

Live Nation Entertainment (LYV) closed down more than -7% to lead losers in the S&P 500 after Bloomberg reported that the Department of Justice is preparing to file an antitrust complaint against the company over its Ticketmaster business.

Northern Trust (NTRS) closed down more than -4% after reporting Q1 EPS of 96 cents, weaker than the consensus of $1.42.

Bank of America (BAC) closed down more than -3% after reporting Q1 net charge-offs of $1.50 billion, higher than the consensus of $1.26 billion.

Tesla (TSLA) closed down more than -2% after two of the company’s top executives announced they were leaving amid its largest-ever round of job cuts.

Johnson & Johnson (JNJ) closed down more than -2% to lead losers in the Dow Jones Industrials after reporting Q1 sales of $21.38 billion, below the consensus of $21.39 billion.

Apple (AAPL) closed down more than -1%, adding to Monday’s -2% slide after IDC reported the company shipped 50.1 million iPhones in Q1, below the consensus of 51.7 million. 

PNC Financial Services Group (PNC) closed down more than -1% after reporting Q1 revenue of $5.1 billion, below the consensus of $5.2 billion.

Earnings Reports (4/17/2024)

Abbott Laboratories (ABT), Citizens Financial Group Inc (CFG), Crown Castle Inc (CCI), CSX Corp (CSX), Discover Financial Services (DFS), Equifax Inc (EFX), Kinder Morgan Inc (KMI), Las Vegas Sands Corp (LVS), Prologis Inc (PLD), Travelers Cos Inc/The (TRV), US Bancorp (USB).

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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.