Stocks Retreat as Bond Yields Jump on Diminished Fed Rate Cut Prospects

The S&P 500 Index ($SPX) (SPY) this morning is down -1.02%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.47%. 

Stock indexes this morning are moderately lower, with the S&P 500, Dow Jones Industrials, and Nasdaq 100 falling to 1-1/2 week lows.  Higher bond yields are undercutting stocks as the 10-year T-note yield climbed to a 4-month high today on negative carryover from Monday when the US Mar ISM manufacturing index expanded by the most in 1-1/2 years, dampening the outlook for Fed rate cuts. 

The markets are discounting the chances for a -25 bp rate cut at 7% for the next FOMC meeting on April 30-May 1 and 60% for the following meeting on June 11-12.

Overseas stock markets today are mixed.  The Euro Stoxx 50 fell back from a 23-year high and is down -0.78%.  China's Shanghai Composite closed down -0.08%.  Japan's Nikkei Stock Index closed up +0.09%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are down -13 ticks.  The 10-year T-note yield is up +7.8 bp at 4.387%. June T-note prices today dropped to a 2-week nearest-futures low, and the 10-year T-note yield climbed to a 4-month high of 4.403%.  T-notes are weighed down on carryover pressure from Monday when the Mar ISM manufacturing index and the Mar ISM prices paid sub-index rose to 1-1/2 year highs, hawkish factors for Fed policy that may delay the start of Fed rate cuts. Also, an increase in inflation expectations is undercutting T-note prices as today's 10-year breakeven inflation rate rose to a 1-1/2 week high of 2.372%. 

European government bond yields today are moving higher.  The 10-year German bund yield rose to a 1-1/2 week high of 2.425% and is up +12.5 bp at 2.422%.  The 10-year UK gilt yield rose to a 2-week high of 4.089% and is up +15.5 bp at 4.088%.

 The Eurozone Mar S&P manufacturing PMI was revised upward by +0.4 to 46.1 from the previously reported 45.7.

ECB Feb 1-year inflation expectations eased to 3.1% from 3.3% in Jan, the lowest in 2 years.  Feb 3-year inflation expectations were unchanged at 2.5% from Jan, stronger than expectations of a decline to 2.4%.

German Mar CPI (EU harmonized) rose +0.6% m/m and +2.3% y/y, weaker than expectations of +0.7% m/m and +2.4% y/y.

US Stock Movers

Health insurance stocks are under pressure today after US regulators didn’t boost payments for private Medicare plans like the industry expected. As a result, Humana (HUM), the most exposed to Medicare among large insurance companies, is down more than -10% to lead losers in the S&P 500. Also, CVS Health (CVS) is down more than -6 %, and UnitedHealth Group (UNH) is down more than -5% to lead losers in the Dow Jones Industrials.  In addition, Elevance Health (ELV) and Centene (CNC) are down more than -2%. 

PVH Corp (PVH) is down more than -22% after forecasting 2025 revenue will fall -6% to -7% compared with a +2% increase last year. 

Verve Therapeutics (VERV) is down more than -31% after it cited safety concerns for pausing enrollment in a study of its gene-editing treatment for people with high cholesterol. 

Tesla (TSLA) is down more than -5% to lead losers in the Nasdaq 100 after reporting Q1 vehicle deliveries of 386,810, well below the consensus of 449,080.

Autodesk (ADSK) is down more than -3% after it filed to delay its 10-K annual report, citing an internal investigation on the company’s free cash flow and adjusted operating margin practices.

Homebuilding stocks are falling today after the 10-year T-note yield rose to a 4-month high, a bearish factor for housing demand.  As a result, Lennar (LEN), PulteGroup (PHM), DR Horton (DHI), and Toll Brothers (TOL) are down more than -4%. 

Cryptocurrency-linked companies are retreating today, with the price of Bitcoin down more than -6% at a 1-week low.  As a result, Coinbase Global (COIN), MicroStrategy (MSTR), Marathon Digital (MARA), and Riot Platforms (RIOT) are down more than -5%.   

Biomea Fusion (BMEA) is down more than -15% after JPMorgan Chase downgraded the stock to neutral from overweight, citing preliminary data from a diabetes trial.

Energy stocks and energy service providers are climbing today with the price of WTI crude oil up more than +1% at a 5-1/4 month high.  As a result, Occidental Petroleum (OXY) is up more than +2% to lead gainers in the S&P 500.  Also, Chevron (CVX) is up more than +1% to lead gainers in the Dow Jones Industrials.  In addition, Exxon Mobil (XOM), Phillips 66 (PSX), ConocoPhillips (COP), and Valero Energy (VLO) are up more than +1%. 

Roivant Sciences Ltd (ROIV) is up more than +6% after its board authorized a share repurchase program for up to $1.5 billion.

Olema Pharmaceuticals (OLMA) is up more than +1% after Goldman Sachs initiated coverage of the stock with a recommendation of buy with a price target of $24. 

McCormick & Co (MKC) is up nearly +1% after Argus Research upgraded the stock to buy from hold with a price target of $88. 

Estee Lauder (EL) is up more than +1% after Citigroup upgraded the stock to buy from neutral with a price target of $175.

Mining stocks are gaining today, with gold prices climbing to a record high and copper and silver prices posting 1-1/2 week highs.  As a result, Freeport McMoRan (FCX), Newmont (NEM), and Southern Copper (SCCO) are up more than +0.5%.

Earnings Reports (4/2/2024)

Cal-Maine Foods Inc (CALM), Dave & Buster's Entertainment (PLAY), DZS Inc (DZSI), and Paychex Inc (PAYX).

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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.