Stocks Slide on Weakness in Tech and Energy Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed down -1.30%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.77%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.09%.

Stocks retreated Monday in a risk-off environment ahead of interest rate decisions from the Fed, ECB, and BOE later this week.  The Fed is expected to lift the fed funds target range by 25 bp on Wednesday, dialing back the size of the increase for a second straight meeting after recent data suggest the pace of inflation had slowed.  However, post-FOMC meeting comments Wednesday from Fed Chair Powell may push back on expectations that the Fed is close to ending its rate hike campaign. The ECB and BOE on Thursday are expected to increase interest rates by 50 bp.

Higher bond yields Monday weighed on technology stocks.  Also, a slump of more than -2% in WTI crude oil to a 2-week low undercut energy stocks.  In addition, electric vehicle stocks tumbled after Ford Motor cut the price of its electric Mustang car models by an average of $4,500 in response to Tesla’s recent price cuts. 

Stock indexes were also weighed down on negative carryover from a -0.46% decline in the Euro Stoxx 50 on recession risks in Germany after Monday's report on German Q4 GDP unexpectedly showed the German economy contracted -0.2% q/q, weaker than expectations of no change q/q.

Signs of stubborn inflation pressures in Europe pushed European government bonds lower and weighed on stocks and T-note prices.  Spain’s Jan CPI unexpectedly quickened to a +5.8% y/y pace, stronger than expectations of +4.8% y/y, which pushed the 10-year German bund yield to a 3-week high of 2.329%.  The weakness in bund prices helped push the 10-year T-note yield up to a 1-1/2 week high at 3.570%. 

Monday’s U.S. economic news supported stocks after the Jan Dallas Fed manufacturing outlook level of general business activity rose +11.6 to an 8-month high of -8.4, stronger than expectations of -15.0. 

Overseas markets settled mixed.  The Euro Stoxx 50 index closed down -0.46%.  China’s Shanghai Composite stock index closed up +0.14%, and Japan’s Nikkei Stock index closed up +0.19%. 

Today’s stock movers…

Electric vehicle makers were under pressure Monday after Ford Motor cut the price of its electric Mustang car models by an average of $4,500 in response to Tesla’s recent price cuts.  As a result, lucid Group (LCID) closed down more than -9% to lead losers in the Nasdaq 100.  Also, Rivian Automotive (RIVN) closed down more than -8%. In addition, Tesla (TSLA) closed down more than -6% to lead losers in the S&P 500.   

Higher bond yields Monday weighed on technology stocks.  Nvidia (NVDA) closed down more than -5%. Also, Marvell Technology (MRVL) and Atlassian Corp (TEAM) closed down more than -4%. In addition,  Datadog (DDOG), Advanced Micro Devices (AMD), Applied Materials (AMAT), and ServiceNow (NOW) closed down by more than -3%.

A slump in crude prices Monday by more than -2% to a 2-week low undercut energy stocks and energy service providers.  Devon Energy (DVN) and Marathon Oil (MRO) closed down more than -4%. Also, Diamondback Energy (FANG), Occidental Petroleum (OXY), and APA Corp (APA) close down by more than -3%. In addition, Hess Corp (HES), Chevron (CVX), ConocoPhillips (COP), and Valero Energy (VLO) closed down more than -2%.

Johnson & Johnson (JNJ) closed down more than -3% to lead losers in the Dow Jones Industrials after an appeals court said the company couldn’t use bankruptcy to end cancer lawsuits. 

General Motors (GM) closed down more than -4% after Berenberg downgraded the stock to hold from buy.

Microsoft (MSFT) closed down more than -2% after Fundamental Research downgraded the stock to hold from buy.

Edwards Lifesciences (EW) closed down more than -2% after Piper Sandler downgraded the stock to neutral from overweight.

Cincinnati Financial (CINF) closed up more than +5% to lead gainers in the S&P 500 after boosting its quarterly dividend to 75 cents a share for 69 cents, above the consensus of 74 cents.

GE Healthcare Technologies (GEHC) closed up more than +2% after reporting Q4 revenue of $4.94 billion.  CEO Arduini said his company “delivered strong revenue growth in Q4 and full year 2022 driven by robust end market demand, improved pricing, and easing supply chain pressures.” 

Colgate-Palmolive (CL) closed up more than +1% after Morgan Stanley upgraded the stock to overweight from equal weight, saying the company’s robust long-term organic sales growth is not fully reflected in discounted valuation against peers.

Consumer staple stocks rose Monday as the slump in the broader market sparked demand for defensive stocks.  Hershey Co (HSY) closed up more than +2%. Also, Kraft Heinz (KHC), Campbell Soup (CPB), Clorox (CLX), JM Smucker (SJM), Church & Dwight (CHD), and Conagra Brands (CAG) closed up more than +1%.

Across the markets…

March 10-year T-notes (ZNH23) on Monday closed down -10.5 ticks, and the 10-year T-note yield rose by +4.6 bp to 3.550%.  Mar T-notes Monday fell to a 2-week low, and the 10-year T-note yield climbed to a 1-1/2 week high of 3.570%.  Higher German bund yields Monday pressured T-note prices after the 10-year German bund yield climbed to a 3-week high of 2.329% when Spain Jan consumer prices rose more than expected.  Also, long liquidation pressures ahead of the 2-day FOMC meeting that begins on Tuesday weighed on T-note prices.

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