Markets Today: Stocks Under Pressure from Fed Policy Concerns

Morning Markets

March S&P 500 futures (ESH23) this morning are down -0.92% at a 3-week low and March Nasdaq 100 E-Mini futures (NQH23) are down -1.16% at a 2-1/2 week low.

U.S. stock index futures this morning are under pressure from concern the Fed may raise interest rates higher for longer after hawkish comments last week from several Fed presidents. The 10-year T-note yield this morning is up +7.4 bp at 3.888%, just below last Friday’s 3-1/4 month high of 3.925%. 

Weakness in big-box retailers is bearish for the overall market, with Walmart down more than -3% in pre-market trading after forecasting weaker-than-expected 2024 U.S. stores comparable sales.   Also, Home Depot is down more than -3% after reporting an unexpected decline in Q4 comparable same-store sales. 

On the positive side, General Mills is up more than +2% after boosting its full-year adjusted operating profit constant-currency, and Williams Cos is up more than +1% after reporting stronger-than-expected Q4 adjusted Ebitda.

Stocks are also lower on negative carry-over from a -0.44% slide in the Euro Stoxx 50 today to a 1-week low. China’s Shanghai Composite stock index closed up +0.49%, while Japan’s Nikkei Stock index closed down -0.21%. 

The Euro Stoxx 50 index today fell to a 1-week low and is moderately lower.  European stocks are under pressure today after Bank of America and JPMorgan Chase predicted an end to this year’s rally.  Bank of America said a temporary boost to the Eurozone economy would fade as the full impact of monetary tightening materializes, while earnings will get downgraded.  Higher European government bond yields are also weighing on stocks, with the 10-year German bund yield up +4.8 bp to 2.513%.

Today’s European economic news was mixed for stocks.  On the bearish side, the Feb S&P Global Eurozone manufacturing PMI unexpectedly fell -0.3 to 48.5, weaker than expectations of an increase to 49.3.  However, the S&P Eurozone Feb composite  PMI rose +2.0 to a 9-month high of 52.3, stronger than expectations of 50.7.  Also, the German Feb ZEW expectations of economic growth index rose +11.2 to a 1-year high of 28.1, stronger than expectations of 23.0.

Bank of America said, "we remain positioned for a sharp loss in growth momentum over the coming months," and European equity markets will fall as the full impact of monetary tightening materializes while earnings forecasts get downgraded.  Also, JPMorgan Chase said they see no upside for European equities from current levels as key monetary indicators are "sending warning signs," such as tightening money supply and a yield curve inversion pointing to a recession ahead.

China’s Shanghai Composite today recovered from early losses and closed moderately higher.  Strength in real estate stocks and property developers led the overall market higher after the China Securities Regulatory Commission said it is launching a pilot program for real estate private equity investment funds.  The investment scope of the funds would include residential housing, commercial property, and infrastructure projects.  The Shanghai Composite today initially moved lower on weakness in internet stocks on fears of price wars after the South China Morning Post reported that JD.com was planning a 10 billion yuan ($1.5 billion) subsidy campaign to compete against rival PDD Holdings and Meituan was embarking on a campaign to hire 10,000 people to compete against ByteDance in the Chinese food delivery market.

Japan’s Nikkei Stock Index fell to a 1-week low today and closed moderately lower.  Weakness in financial stocks led the overall market lower ahead of this Friday’s hearing of Kazuo Ueda for BOJ Governor.  Also, economic concerns weighed on Japanese stocks after today’s economic news showed a gauge of manufacturing activity in Japan contracted at its steepest pace in 2-1/2 years.  However, losses in the Nikkei Stock Index were limited by strength in Japan’s service sector after today’s news showed the Feb Jibun Bank services PMI rose to an 8-month high.

The Japan Feb Jibun Bank manufacturing PMI fell -1.5 to 47.4, the steepest pace of contraction in 2-1/2 years.  However, the Feb Jibun Bank services PMI rose +1.3 to an 8-month high of 53.6.

Pre-Market U.S. Stock Movers

Walmart (WMT) tumbled more than -3% in pre-market trading after forecasting 2024 U.S. store comparable sales ex-gas up +2.0% to 2.5%, weaker than the consensus of +3.06%.  Other retailers also fell on the Walmart news, with Target (TGT) down more than -2% and Costco Wholesale (COST) and Dollar General (DG) down more than -1%.

Home Depot (HD) dropped more than -3% in pre-market trading after reporting Q4 comparable same-store sales unexpectedly fell -0.30% versus expectations of a +0.29% increase.

DocuSign (DOCU) sank more than -5% in pre-market trading after UBS downgraded the stock to sell.

Tesla (TSLA) slid more than -1% in pre-market trading on negative fallout from its recall of nearly 363,000 vehicles due to concerns about the Full Self-Driving Beta software installed in the vehicles. 

Generac Holdings (GNRC) dropped more than -2% in pre-market trading after Janney Montgomery Scott LLC downgraded the stock to neutral from buy. 

Huntsman (HUN) fell more than -2% in pre-market trading after reporting Q4 adjusted EPS of 4 cents, weaker than the consensus of 10 cents. 

JD.com (JD) is down more than -7% in pre-market trading to lead U.S.-listed Chinese internet stocks lower after the South China Morning Post reported that the company is launching a subsidy campaign to compete with PDD Holdings in a low-price product offering.  Also, PDD Holdings (PDD) is down more than -5%, and Alibaba Holding (BABA) is down more than a-2%.  In addition, Baidu (BIDU) and NetEase (NTES) are down more than -1%.

AutoNation (AN) dropped more than -2% in pre-market trading after JPMorgan Chase downgraded the stock to underweight from neutral.

General Mills (GIS) rose more than +2% in pre-market trading after boosting its full-year adjusted operating profit constant-currency +6% to +7% from a prior estimate of +3% to +5%. 

Williams Cos (WMB) rose more than +1% in pre-market trading after reporting Q4 adjusted Ebitda of $1.77 billion, stronger than the consensus of $1.68 billion and forecasting full-year adjusted Ebitda of $6.40 billion-$6.80 billion, the midpoint better than the consensus of $6.56 billion.  

Caleres (CAL) gained more than +1% in pre-market trading after Piper Sandler upgraded the stock to overweight from neutral.

MarineMax (NZO) rose more than +1% in pre-market trading after B. Riley upgraded the stock to buy from neutral.

Medtronic Plc (MDT) climbed more than +2% in pre-market trading after reporting Q3 revenue of $7.73 billion, stronger than the consensus of $7.52 billion. 

Today’s U.S. Earnings Reports (2/21/2023)

Caesars Entertainment Inc (CZR), CoStar Group Inc (CSGP), Diamondback Energy Inc (FANG), Expeditors International of Wa (EXPD), Home Depot Inc/The (HD), Ingersoll Rand Inc (IR), Keysight Technologies Inc (KEYS), Medtronic PLC (MDT), Molson Coors Beverage Co (TAP), Public Service Enterprise Grou (PEG), Public Storage (PSA), Realty Income Corp (O), SBA Communications Corp (SBAC), Walmart Inc (WMT).

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