Stocks Fall Back on Concern Global Central Banks Will Keep Raising Rates

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.30%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.71%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.13%.

Stock indexes Tuesday closed moderately lower.  An increase in global bond yields weighed on the broader market on concern that central banks will have to keep raising interest rates after France and Spain reported an unexpected acceleration in consumer prices. However, stocks recovered from their worst levels after T-note yields fell when mostly weaker-than-expected U.S. economic news Tuesday bolstered the outlook for the Fed to slow its pace of tightening. 

After climbing to a 3-1/2 month high Tuesday of 3.981%, the 10-year T-note yield fell -0.4 bp to 3.910%, sparking short covering in stocks. T-notes yields initially moved higher Tuesday on negative carryover from a jump in European government bond yields after the 10-year German bund yield rose to an 11-year high today at 2.712%, and the 10-year UK gilt yield rose to a 4-month high of 3.896%.

Tuesday’s U.S. economic news was mostly weaker than expected. The Feb MNI Chicago PMI unexpectedly fell -0.7 to 43.6, weaker than expectations of an increase to 45.5. Also, the Conference Board U.S. Feb consumer confidence index unexpectedly fell -3.1 to 102.9, weaker than expectations of a rise to 108.5.  In addition, the Feb Richmond Fed manufacturing survey unexpectedly fell -5 to a 2-3/4 year low of -16, weaker than expectations of an increase to -5. On the positive side, the Dec S&P CoreLogic composite-20 home price index rose +4.65% y/y, weaker than expectations of +4.80% and the slowest pace of increase in nearly 2-1/2 years.

Negative corporate news Tuesday weighed on the overall market.  Norwegian Cruise Line Holdings Ltd closed down more than -10% after reporting a wider-than-expected Q4 adjusted loss per share.  Also, Universal Health Services closed down more than -7% after forecasting 2023 adjusted EPS below the consensus.  In addition, Dish Network closed down more than 6% after Bank of America downgraded the stock two notches.

On the positive side, Dentsply Sirona closed up more than +10% after reporting better-than-expected Q4 adjusted EPS. Also, Applied Materials closed up more than +3% after the company unveiled a new chipmaking machine, and Advanced Auto Parts closed up more than +3% after forecasting stronger-than-expected 2023 net sales.

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 today closed down -0.23%.  China’s Shanghai Composite stock index closed up +0.66%, and Japan’s Nikkei Stock Index closed up +0.08%. 

Today’s stock movers…

Cruise line operators were under pressure Tuesday after Norwegian Cruise Line Holdings Ltd (NCLH) closed down more than -10% to lead losers in the S&P 500 when it reported a Q4 adjusted loss per share of -$1.04, a steeper loss than the consensus of -87 cents.  In addition, Carnival (CCL) and Royal Caribbean Cruises (RCL) closed down by more than -1%.

Universal Health Services (UHS) closed down more than -7% after forecasting 2023 adjusted EPS of $9.50-$10.50, weaker than the consensus of $10.74. 

Dish Network (DISH) closed down more than -5% after Bank of America downgraded the stock two notches to underperform from buy. 

Goldman Sachs (GS) closed down more than -3% to lead losers in the Dow Jones Industrials after the company said at its Investor Day conference that it would take another two years to break even on its new Platform Solutions division and that it’s grappling with a “complicated credit environment.” 

Merck & Co (MRK) closed down more than -2% after it said two Phase 3 trials evaluating Keytruda in combination with pemetrexed plus platinum-based chemotherapy for metastatic nonsquamous non-small cell lung cancer fell short of meeting their primary endpoints.

Sempra Energy (SRE) closed down more than -3% after reporting Q4 revenue of $3.46 billion, below the consensus of $3.77 billion.

Keurig Dr Pepper (KDP) closed down more than -2% after a block of the company’s shares was offered at $34.55 to $35.00 apiece from Morgan Stanley, below Monday’s closing price of $35.37.

Union Pacific Railroad (UNP) closed down more than -2% after the Environmental Protection Agency ordered the company to assess the potential contamination in and around a former wood-preserving facility in Houston. 

Dentsply Sirona (XRAY) closed up more than +10% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of 46 cents, above the consensus of 32 cents, and forecast 2023 adjusted EPS of $1.80-$2.00, stronger than the consensus of $1.84.

Applied Materials (AMAT) closed up more than +3% after the company unveiled a new chipmaking machine that reduces the time customers spend on lithography, the process of using light to burn lines into silicon. 

Advanced Auto Parts (AAP) closed up more than +3% after forecasting 2023 net sales of $11.40 billion-$11.60 billion, above the consensus of $11.34 billion. 

Casino stocks rose Tuesday after the Nevada Gaming Control Board reported that Las Vegas strip Jan gambling revenue rose +25.74% y/y to $713.2 million.  Wynn Resorts Ltd (WYNN) closed up more than +3%.  Also, Las Vegas Sands (LVS) closed up more than +2%.  In addition, Caesars Entertainment (CZR) closed up +0.6%, and MGM Resorts International (MGM) closed up +0.4%. 

International Game Technology (IGT) closed up more than +2% after reporting Q4 revenue of $1.09 billion, better than the consensus of $1.03 billion.

Target (TGT) closed up more than +1% after reporting Q4 sales of $30.98 billion, better than the consensus of $30.46 billion. 

Across the markets…

March 10-year T-notes (ZNH23) on Tuesday closed up +1 tick, and the 10-year T-note yield fell by -0.4 bp to 3.910%.  Mar 10-year T-notes Tuesday recovered from early losses and closed slightly higher, and the 10-year T-note yield fell back from a 3-1/2 month high of 3.981%.  Weaker-than-expected U.S. economic reports Tuesday were dovish for Fed policy and bullish for T-notes.  Also, month-end rebalancing by bond fund managers gave T-notes a boost. 

T-notes Tuesday initially opened lower on negative carryover from a jump in European government bond yields. Tuesday’s economic news that showed an unexpected acceleration of inflation in Spain and France pushed the 10-year German bund yield up to an 11-year high of 2.712% and the 10-year UK gilt yield up to a 4-month high of 3.896%.

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