Markets Today: Stock Indexes Fall as U.S. Labor Strength Keeps Pressure on the Fed

Morning Markets

March S&P 500 futures (ESH23) this morning are down -0.60%, and March Nasdaq 100 E-Mini futures (NQH23) are down -0.94%, both at 5-week lows.

U.S. stock index futures this morning are moderately lower as higher global bond yields weighed on risk assets.  The 10-year T-note yield climbed to a 3-1/2 month high of 4.079% today after weekly jobless claims unexpectedly fell, signaling continued resilience in the labor market that could force the Fed to keep raising interest rates.  Moreover, t-note yields rose even higher after today’s economic news showed U.S. Q4 nonfarm productivity was revised lower and Q4 unit labor costs were revised higher, which has negative inflation implications.

Concerns that persistent inflation in the Eurozone could prompt a more hawkish response from the ECB pushed European government bond yields higher and weighed on stocks.  The German 10-year bund yield climbed to an 11-year high of 2.773% today after Eurozone Feb CPI slowed less than expected, and core inflation unexpectedly accelerated to a record high. 

Higher bond yields today are bearish for stocks, with the 10-year T-note yield up +7.7 bp to 4.070% and posting a 3-1/2 month high of 4.079%.  

Negative corporate news is also weighing on the overall market.  Tesla is down more than -5% in pre-market trading after analysts said the company’s investor day was disappointing with a lack of details regarding the company’s financials and the timing of new vehicle models.  Also, Snowflake is down more than -7% after reporting a wider-than-expected Q4 loss per share and forecast 2024 product revenue below estimates.  In addition, Pure Storage is down more than -11% after the company forecasted 2024 revenue growth that was below the consensus.

On the positive side, Salesforce is up more than +14% in pre-market trading after reporting stronger-than-expected Q4 revenue and forecasting 2024 revenue above the consensus.  Also, Okta and American Eagle Outfitters were up at least +4% after reporting stronger-than-expected Q4 revenue.  In addition, Macy’s and Veeva Systems were up at least +5% after reporting better-than-expected Q4 adjusted EPS.

U.S. weekly initial unemployment claims unexpectedly fell -2,000 to 190,000, showing a stronger labor market than expectations of an increase to 195,000. Also, weekly continuing claims unexpectedly fell -5,000 to 1.655 million, showing a stronger labor market than expectations of an increase to 1.669 million.

U.S. Q4 nonfarm productivity was revised lower to 1.7% from 3.0%, weaker than expectations of 2.5%.  Q4 unit labor costs were revised upward to 3.2% from 1.1%, stronger than expectations of 1.6%.

Overseas stock markets are lower.  The Euro Stoxx 50 today is down -0.21%.  China’s Shanghai Composite stock index closed down -0.05%, and Japan’s Nikkei Stock Index closed down -0.06%. 

The Euro Stoxx 50 index today is moderately lower.  Rising bond yields are weighing on stocks today on concerns that persistent inflation will prompt ever-higher interest rate increases from the ECB.  Today’s report on consumer prices showed Eurozone Feb CPI slowed less than expected, and core prices unexpectedly accelerated to a record high.  That pushed the 10-year German bund yield up to a new 11-year high of 2.773% and prompted ECB President Lagarde to say that more rate hikes may be needed beyond this month’s planned 50 bp ECB rate hike. Earnings disappointments also weighed on stocks, with AB InBev SA, the world’s largest brewer, down % after reporting its first volume decline since the early days of the pandemic and giving an earnings forecast that was below expectations.  Also, Flutter Entertainment fell more than -3% after reporting weaker-than-expected 2022 earnings, and Merck KgaA fell -1% after saying 2023 profit could decline as demand dries up for its Covid products.

ECB President Lagarde said interest-rate increases might need to persist beyond a planned 50 bp rate increase this month.

Eurozone Feb CPI eased slightly to 8.5% y/y from 8.6% y/y in Jan, stronger than expectations of 8.3% y/y.  However, Feb core CPI unexpectedly accelerated to a record high 5.6% y/y, stronger than expectations of no change at 5.3% y/y. 

The Eurozone Jan unemployment rate was unchanged at 6.7% y/y, showing a weaker labor market than expectations of 6.6%.

China’s Shanghai Composite today fell back from a 7-1/2 month high and closed slightly lower.  Long liquidation pressured Chinese stocks today on speculation an improving economy will keep the government from boosting stimulus measures after the China Feb manufacturing index climbed to a 10-year high. Strength in material stocks and commodity producers limited declines in the overall market on speculation an improving economy will boost demand for commodities.   Rare earth and mining stocks fell after Tesla said it plans to abandon the use of rare earth minerals in its next-generation motor due to the health and environmental risks that come with mining. 

Japan’s Nikkei Stock Index today retreated from a 2-week high and closed slightly lower.  Japanese stocks erased early gains and moved slightly lower on the potential for reduced China stimulus.  Also, concerns that persistent inflation will prompt the Fed to raise interest rates higher and for longer weighed on Japanese stocks.  Equities initially moved higher today on some positive economic news that showed Japan consumer confidence rose to a 6-month high and Q4 capital spending rose more than expected.

The Japan Feb consumer confidence index rose +0.1 to a 6-month high of 31.1, weaker than expectations of 32.0.

Japan's Q4 capital spending ex-software rose +6.3% y/y, stronger than expectations of +5.5% y/y.

Pre-Market U.S. Stock Movers

Tesla (TSLA) tumbled more than -5% in pre-market trading after analysts said the company’s investor day lacked details regarding the company’s financials and the timing of new vehicle models. 

Snowflake (SNOW) dropped more than -7% in pre-market trading after reporting a Q4 loss per share of -64 cents, wider than the consensus of -43 cents, and forecast 2024 product revenue of $2.71 billion, weaker than the consensus of $2.83 billion.

On Semiconductor Corp (ON) slid more than -6% in pre-market trading after Raymond James downgraded the stock to market perform from outperform. 

Wolfspeed (WOLF) tumbled more than -9% in pre-market trading after Tesla said during its investor day that it’s using less silicon carbide wafers in transistor packages in favor of its in-house technology. 

Best Buy (BBY) dropped more than -2% in pre-market trading after forecasting full-year revenue of $43.8 billion-$45.2 billion, weaker than the consensus of $45.74 billion.

Hormel Foods (HRL) dropped more than -3% in pre-market trading after reporting Q1 net sales of $2.97 billion, below the consensus of $3.07 billion.

Celsius Holdings (CELH) fell more than -5% in pre-market trading after reporting a Q4 loss per share of -37 cents, wider than the consensus of -3 cents. 

Pure Storage (PSTG) sank more than -11% in pre-market trading after the company forecasted 2024 revenue growth of mid to single-high digits, well below the consensus of 13.5%. 

Salesforce (CRM) surged more than +14% in pre-market trading after reporting Q4 revenue of $8.38 billion, above the consensus of $8.00 billion and forecasting 2024 revenue of $34.5 billion-$34.7 billion, stronger than the consensus of $34.05 billion. 

American Eagle Outfitters (AEO) climbed more than +4% in pre-market trading after reporting Q4 net revenue of $1.50 billion, better than the consensus of $1.47 billion. 

Okta (OKTA) jumped more than +12% in pre-market trading after reporting Q4 revenue of $510 million, above the consensus of $489.8 million, and forecast 2024 revenue of $2.16 billion-$2.17 billion, stronger than the consensus of $2.16 billion. 

Veeva Systems (VEEV) rose more than +5% in pre-market trading after reporting a Q4 adjusted EPS of $1.15, better than the consensus of $1.05. 

Macy’s (M) rallied more than +7% in pre-market trading after reporting Q4 adjusted EPS of $1.88, well above the consensus of $1.58. 

Today’s U.S. Earnings Reports (3/2/2023)

Best Buy Co Inc (BBY), Broadcom Inc (AVGO), Cooper Cos Inc/The (COO), Costco Wholesale Corp (COST), Hewlett Packard Enterprise Co (HPE), Hormel Foods Corp (HRL), Kroger Co/The (KR).

• 10 Stocks With High Implied Volatility Percentile
• Stocks Mixed Before The Open As Bond Yields Tick Higher On Fed Concerns, ECB Minutes In Focus
• 3 Low Beta Kings That Outperform During Market Volatility
• Stocks End Mostly Lower as Global Bond Yields Push Higher