Stocks Slip as Tech Stocks Fall on Higher Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.16%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.49%.

Stock indexes Tuesday posted moderate losses, with the Nasdaq 100 falling to a 1-week low.  Higher T-note yields Tuesday undercut technology stocks.  However, bank stocks stabilized for a second day as hopes of more support from U.S. authorities lifted sentiment toward the banking sector.  Also, a rally in WTI crude oil to a 2-week high Tuesday boosted energy stocks. 

Tuesday’s U.S. economic news was mixed for stocks.  On the negative side, Feb wholesale inventories unexpectedly rose +0.2% m/m versus expectations of a -0.2% m/m decline. Also, Feb retail inventories rose +0.8% m/m, more than expectations of +0.2% m/m and the largest increase in 6 months. The inventory build is bearish for stocks since companies may need to cut back on production due to the higher unsold stocks. 

On the positive side for stocks, the Conference Board’s March U.S. consumer confidence index unexpectedly rose +0.8 to 104.2, stronger than expectations of a decline to 101.0.  Also, the March Richmond Fed manufacturing survey index rose +11 to -5, stronger than expectations of -10.

Comments Tuesday from St. Louis Fed President Bullard were slightly hawkish when he said, "continued appropriate macroprudential policy can contain financial stress in the current environment, while appropriate monetary policy can continue to put downward pressure on inflation."

Global bond yields moved higher Tuesday on reduced fears about the banking sector.  The 10-year T-note yield rose +3.0 bp to 3.560%.  Also, the 10-year German bund yield rose +6.3 bp to 2.290%, and the 10-year UK gilt yield rose +9.0 bp to 3.456%. 

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 closed up +0.09%.  China’s Shanghai Composite stock index closed down -0.19% and Japan’s Nikkei Stock Index closed up +0.15%. 

Today’s stock movers…

Managed healthcare companies that manage private Medicare plans declined Tuesday after Senator Warren urged the Biden administration to finalize new rules that would curb how much the Medicare Advantage program pays health insurers. Humana (HUM), which gets the bulk of its revenue from Medicare Advantage, closed down more than -4% to lead losers in the S&P 500.  Also, Centene (CNC), Cigna Group (CI), and UnitedHealth Group (UNH) closed down more than -2%. 

Lucid Group (LCID) closed down more than -7% to lead losers in the Nasdaq 100 after the company said it plans to lay off about 18% of its workforce.

Chip stocks were under pressure Tuesday on some consolidation after their recent sharp gains.  The Philadelphia Semiconductor Index is up +22% so far this year. Advanced Micro Devices (AMD), Seagate Technology Holdings (STX), GlobalFoundries (GFS), Lam Research (LRCX), and Applied Materials (AMAT) closed down more than -2%. 

Invesco Mortgage (IVR) closed down more than -6% after cutting its cash dividend to 40 cents per share from 65 cents per share to “retain capital.”

Fox Corp (FOXA) closed down more than -2% after Bank of America downgraded the stock to neutral from buy.

McCormick (MKC) closed up more than +9% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of 59 cents, better than the consensus of 49 cents, and forecast full-year adjusted EPS of $2.56-$2.61, the midpoint above the consensus of $2.57.

Carnival (CCL) closed up more than +6% after Wells Fargo Securities upgraded the stock to equal weight from underweight, citing low near-term refinancing risk.  Other cruise line operators also rallied on the upgrade, with Royal Caribbean Cruises (RCL) and Norwegian Cruise Line Holdings (NCLH) closing up more than +2%.

Occidental Petroleum (OXY) closed up more than +4% after a regulatory filing showed top holder Berkshire Hathaway bought 3.7 million common shares of the stock from March 23 to March 27.

Walgreens Boots Alliance (WBA) is up more than +2% to lead gainers in the Dow Jones Industrials and Nasdaq 100 after reporting Q2 sales of $24.86 billion, better than the consensus of $33.57 billion.

Energy stocks and energy service providers moved higher, with WTI crude oil extending Monday’s advance to a 2-week high.  Valero Energy (VLO) closed up more than +3%. Also, Phillips 66 (PSX), Haliburton (HAL), and Marathon Petroleum (MPC) closed up more than +2%. In addition, Schlumberger (SLB), Marathon Oil (MRO), Diamondback Energy (FANG), and Exxon Mobil (XOM) closed up more than +1%. 

PVH (PVH) closed up more than +20% after reporting Q4 revenue of $2.49 billion, stronger than the consensus of $2.36 billion, and forecasting 2024 revenue to increase 3%-4% compared to 2%-3% in 2022.

Paramount Global (PARA) closed up more than +3% after Bank of America upgraded the stock to buy from neutral.

Ciena Corp (CIEN) closed up more than +4% after Raymond James upgraded the stock to strong buy from outperform.

Across the markets…

June 10-year T-notes (ZNM23) on Tuesday closed down -11 ticks, and the 10-year T-note yield rose by +3.0 bp to 3.560%.  June T-notes Tuesday moved lower on long liquidation pressures as banking-sector contagion concerns eased and curbed safe-haven demand for government debt.  Also, an increase in inflation expectations weighed on T-notes after the 10-year breakeven inflation rate climbed to a 2-week high Tuesday of 2.325%. 

Losses in T-notes were limited by strong demand for the Treasury’s $43 billion auction of 5-year T-notes that had a bid-to-cover ratio of 2.48, above the 10-auction average of 2.42.

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