Stocks Settle Moderately Lower as the Fed Remains Hawkish

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed down -0.21%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.42%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.23%.

Stock indexes Friday gave up early gains and closed moderately lower after Fed comments and U.S. economic news bolstered the outlook for more Fed rate hikes this year.  T-note yields moved higher Friday and undercut stocks after Fed Governor Waller said he favored more policy tightening.  The market shows an 81% chance the Fed will raise the federal funds target range by 25 bp at the May 2-3 FOMC meeting.

Mixed U.S. economic news Friday weighed on stocks after Mar retail sales and Mar manufacturing production fell more than expected, although Mar core retail sales and the University of Michigan U.S. Apr consumer sentiment were stronger than expected.

Stock indexes Friday morning initially moved higher, with the S&P 500 posting a 2-1/4 month high, the Dow Jones Industrials posting a 2-month high, and the Nasdaq 100 posting a 1-week high on better-than-expected bank earnings results.

U.S. March retail sales fell -1.0% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 4 months.  However, Mar core retail sales (ex-autos and gasoline) fell -0.3% m/m, a smaller decline than expectations of -0.6% m/m.

U.S. Mar import price index ex-petroleum fell -0.6% m/m, the biggest decline in 8 months and better than expectations of no change.

The University of Michigan U.S. Apr consumer sentiment rose +1.5 to 63.5, stronger than expectations of 62.1.

Fed Governor Waller said, "Because financial conditions have not significantly tightened, the labor market continues to be strong and quite tight, and inflation is far above target, so monetary policy needs to be tightened further."

On the negative side for stocks, Catalent closed down more than -26% after it said high costs and production restraints at three of its plants are expected to “materially and adversely impact” Q3 earnings results. Also, Boeing closed down more than -5% after it said it was pausing delivery of some 737 Max jets over a parts issue, a development that analysts said could result in a slowdown of deliveries and was negative for the stock.  In addition, Lucid Group closed down more than -6% after reporting Q1 vehicle deliveries below consensus.

On the positive side, better-than-expected quarterly earnings results boosted major bank stocks, with JPMorgan Chase closing up more than +7%, Citigroup closing up more than +5%, and Blackrock closing up more than +3%.  Also, VF Corp closed up more than +3% after Goldman Sachs double-upgraded the stock to buy from sell.

Global bond yields Friday moved higher and weighed on stocks.  The 10-year T-note yield rose to a 1-1/2 week high of 3.532% and finished up +7.2 bp at 3.517%.  The 10-year German bund yield rose to a 1-month high of 2.440% and finished up +6.8 bp on its high, and the 10-year UK gilt yield rose to a 5-week high of 3.667% and finished up +9.2 bp on its high.

Overseas stock markets Friday settled higher.  The Euro Stoxx 50 closed up +0.63%.  China’s Shanghai Composite closed up +0.60%, and Japan’s Nikkei Stock Index closed up +1.20%. 

Today’s stock movers…

Catalent (CTLT) closed down more than -26% to lead losers in the S&P 500 after it said high costs and production restraints at three of its plants are expected to “materially and adversely impact” Q3 earnings results.

Boeing (BA) closed down more than -5% to lead losers in the Dow Jones Industrials after it said it was pausing delivery of some 737 Max jets over a parts issue, a development that analysts said could result in a slowdown of deliveries and was negative for the stock.

Regional bank stocks were under pressure Friday as the recent banking turmoil has investors steering clear of the sector.  Zions Bancorp (ZION) closed down more than -4%, and First Republic Bank (FRC) and Cincinnati Financial (CINF) closed down more than -3%. Also, Comerica (CMA) closed down more than -2%, and Truist Financial (TFC), KeyCorp (KEY), Citizens Financial Group (CFG), and Northern Trust (NTRS) closed down more than -1%.

Rivian Automotive (RIVN) closed down more than -6% to lead losers in the Nasdaq 100 after Piper Sandler downgraded the stock to neutral from overweight.

Lucid Group (LCID) closed down more than -6% after reporting Q1 vehicle deliveries of 1,406, below the consensus of 1,835. 

Hartford Financial Services Group (HIG) closed down more than -3% after reporting Q1 preliminary net investment income of $515 million, weaker than the consensus of $528.7 million.

A rally in major bank stocks Friday was positive for the overall market.  JPMorgan Chase (JPM) closed up more than +7% to lead gainers in the S&P 500 and Dow Jones Industrials after boosting its full-year net interest income forecast to $81 billion from $73 billion.  Citigroup (C) closed up more than +4% after reporting Q1 FICC sales and trading revenue of $4.45 billion, better than the consensus of $4.02 billion.  BlackRock (BLK) closed up more than +3% after reporting Q1 net inflows of $110.32 billion, well above the consensus of $83.6 billion.  Bank of America (BAC) also closed up more than +3%, and Goldman Sachs (GS) closed up more than +1%.

VF Corp (VFC) closed up more than +3% after Goldman Sachs double-upgraded the stock to buy from sell.

Nvidia (NVDA) closed up more than +1% after the Financial Times reported that Elon Musk had acquired thousands of processors from Nvidia on plans to start his own artificial intelligence startup that will rival OpenAI.

PNC Financial Services Group (PNC) closed up more than +1% after reporting Q1 EPS of $3.98, above the consensus of $3.66, and reporting Q1 deposits of $436.8 billion, better than the consensus of $433.61 billion.

Across the markets…

June 10-year T-notes (ZNM23) on Friday closed down -19 ticks, and the 10-year T-note yield rose by +7.2 bp to 3.517%.  June T-notes Friday dropped to a 1-1/2 week low, and the 10-year T-note yield rose to a 1-1/2 week high of 3.532%.  Friday’s U.S. economic reports showed a smaller-than-expected decline in U.S. Mar core retail sales and a larger-than-expected increase in the University of Michigan U.S. Apr consumer sentiment that pressured T-note prices.  Losses in T-notes accelerated on hawkish comments today from Fed Governor Waller, who said, "Because financial conditions have not significantly tightened, monetary policy needs to be tightened further.”

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