Stocks Pressured as Bond Yields Climb on Inflation Concerns

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.02%.

Stock indexes on Wednesday closed slightly lower.  Stocks initially opened lower Wednesday on concern that stubborn inflation pressures will force central banks to keep raising interest rates.  The UK Mar CPI rose +10.1% y/y, higher than expectations of +9.8% y/y.  However, the indexes recovered most of their losses on a rally in regional bank stocks, which moved higher after Western Alliance Bancorp jumped more than +24% when it reported bank deposits increased Q2 to date, easing liquidity concerns.

Wednesday’s Fed Beige Book was neutral for stocks.  The Beige Book said that "overall economic activity was little changed," with consumer spending generally flat to slightly down in the 12 Fed districts during the month through April 10.  Also, "overall price levels rose moderately during this reporting period, though the rate of price increases appeared to be slowing."  In addition, "several districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity."

On the positive side, Intuitive Surgical closed up more than +10% after reporting stronger-than-expected Q1 revenue.  Also, Western Alliance Bancorp closed up more than +24% to lead regional bank stocks higher after reporting Q1 net interest income above consensus and said Q2 deposits to date are up +$2 billion through April 14.

On the bearish side for stocks, CDW Corp is down more than -13% after reporting Q1 preliminary net sales below consensus.  Also, Elevance Health closed down more than -5% after forecasting full-year adjusted EPS below consensus.  In addition, Netflix closed down more than -3% after reporting fewer than expected Q1 streaming paid memberships. 

Global bond yields are higher and are bearish for stocks. The 10-year T-note yield rose to a 4-week high of 3.635% and finished up +2.4 bp at 3.600%.  Also, the 10-year German bund yield climbed to a 1-1/4 month high of 2.540% and finished up +3.8 bp at 2.515%.  The 10-year UK gilt yield rose to a 6-week high of 3.870% and is up +10.9 bp at 3.856%.

Overseas stock markets Wednesday settled lower.  The Euro Stoxx 50 closed down -0.01%. China’s Shanghai Composite closed down -0.68%, and Japan’s Nikkei Stock Index closed down -0.18%. 

Today’s stock movers…

Regional bank stocks rallied Wednesday, with Western Alliance Bancorp (WAL) closing up more than +24% after reporting Q1 net interest income of $609.9 million, above the consensus of $592.8 million, and said Q2 deposits to date are up +$2 billion through April 14.  Also, First Republic Bank (FRC) closed up more than +12% to lead gainers in the S&P 500.  In addition, Zions Bancorp (ZION) closed up more than +7%, and Comerica (CMA) closed up more than +5%. Finally, M&T Bank (MTB), Truist Financial (TFC), Fifth Third Bancorp (FITB), Lincoln National (LNC), KeyCorp (KEY), and Regions Financial (RF) closed up more than +2%.

Intuitive Surgical (ISRG) closed up more than +10% to lead gainers in the Nasdaq 100 after reporting Q1 revenue of $1.70 billion, stronger than the consensus of $1.60 billion.

Abbott Laboratories (ABT) closed up more than +7% after reporting Q1 net sales of $9.75 billion, stronger than the consensus of $9.65 billion.

United Airlines Holdings (UAL) closed up more than +7% after reporting a Q1 adjusted loss per share of -63 cents, narrower than the consensus of -73 cents.

Travelers Cos (TRV) closed up more than +6% to lead gainers in the Dow Jones Industrials after reporting Q1 core EPS of $4.11, well above the consensus of $3.58.

Nasdaq Inc (NDAQ) closed up more than +3% after reporting Q1 net revenue of $914 million, above the consensus of $911.4 million, and raised its quarterly dividend by 2 cents to 22 cents a share.

CDW Corp (CDW) closed down more than -13% to lead losers in the S&P 500 after reporting Q1 preliminary net sales of about $5.10 billion, well below the consensus of $5.57 billion.

Health insurers retreated Wednesday, led by Elevance Health (ELV), which closed down more than -5% after forecasting full-year adjusted EPS above $32.70, below the consensus of $32.79.  Also, Molina Healthcare (MOH) closed down more than -4%. In addition, Humana (HUM), UnitedHealth Group (UNH), and Centene (CNC) closed down more than -3%.

Netflix (NFLX) closed down more than -3% after reporting Q1 streaming paid memberships of 232.5 million, below the consensus of 233 million. 

Chip stocks moved lower on demand concerns after ASML NV reported its Q1 order intake was the lowest since 2020.  As a result, ASML Holding NV (ASML) closed down more than -3%. Also, Micron Technology (MU), KLA Corp (KLAC), Marvell Technology (MRVL), ON Semiconductor (ON), and Intel (INTC) closed down more than -2%. In addition, Texas Instruments (TXN), NXP Semiconductors NV (NXPI), Global Foundries (GFS), and Microchip Technology (MCHP) closed down more than -1%. 

Tesla (TSLA) closed down more than -2% after cutting prices again on its Model 3 and Model Y vehicles, the second price cut on the vehicles this month.  Other electric vehicle makers are falling on the news, with Rivian Automotive (RIVN) closing down more than -4% to lead losers in the Nasdaq 100 and Lucid Motor (LCID) closing down more than -2%.

Across the markets…

June 10-year T-notes (ZNM23) on Wednesday closed down -9.5 ticks, and the 10-year T-note yield rose by +2.4 bp to 3.600%.  June T-notes Wednesday fell to a 4-week low, and the 10-year T-note yield rose to a 4-week high of 3.635%.  A slump in European government bond prices Wednesday undercut T-notes after UK Mar consumer prices rose more than expected.  However, T-notes recovered from their worst levels on strong demand for the Treasury’s $12 billion auction of 20-year T-bonds that had a bid-to-cover ratio of 2.66, above the 10-auction average of 2.59. 

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