Stocks Settle Lower as Bond Yields Climb on Inflation Concerns

The S&P 500 Index ($SPX) (SPY) Friday closed down -0.65%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.49%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.15%. 

Stocks on Friday posted moderate losses, with the Nasdaq 100 falling to a 3-week low.  Inflation concerns pushed the 10-year T-note yield to a 2-week high after Friday’s economic news showed the US Feb import price index ex-petroleum unexpectedly increased. That added to this week’s disappointing CPI and PPI reports, bolstering expectations for the Fed to delay interest rate cuts further.

Some negative corporate news Friday also weighed on the overall market.   Jabil closed down more than -16% after cutting its full-year core EPS forecast. Also, Adobe closed down more than -13% after forecasting Q2 revenue below consensus.  In addition, chipmakers retreated after Bloomberg reported that the Chinese government asked electric vehicle makers to sharply increase purchases from local auto chipmakers.

Market volatility also led to unexpected swings in stock prices on Friday’s quarterly expiration of March derivatives tied to stocks, index options, and futures, known as triple witching.  About $5.3 trillion of options are set to expire Friday.

The US Mar Empire manufacturing survey of general business conditions index fell -18.5 to -20.9, weaker than expectations of -7.0.

The US Feb import price index ex-petroleum unexpectedly rose +0.2% m/m, stronger than expectations of -0.2% m/m.

US Feb manufacturing production rose +0.8% m/m, stronger than expectations of +0.3% m/m and the biggest increase in 10 months.

The University of Michigan US Mar consumer sentiment index unexpectedly fell -0.4 to 76.5, weaker than expectations of an increase to 79.7.

The markets are discounting the chances for a -25 bp rate cut at 1% for next week's March 19-20 FOMC meeting, 11% for the following meeting on April 30-May 1, and 61% for the meeting after that on June 11-12.

Overseas stock markets Friday settled mixed.  The Euro Stoxx 50 closed down -0.14%.  China's Shanghai Composite closed up +0.54%.  Japan's Nikkei Stock Index closed down -0.26%.

Interest Rates

June 10-year T-notes (ZNM24) on Friday closed down -4 ticks.  The 10-year T-note yield rose +1.2 bp at 4.302%.  June T-notes fell to a 2-week low Friday, and the 10-year T-note yield climbed to a 2-week high of 4.318%.  T-note prices were undercut by Friday’s unexpected increase in the Feb import price index ex-petroleum, adding to this week’s disappointing PPI and CPI reports.   Also, Friday’s stronger-than-expected US Feb manufacturing production report was hawkish for Fed policy and bearish for T-notes. 

Higher European government bond yields also weighed on T-note prices.  T-note prices were also undercut by Friday’s increase in the 10-year breakeven inflation expectations rate to a 1-week high of 2.329%.

European government bond yields on Friday moved higher.  The 10-year German bund yield rose to a 2-week high of 2.454% and finished up +1.6 bp at 2.442%.  The 10-year UK gilt yield rose to a 1-1/2 week high of 4.125% and finished up +1.2 bp at 4.102%.

ECB Governing Council member Rehn said that Eurozone inflation forecast to be nearing the 2% target level this year and next will allow the ECB "to gradually start taking its foot off the monetary-policy brake when the summer nears." 

Eurozone inflation news was mixed.  The France Feb CPI (EU harmonized) was revised upward by +0.1 to 3.2% y/y from the previously reported 3.1% y/y.  However, the Italy Feb CPI (EU harmonized) was revised downward by -0.1 to 0.8% y/y from the previously reported 0.9% y/y.

US Stock Movers

Jabil (JBL) closed down more than -16% to lead losers in the S&P 500 after cutting its full-year core EPS forecast to $8.40 from a previous forecast of above $9.00, well below the consensus of $8.99.

Adobe (ADBE) closed down more than -13% to lead losers in the Nasdaq 100 after forecasting Q2 revenue of $5.25 billion-$5.30 billion, weaker than the % to lead losers in the S&P 500 consensus of $5.31 billion. 

Ulta Beauty (ULTA) closed down more than -5% even after reporting Q4 net sales of $3.6 billion, better than the consensus of $3.523 billion after Oppenheimer said the results fell short of “even more bullish expectations.”   

Mega-cap technology stocks moved lower Friday and weighed on the overall market.  Amazon.com (AMZN) and Microsoft (MSFT) closed down more than -2%.  Also, Alphabet (GOOGL), Apple (AAPL), and Meta Platforms (META) closed down more than -1%. 

Chip makers were under pressure Friday after Bloomberg reported that the Chinese government asked electric vehicle makers to sharply increase purchases from local auto chipmakers.  As a result, ON Semiconductors (ON), ASML Holding NV (ASML), and NXP Semiconductors NV (NXPI) closed down more than -2%.  Also, Broadcom (AVGO), KLA Corp (KLAC), and Lam Research (LRCX) closed down more than -1%. 

Salesforce (CRM) closed down more than -2% to lead losers in the Dow Jones Industrials on signs of insider selling after an SEC filing showed CEO Benioff sold $4.59 million of shares on Wednesday.

Abbot Laboratories (ABT) closed down more than -2% after a US jury ordered Mead Johnson to pay out $60 million to the mother of a premature baby that died from intestinal disease after being fed Enfamil baby formula. Baby formula accounts for about 10% of Abbot’s business. 

Smartsheet (SMAR) closed down more than -6% after forecasting 2025 revenue of $1.11 billion-$1.12 billion, below the consensus of $1.14 billion.

Costar Group (CSGP) closed up more than +8% to lead gainers in the S&P 500 and the Nasdaq 100 after the National Association of Realtors agreed to a $418 million deal to settle litigation over commission rules for US real estate agents. 

Steel Dynamics (STLD) closed up more than +4% after forecasting Q1 EPS of $3.51-$3.55, stronger than the consensus of $3.32.   

Valero Energy (VLO) closed up more than +3% after Bank of America upgraded the stock to buy from neutral with a price target of $210.

Rivian Automotive (RIVN) closed up more than +3% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $21.

Intuitive Surgical (ISRG) closed up more than +3% after the FDA approved the company’s da Vinci 5, the next-generation multiport robotic system.

Stellantis NV (STLA) closed up more than +3% after Piper Sander named the stock a favorite auto name and initiated coverage of the stock with an overweight rating.

Madrigal Pharmaceuticals (MDGL) closed up more than +10% after the FDA approved its Rezdiffra drug to treat patients with nonalcoholic steatohepatitis.

Paccar (PCAR) and Cummins (CMI) closed up more than +2% after UBS upgraded both stocks to buy from neutral with a price target of $136 for Paccar and a price target of $321 for Cummins.

Micron Technology (MU) closed up more than +2% after Citigroup raised its price target on the stock to $150 from $95. 

Marathon Petroleum (MPC) closed up more than +2% after Bank of America Global Research raised its price target on the stock to $225 from $185.

Earnings Reports (3/18/2024)

Smartsheet Inc (SMAR), Bit Digital Inc (BTBT), Comtech Telecommunications Corp (CMTL), DZS Inc (DZSI), Eyenovia Inc (EYEN), Sagimet Biosciences Inc (SGMT), Science Applications International (SAIC), StoneCo Ltd (STNE), System1 Inc (SST).

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