Stocks Recover on Lower Bond Yields and Strength in Energy Stocks

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.56%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.83%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.26%. 

Stocks on Tuesday recovered from early losses and settled moderately higher, with the S&P 500 climbing to a 1-week high. Strong demand for the Treasury’s $13 billion 20-year T-bond auction knocked T-note yields lower and sparked short covering in stocks.  Also, a rally in WTI crude oil to a 4-1/2 month high Tuesday fueled gains in energy stocks and helped push the overall market higher.

The broader market on Tuesday initially moved lower on weakness in chip stocks after Nvidia unveiled new, more powerful AI chips late Monday.  Analysts said Nvidia’s much-anticipated AI event on Monday had no major surprise announcements.  In addition, Super Micro Computer closed down more than -8% after it announced a share offering. 

The markets are focused on the 2-day FOMC meeting that began on Tuesday.  The markets expect the Fed to leave its 5.25%-5.50% federal funds target range unchanged, and they will look to newly updated Fed projections (dot-plot) for the outlook for interest rate cuts.  The markets will also scour comments from Fed Chair Powell’s press conference after Wednesday's conclusion of the FOMC meeting for the future direction of Fed policy. 

US Feb housing starts rose +10.7% m/m to 1.521 million, stronger than expectations of 1.440 million.  Feb building permits, a proxy for future construction, rose +1.9% m/m to a 6-month high of 1.518 million, stronger than expectations of 1.496 million.

Bitcoin (^BTCUSD) fell more than -3% to a 2-week low on signs of long liquidation pressures.  The Grayscale Bitcoin Trust, the world’s biggest exchange-traded fund (ETF) for Bitcoin, posted a $643 million outflow on Monday, the most since it converted to an ETF on Jan 11.

The markets are discounting the chances for a -25 bp rate cut at 1% for the Tue/Wed FOMC meeting, 9% for the following meeting on April 30-May 1, and 65% for the meeting after that on June 11-12.

On Tuesday, the Bank of Japan (BOJ) voted 7-2 to scrap its yield curve control program and end negative interest rates as it set a new policy rate range between 0% and 0.1%, shifting from a -0.1% short-term interest rate. The BOJ also pledged to continue buying long-term government bonds as needed but ended purchases of exchange-traded funds.  Despite the BOJ’s interest rate hike, the yen tumbled to a 2-week low against the dollar after BOJ Governo Ueda said the BOJ will still maintain an accommodative policy stance. 

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 closed up +0.50%.  China's Shanghai Composite closed down -0.72%.  Japan's Nikkei Stock Index closed up +0.66%.

Interest Rates

June 10-year T-notes (ZNM24) on Tuesday closed up +10.5 ticks.  The 10-year T-note yield fell -3.1 bp to 4.293%.  June T-notes on Tuesday rallied moderately higher on carryover support from strength in European government bonds.  T-notes jumped to their highs Tuesday afternoon on strong demand for the Treasury’s $13 billion 20-year T-bond auction with a bid-to-cover ratio of 2.79, well above the 10-auction average of 2.61.  A rebound in stocks limited gains in T-notes along with Tuesday’s stronger-than-expected reports on US Feb housing starts and building permits. 

European government bond yields on Tuesday moved lower.  The 10-year German bund yield fell -1.0 bp to 2.450%.  The 10-year UK gilt yield fell -3.2 bp to 4.057%.

Eurozone Q4 labor costs eased to +3.4% y/y from +5.2% y/y in Q3.

The German Mar ZEW expectations of economic growth survey rose +11.8 to a 2-year high of 31.7, stronger than expectations of 20.5.

ECB Vice President Guindos said, "The ECB hasn't yet discussed anything about future rate moves.  The evolution of wages is key, and in June, we will also have our new projections and be ready to decide when to adjust our policy stance based on the data we see."

US Stock Movers

International Paper (IP) closed up more than +10% to lead gainers in the S&P 500 after it announced Andres Silvernail, former executive adviser at KKR, to succeed Mark Sutton as CEO, effective May 1.

Fusion Pharmaceuticals (FUSN) closed up more than +99% after AstraZeneca agreed to buy the company for as much as $2.4 billion, or $21 a share.

Energy producers and energy service providers moved higher Tuesday as WTI crude oil climbed to a 4-1/2 month high.  As a result, Baker Hughes (BKR), Apa Corp (APA), Devon Energy (DVN), and Haliburton (HAL) closed up more than +2%.  Also, Marathon Petroleum (MPC), Schlumberger (SLB), Occidental Petroleum (OXY), ConocoPhillips (COP), Diamondback Energy (FANG), and Marathon Oil (MRO) closed up more than +1%. 

Inspire Medical Systems (INSP) closed up more than +2% after Morgan Stanley initiated coverage of the stock with a recommendation of overweight and a price target of $250.  

Crinetics Pharmaceuticals (CRNX) closed up more than +19% after saying its once-daily oral paltusotine treatment for acromegaly patients achieved the primary and all secondary endpoints in a Phase 3 study. 

Ansys (ANSS), Cadence Design Systems (CDNS), and Synopsys (SNPS) closed up more than +2% after Nvidia said the companies would use its new Blackwell-based processors.

Home Depot (HD) closed up more than +2% to lead gainers in the Dow Jones Industrials after Mizuho Securities initiated coverage of the stock with a recommendation of buy and a price target of $415.

Truist Financial (TFC) closed up more than +2% after Stephens upgraded the stock to overweight from equal weight with a price target of $43.

Super Micro Computer (SMCI) closed down more than -8% to lead losers in the S&P 500 after offering to sell 2 million shares of common stock in a public offering. 

Semiconductors stocks were under pressure Tuesday after Nvidia unveiled new, more powerful AI chips late Monday.  As a result, Advanced Micro Devices (AMD) closed down more than -4% to lead losers in the Nasdaq 100.  Also, Marvell Technology (MRVL) closed down more than -3% and Intel (INTC) closed down more than -1% to lead losers in the Dow Jones Industrials.  In addition, Qualcomm (QCOM), KLA Corp (KLAC), Texas Instruments (TXN), and GlobalFoundries (GFS) closed down more than -1%. 

StoneCo (STNE) closed down more than -6% after it announced its co-founder Andre Street would leave his position as chairman. 

Cryptocurrency-linked stocks moved lower Tuesday after the price of Bitcoin fell more than -3% to a 2-week low.  As a result, Coinbase Global (COIN), MicroStrategy (MSTR), and Riot Platforms (RIOT) closed down more than -3%. 

Dlocal Ltd (DLO) closed down more than -17% after reporting Q4 EPS of 10 cents, well below the consensus of 15 cents. 

Earnings Reports (3/20/2024)

Five Below Inc (FIVE), General Mills Inc (GIS), Micron Technology Inc (MU), NET Lease Office Properties (NLOP), and Ollie's Bargain Outlet Holding (OLLI).

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