S&P 500 Posts a Record High on Optimism the Fed Can Achieve a Soft Landing

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.11%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.14%. 

Stock indexes on Thursday settled mixed, with the S&P 500 posting a new all-time high.  Stocks found some support on Thursday’s Q4 GDP report, which was revised higher, while the core PCE price deflator was revised lower, bolstering the outlook for an economic soft landing.  Strength in energy stocks supported the overall market after crude prices rose more than +2% to a 1-week high.

However, hawkish comments made Wednesday night by Fed Governor Waller pushed bond yields higher and limited gains in stocks when he said that recent inflation figures were “disappointing” and he wants to see “at least a couple months of better inflation data” before cutting interest rates.   Bond yields remained higher after this morning’s economic reports showed strength in the economy.

End-of-quarter rebalancing and window dressing by stock fund managers underpinned stock prices, with Thursday the last trading day of Q1.  US stocks also have carryover support from a rally in European stocks, as the Euro Stoxx 50 rose to a new 23-year high Thursday. 

US weekly initial unemployment claims unexpectedly fell -2,000 to 210,000, showing a stronger labor market than expectations of an increase to 212,000.

US Q4 GDP was revised upward to +3.4% (q/q annualized), stronger than expectations of an unrevised +3.2%, as Q4 personal consumption was revised upward to 3.3%, stronger than expectations of an unrevised 3.0%.  The Q4 core PCE price index was revised lower to +2.0% (q/q annualized), weaker than expectations of an unrevised +2.1%.

The US Mar MNI Chicago PMI unexpectedly fell -2.6 to a 10-month low of 41.4, weaker than expectations of an increase to 46.0.

US Feb pending home sales rose +1.6% m/m, stronger than expectations of +1.5% m/m.

The final March University of Michigan US consumer sentiment index was revised upward to a 2-1/2 year high of 79.4, stronger than expectations of an unrevised 76.5.

The University of Michigan US Mar 1-year inflation expectations index was revised downward by -0.1 to 2.9%, weaker than expectations of a +0.1 point increase to 3.1%.  The Mar 5-10 year inflation expectations fell -0.1 to 2.8%, weaker than expectations of no change at 2.9%.

Wednesday night, Fed Governor Waller said recent inflation figures were "disappointing," and in his view, "it is appropriate to reduce the overall number of rate cuts or push them further into the future in response to the recent data."  He added, "I see economic output and the labor market showing continued strength while progress in reducing inflation has slowed.  Because of these signs, I see no rush in taking the step of beginning to ease monetary policy."

The markets are discounting the chances for a -25 bp rate cut at 10% for the next FOMC meeting on April 30-May 1 and 67% for the following meeting on June 11-12.

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 rose to a 23-year high and closed up +0.03%.  China's Shanghai Composite recovered from a 4-week low and closed up +0.59%.  Japan's Nikkei Stock Index fell to a 1-week low and closed down -1.46%.

Interest Rates

June 10-year T-notes (ZNM24) on Thursday closed down -2.5 ticks.  The 10-year T-note yield rose +1.0 bp to 4.200%.  June T-note prices Thursday were under pressure from comments made Wednesday night by Fed Governor Waller, who said there’s “no rush” for the Fed to ease monetary policy.  Thursday’s stronger-than-expected US economic reports also undercut T-notes. 

T-notes recovered from their worst levels Thursday after the Mar MNI Chicago PMI unexpectedly contracted by the most in 10 months and after the University of Michigan March inflation expectations index unexpectedly declined.

European government bond yields on Thursday moved higher.  The 10-year German bund yield rose +0.6 bp to 2.298%.  The 10-year UK gilt yield rose +0.1 bp to 3.933%.

Eurozone Feb M3 money supply rose +0.4% y/y, stronger than expectations of +0.3% y/y and the biggest increase in 8 months.

German Feb retail sales unexpectedly fell -1.9% m/m, weaker than expectations of a +0.4% m/m increase and the biggest decline in 16 months.

German Mar unemployment rose by +4,000, a smaller increase than expectations of +10,000 and a sign of a resilient labor market.

ECB Governing Council member Panetta said, "Risks for price stability have decreased, and the conditions for a monetary loosening are coming about."

ECB Governing Council member Villeroy de Galhau said the ECB's 2% inflation target is now "within sight."  He added that rate cuts should begin in the spring as they are needed to insure against economic damage.

US Stock Movers

Estee Lauder (EL) closed up more than +6% to lead gainers in the S&P 500 after Bank of America upgraded the stock to buy from neutral with a price target of $170. 

Walgreens Boots Alliance (WBA) closed up more than +3% to lead gainers in the Nasdaq 100 after reporting Q2 sales of $37.05 billion, stronger than the consensus of $35.86 billion. 

RH (RH) closed up more than +18% after forecasting fiscal 2024 revenue up +8% to +10% and said it expects demand trends to accelerate throughout fiscal 2024.

Scholar Rock Holding (SRRK) closed up more than +14% after Raymond James initiated coverage of the stock with a strong buy recommendation and a price target of $30. 

Energy producers and energy service providers rose Wednesday after WTI crude rallied more than +2% to a 1-week high.  As a result, APA Corp (APA), Phillips 66 (PSX), and Marathon Oil (MRO) closed up more than +2%.  Also, Devon Energy (DVN), Exxon Mobil (XOM), Haliburton (HAL), Occidental Petroleum (OXY), and Valero Energy (VLO) closed up more than +1%.  

Omnicom Group (OMC) closed up more than +1% after BNP Paribas Exane upgraded the stock to outperform from neutral with a price target of $115.

Kimberly-Calrk (KMB) closed up more than +1% after Evercore ISI upgraded the stock to outperform from in line with a price target of $150.

Snowflake (SNOW) closed up more than +1% on signs of insider buying after an SEC filing showed CEO Ramaswamy purchased $5 million of shares on Monday. 

Carnival (CCL) closed down more than -4% to lead losers in the S&P 500 after it said the collapse of Baltimore’s Francs Scott Key Bridge is expected to result in a $10 million hit to its full-year profit.

Molina Healthcare (MOH) closed down more than -2% after Bank of America Globa Research downgraded the stock to sell, citing a “deteriorating risk-reward.” 

Tesla (TSLA) closed down more than -2% after Deutsche Bank cut its price target on the stock to $200 from $218.

Chemours (CC) closed down more than -9% after forecasting Q1 net sales flat to slightly lower and Q1  adjusted Ebitda down about -10% q/q.

MillerKnoll (MLKN) closed down more than -19% after reporting Q3 net sales of $872.3 million, weaker than the consensus of $909.5 million, and forecasting Q4 net sales of $880 million-$920 million, well below the consensus of $961.5 million.

Apple (AAPL) closed down more than -1% to lead losers in the Dow Jones Industrials after DZ Bank AG downgraded the stock to hold from buy.

Meta Platforms (META) closed down more than -1% on signs of insider selling after an SEC filing showed CEO Zuckerberg sold $39.1 million of shares on Monday.

Charter Communications (CHTR) closed down more than -1% after UBS cut its price target on the stock to $325 from $360. 

Earnings Reports (4/1/2024)

374Water Inc (SCWO), ACELYRIN Inc (SLRN), Actinium Pharmaceuticals Inc (ATNM), AST SpaceMobile Inc (ASTS), Children's Place Inc/The (PLCE), Dragonfly Energy Holdings Corp (DFLI), Escalade Inc (ESCA), Microvast Holdings Inc (MVST), Nano-X Imaging Ltd (NNOX), Ocean Biomedical Inc (OCEA), Omeros Corp (OMER), PVH Corp (PVH), Security National Financial Co (SNFCA), SKYX Platforms Corp (SKYX), Terran Orbital Corp (LLAP), Verde Clean Fuels Inc (VGAS).

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