Stocks Close Mixed as US Manufacturing Strength Dampens Rate Cut Optimism

The S&P 500 Index ($SPX) (SPY) Monday closed down -0.20%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.60%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.21%. 

Stock indexes on Monday settled mixed, with Nasdaq 100 posting a 1-week high.  The broader market Monday gave up an early advance, with the S&P 500 falling from a new record high, after bond yields jumped on the stronger-than-expected US Mar ISM manufacturing index.  The report was hawkish for Fed policy and may delay expected Fed rate cuts.   

Stocks on Monday initially found support on last Friday’s dovish Feb core PCE price deflator report.  Stocks also found support on last Friday’s Feb personal spending report, which was stronger than expected, bolstering the case for an economic soft landing.  The strength of chip stocks on Monday led technology stocks higher and kept the Nasdaq 100 in positive territory.

The US Mar ISM manufacturing index rose +2.5 to 50.3, stronger than expectations of 48.3 and the strongest pace of expansion in 1-1/2 years.  The Mar ISM prices paid sub-index rose +3.3 to a 1-1/2 year high of 55.8, stronger than expectations of 53.0. 

US Feb construction spending unexpectedly fell -0.3% m/m versus expectations of a +0.7% m/m increase.

Last Friday’s US Feb personal spending report rose +0.8% m/m, stronger than expectations of +0.5% m/m and the largest increase in 13 months.  Feb personal income rose +0.3% m/m, weaker than expectations of +0.4% m/m.

Last Friday’s US Feb PCE core deflator report, the Fed's preferred inflation gauge, eased to +2.8% y/y from +2.9% y/y in Jan, right on expectations and the smallest increase in nearly three years.

Last Friday, Fed Chair Powell said, "The fact that the US economy is growing at such a solid pace, the fact that the labor market is still, very, very strong, gives us the chance to just be a little more confident about inflation coming down before we take the important step of cutting rates."   

Optimism in China's economy is supportive for stocks after the China Caixin Mar manufacturing PMI rose +0.2 to 51.1, the highest level in 13 months and above the 50.0 level that indicates expansion for a fifth month, the longest streak in more than two years.

The markets are discounting the chances for a -25 bp rate cut at 9% for the next FOMC meeting on April 30-May 1 and 59% for the following meeting on June 11-12.

Overseas stock markets on Monday settled mixed.  The Euro Stoxx 50 was closed for the Easter Monday holiday.  China's Shanghai Composite rose to a 1-week high and closed up +1.19%.  Japan's Nikkei Stock Index fell to a 1-1/2 week low and closed down -1.41%.

Interest Rates

June 10-year T-notes (ZNM24) closed down -28 ticks on Monday.  The 10-year T-note yield rose +12.5 bp to 4.325%. June T-note prices Monday fell to a 1-1/2 week low, and the 10-year T-note yield rose to a 1-1/2 week high of 4.333%.  T-notes were under pressure Monday on hawkish comments from Fed Chair Powell last Friday, who said, “We don’t need to be in a hurry to cut” interest rates.  T-note losses accelerated Monday after the Mar ISM manufacturing index and the Mar ISM prices paid sub-index rose to 1-1/2 year highs, hawkish factors for Fed policy.

T-notes found some support from last Friday’s US Feb core PCE deflator report, the Fed’s preferred inflation gauge, which eased to a near 3-year low of +2.8% y/y.

European government bonds did not trade, with markets closed for the Easter Monday holiday. 

US Stock Movers

Walgreens Boots Alliance (WBA) closed down more than -9% at a 25-year low to lead losers in the S&P 500 and Nasdaq 100 after it reported that the Internal Revenue Service is seeking $2.7 billion in unpaid taxes due to alleged issues over transfer pricing, following audits of previous tax years.

Universal Health Services (UHS) closed down more than -3% after an indirect subsidiary of the company, Pavillion Behavioral Health System, was found liable in a lawsuit that awarded a plaintiff more than $500 million in damages related to a sexual assault of a patient back in 2020.

Bill Holdings (BILL) closed down more than -6% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $60. 

FedEx (FDX) closed down more than -3% after it could not agree with the USPS to extend its contract, and UPS was awarded the USPS’s air cargo contract. 

Trucking companies were under pressure Monday on downgrades from Barclays.  JB Hunt Transport Services  (JBHT) and Werner Enterprises (WERN) closed down more than -1% after Barclays downgraded the stocks to equal weight from overweight.  Also, CH Robinson Worldwide (CHRW) closed down more than -3% after being downgraded to underweight from equal weight.

Cognizant Technology Solutions (CTSH) closed down more than -2% after Susquehanna Financial downgraded the stock to neutral from positive. 

Disc Medicine (IRON) closed down more than -45% after it said a mid-stage trial of its experimental drug for EPP didn’t reach statistical significance on its secondary goal due to an outsized placebo response.

Tesla (TSLA) closed down more than -1% on concerns about slowing sales as analysts lowered their estimates for the company’s Q1 vehicles delivered to an average of 453,964, down -6% from Q4.

3M Co (MMM) closed up more than +6% to lead gainers in the S&P 500 and Dow Jones Industrials after the company’s $10.3 billion settlement with US public water suppliers received final approval from the US District Court in Charleston, South Carolina. 

Chip stocks rallied Monday to lead technology stocks higher. Micron Technology (MU) closed up more than +5% to lead gainers in the Nasdaq 100.  Also, Marvell Technology (MRVL) and Western Digital (WDC) closed up more than +3%.  In addition, ASML Holding NV (ASML) closed up more than +2%.  Finally, Advanced Micro Devices (AMD), Qualcomm (QCOM), Applied Materials (AMAT), KLA Corp (KLAC), and Lam Research (LRCX) closed up more than +1%.   

Alphabet (GOOGL) closed up more than +3% at a record high after it agreed to delete web browsing data it collected from people using its Chrome web browser to settle a class-action lawsuit that alleged it tracked people without their knowledge.

Energy stocks and energy service providers moved higher Monday after WTI crude oil rose to a 5-month high.  As a result, APA Corp (APA) closed up more than +3%, and Occidental Petroleum (OXY) closed up more than +2%.  Also, ConocoPhillips (COP), Devon Energy (DVN), Haliburton (HAL), Marathon Petroleum (MPC), and Valero Energy (VLO) closed up more than +1%. 

Semtech (SMTC) closed up more than +6% after reporting Q4 net sales of $192.9 million, above the consensus of $190.6 million, and forecasting Q1 net sales of $195 million-$205 million, stronger than the consensus of $195.4 million.

Trip.com (TCOM) closed up more than +6% after Citigroup opened a positive catalyst watch on the company and raised its price target on the stock to $55 from $53.

Baxter International (BAX) closed up more than +1% after receiving FDA clearance for its Novum IQ large-volume infusion pump with Dose IQ Safety Software. 

Earnings Reports (4/2/2024)

Cal-Maine Foods Inc (CALM), Dave & Buster's Entertainment (PLAY), DZS Inc (DZSI), and Paychex Inc (PAYX).

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