Stocks Retreat as Bond Yields Jump on Diminished Fed Rate Cut Prospects

The S&P 500 Index ($SPX) (SPY) this morning is down -1.02%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.47%. 

Stock indexes this morning are moderately lower, with the S&P 500, Dow Jones Industrials, and Nasdaq 100 falling to 1-1/2 week lows.  Higher bond yields are undercutting stocks as the 10-year T-note yield climbed to a 4-month high today on negative carryover from Monday when the US Mar ISM manufacturing index expanded by the most in 1-1/2 years, dampening the outlook for Fed rate cuts. 

The markets are discounting the chances for a -25 bp rate cut at 7% for the next FOMC meeting on April 30-May 1 and 60% for the following meeting on June 11-12.

Overseas stock markets today are mixed.  The Euro Stoxx 50 fell back from a 23-year high and is down -0.78%.  China's Shanghai Composite closed down -0.08%.  Japan's Nikkei Stock Index closed up +0.09%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are down -13 ticks.  The 10-year T-note yield is up +7.8 bp at 4.387%. June T-note prices today dropped to a 2-week nearest-futures low, and the 10-year T-note yield climbed to a 4-month high of 4.403%.  T-notes are weighed down on carryover pressure from Monday when 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 that may delay the start of Fed rate cuts. Also, an increase in inflation expectations is undercutting T-note prices as today's 10-year breakeven inflation rate rose to a 1-1/2 week high of 2.372%. 

European government bond yields today are moving higher.  The 10-year German bund yield rose to a 1-1/2 week high of 2.425% and is up +12.5 bp at 2.422%.  The 10-year UK gilt yield rose to a 2-week high of 4.089% and is up +15.5 bp at 4.088%.

 The Eurozone Mar S&P manufacturing PMI was revised upward by +0.4 to 46.1 from the previously reported 45.7.

ECB Feb 1-year inflation expectations eased to 3.1% from 3.3% in Jan, the lowest in 2 years.  Feb 3-year inflation expectations were unchanged at 2.5% from Jan, stronger than expectations of a decline to 2.4%.

German Mar CPI (EU harmonized) rose +0.6% m/m and +2.3% y/y, weaker than expectations of +0.7% m/m and +2.4% y/y.

US Stock Movers

Health insurance stocks are under pressure today after US regulators didn’t boost payments for private Medicare plans like the industry expected. As a result, Humana (HUM), the most exposed to Medicare among large insurance companies, is down more than -10% to lead losers in the S&P 500. Also, CVS Health (CVS) is down more than -6 %, and UnitedHealth Group (UNH) is down more than -5% to lead losers in the Dow Jones Industrials.  In addition, Elevance Health (ELV) and Centene (CNC) are down more than -2%. 

PVH Corp (PVH) is down more than -22% after forecasting 2025 revenue will fall -6% to -7% compared with a +2% increase last year. 

Verve Therapeutics (VERV) is down more than -31% after it cited safety concerns for pausing enrollment in a study of its gene-editing treatment for people with high cholesterol. 

Tesla (TSLA) is down more than -5% to lead losers in the Nasdaq 100 after reporting Q1 vehicle deliveries of 386,810, well below the consensus of 449,080.

Autodesk (ADSK) is down more than -3% after it filed to delay its 10-K annual report, citing an internal investigation on the company’s free cash flow and adjusted operating margin practices.

Homebuilding stocks are falling today after the 10-year T-note yield rose to a 4-month high, a bearish factor for housing demand.  As a result, Lennar (LEN), PulteGroup (PHM), DR Horton (DHI), and Toll Brothers (TOL) are down more than -4%. 

Cryptocurrency-linked companies are retreating today, with the price of Bitcoin down more than -6% at a 1-week low.  As a result, Coinbase Global (COIN), MicroStrategy (MSTR), Marathon Digital (MARA), and Riot Platforms (RIOT) are down more than -5%.   

Biomea Fusion (BMEA) is down more than -15% after JPMorgan Chase downgraded the stock to neutral from overweight, citing preliminary data from a diabetes trial.

Energy stocks and energy service providers are climbing today with the price of WTI crude oil up more than +1% at a 5-1/4 month high.  As a result, Occidental Petroleum (OXY) is up more than +2% to lead gainers in the S&P 500.  Also, Chevron (CVX) is up more than +1% to lead gainers in the Dow Jones Industrials.  In addition, Exxon Mobil (XOM), Phillips 66 (PSX), ConocoPhillips (COP), and Valero Energy (VLO) are up more than +1%. 

Roivant Sciences Ltd (ROIV) is up more than +6% after its board authorized a share repurchase program for up to $1.5 billion.

Olema Pharmaceuticals (OLMA) is up more than +1% after Goldman Sachs initiated coverage of the stock with a recommendation of buy with a price target of $24. 

McCormick & Co (MKC) is up nearly +1% after Argus Research upgraded the stock to buy from hold with a price target of $88. 

Estee Lauder (EL) is up more than +1% after Citigroup upgraded the stock to buy from neutral with a price target of $175.

Mining stocks are gaining today, with gold prices climbing to a record high and copper and silver prices posting 1-1/2 week highs.  As a result, Freeport McMoRan (FCX), Newmont (NEM), and Southern Copper (SCCO) are up more than +0.5%.

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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