Stocks Rebound on a Dovish US ISM Services Report

The S&P 500 Index ($SPX) (SPY) this morning is up +0.39%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.21%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.54%. 

Stock indexes this morning recovered from early losses and are posting moderate gains.  Stocks found support as bond yields fell back from early highs after the US Mar ISM services index unexpectedly declined.   Also, price pressures eased after the Mar ISM services price paid sub-index fell more than expected to a 4-year low.  The markets are awaiting comments from Fed Chair Powell later this morning.

Stocks today initially were under pressure after the 10-year T-note yield jumped to a 4-month high after the stronger-than-expected Mar ADP employment report reinforced the view that interest rates will remain higher for longer. 

The US Mar ISM services index unexpectedly fell -1.2 to 51.4, weaker than expectations of an increase to 52.8.  The Mar ISM services price paid sub-index fell -5.2 to a 4-year low of 53.4, weaker than expectations of 58.4.

The US Mar ADP employment change rose +184,000, stronger than expectations of +150,000.  Also, Feb ADP was revised upward to +155,000 from the previously reported +140,000.

US weekly MBA mortgage applications fell -0.6% in the week ended March 29.  The purchase mortgage sub-index fell -0.1%, and the refinancing mortgage sub-index fell -1.6%.  The average 30-year fixed rate mortgage fell -2 bp to 6.91% from 6.93% in the prior week. 

Atlanta Fed President Bostic said due to the bumpy nature of inflation progress, "it will likely be appropriate for us to lower interest rates at the end of this year, in the fourth quarter."

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 are mixed.  The Euro Stoxx 50 is up +0.49%.  China's Shanghai Composite closed down -0.18%.  Japan's Nikkei Stock Index fell to a 2-week low and closed down -0.97%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are down -6 ticks.  The 10-year T-note yield is up +3.8 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 4.427%.

T-notes are under pressure today on the stronger-than-expected Mar ADP employment report, which was hawkish for Fed policy.  Also, an increase in inflation expectations weighs on T-note prices as today's 10-year breakeven inflation rate climbed to a 4-3/4 month high of 2.378%.  T-notes recovered from their worst levels after the US Mar ISM services index unexpectedly declined and the Mar ISM services prices paid sub-index fell more than expected to a 4-year low, dovish factors for Fed policy. 

European government bond yields today are higher.  The 10-year German bund yield is up +1.7 bp at 2.417%.  The 10-year UK gilt yield is up +0.1 bp at 4.086%.

Eurozone Mar CPI eased to 2.4% y/y from 2.6% y/y in Feb, better than expectations of 2.5% y/y.  Mar core CPI eased to 2.9% y/y from 3.1% y/y in Feb, better than expectations of 3.0% y/y and the slowest pace of increase in 2 years.

The Eurozone Feb unemployment rate was unchanged at a record low of 6.5%, higher than expectations of a decline to 6.4%.

ECB Governing Council member Holzmann said, "An ECB rate cut in April is not on my radar.  In June, if the data allows it, a decision will be made."

US Stock Movers

Strength in chip stocks is leading the technology sector higher today. Western Digital (WDC) is up more than +3%.  Also, Micron Technology (MU) and Lam Research (LRCX) are up more than +2%.  In addition, Advanced Micro Devices (AMD), Applied Materials (AMAT), Broadcom (AVGO),  Marvel Technology (MRVL), KLA Corp (KLAC), and Qualcomm (QCOM) are up more than +1%. 

Ford Motor (F) is up more than +2% after reporting its Q1 US auto sales rose 7% on strong demand for its gas-electric hybrid vehicles.

Eli Lilly (LLY) is up more than +2% after Erste Group upgraded the stock to buy from hold.

Booking Holdings (BKNG) is up more than +1% after B Riley initiated coverage of the stock with a buy recommendation and a price target of $4,400.

Dave & Buster’s Entertainment (PLAY) is up more than +10% after reporting Q4 Ebitda of $151.8 million, above the consensus of $145 million, and announced an additional $100 million share buyback program. 

Cal-Maine Foods (CALM) is up more than +3% after reporting Q3 net sales of $703.1 million, stronger than the consensus of $692.5 million. 

United Parcel Service (UPS) is up more than +1% after Redburn upgraded the stock to buy from neutral with a price target of $180. 

Carlisle (CSL) is up more than +1% after Goldman Sachs initiated coverage of the stock with a buy recommendation and a price target of $455.

Ulta Beauty (ULTA) is down more than -13% to lead losers in the S&P 500 after the company said at JPMorgan’s retail round up investor conference that external data points reflect a slowdown to start the year. Other beauty retailers fell on the news, with Elf Beauty (ELF) down more than -9% and Estee Lauder (EL) and Coty (COTY) down more than -3%. 

Intel (INTC) is down more than -7% to lead losers in the Dow Jones Industrials and Nasdaq 100 after it said losses have deepened at its factory business and the unit may not reach a break-even point for several years. 

Wolfspeed (WOLF) is down more than -4% after Wells Fargo Securities downgraded the stock to equal weight from overweight. 

PepsiCo (PEP) is down nearly -1% after Argus Research downgraded the stock to hold from buy, citing the potential impact of weight-loss drugs. 

Five Below (FIVE) is down more than -1% after Gordon Haskett downgraded the stock to accumulate from buy. 

Earnings Reports (4/3/2024)

Acuity Brands Inc (AYI), Novagold Resources Inc (NG), Resources Connection Inc (RGP), Simulations Plus Inc (SLP), Sportsman's Warehouse Holdings (SPWH), SWK Holdings Corp (SWKH).

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