Stocks Mixed as Hawkish Fed Comments Push Bond Yields Higher

The S&P 500 Index ($SPX) (SPY) this morning is down -0.24%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.14%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.03%. 

Stock indexes this morning are mixed, with the S&P 500 posting a 1-3/4 month low.  Soaring bond yields are weighing on stocks as the 10-year T-note yield today climbed to a new 5-month high.  Today’s US economic news was mixed with March housing starts and building permits falling more than expected, but March manufacturing production rose more than expected.  The markets are awaiting comments early this afternoon from Fed Chair Powell.

Hawkish Fed comments pushed bond yields higher today and are weighing on stocks.  Fed Vice Chair Jefferson said, "If incoming data suggest that inflation is more persistent than I currently expect it to be, it will be appropriate to hold in place the current restrictive stance of policy for longer."   Also, San Francisco Fed President Daly said Monday evening that there's "no urgency" for the Fed to adjust interest rates.  She said, "The labor market's not giving us any indication it's faltering, and inflation is still above our target, and we need to be confident it is on a path to come down to our target before we would feel the need to react." 

Stocks found some support today after the International Monetary Fund raised its 2024 global GDP forecast to 3.2% from a 3.1% forecast in January.

Geopolitical risks in the Middle East continue to be a negative factor for stocks on concern Israel will retaliate after Iran fired a barrage of missiles and drones into Israel over the weekend.

US Mar housing starts fell -14.7% m/m to a 7-month low of 1.321 million, weaker than expectations of 1.485 million.  Mar building permits, a proxy for future construction, fell -4.3% m/m to an 8-month low of 1.458 million, weaker than expectations of 1.510 million.

US Mar manufacturing production rose +0.5% m/m, stronger than expectations of +0.2% m/m.

Concern that China’s economic recovery is fading is a negative factor for global growth prospects.  China's Q1 GDP rose +5.3% y/y, stronger than expectations of +4.8% y/y.  However, most of that growth came from the first two months of this year.  China Mar industrial production rose +4.5% y/y, weaker than expectations of +6.0% y/y, and Mar retail sales rose +3.1% y/y, weaker than expectations of +4.8% y/y.

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 23% for the following meeting on June 11-12.

Overseas stock markets today are lower.  The Euro Stoxx 50 fell to a 5-week low and is down -1.55%. China's Shanghai Composite closed down -1.65%.  Japan's Nikkei Stock Index fell to a 1-month low and closed down -1.94%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are down -5 ticks.  The 10-year T-note yield is up +4.1 bp at 4.643%.  June T-notes this morning extended Monday’s losses to a new 5-month low, and the 10-year T-note yield rose to a new 5-month high of 4.694%.  T-note prices are under pressure today from hawkish Fed comments after San Francisco Fed President Daly and Fed Vice Chair Jefferson said they supported holding interest rates steady until inflation falls to target.  Also, rising inflation expectations are bearish for T-notes after the US 10-year breakeven inflation rate today climbed to a 5-1/2 month high of 2.441%.  T-notes are also seeing negative carry-over from higher European bond yields.  T-notes found underlying support from this morning’s weaker-than-expected US Mar housing starts and building permits reports. 

European government bond yields today are moving higher.  The 10-year German bund yield rose to a 4-1/2 month high of 2.512% and is up +5.4 bp at 2.494%.  The 10-year UK gilt yield rose to a 5-month high of 4.328% and is up +6.7 bp at 4.307%.

The German Apr ZEW survey expectations of economic growth rose +11.2 to a 2-year high of 42.9, stronger than expectations of 35.5.

ECB President Lagarde said, "If we don't have a major shock in developments, we are heading towards a moment where we have to moderate the restrictive monetary policy that we have."  That is likely to happen in "reasonably short order."

ECB Governing Council member Makhlouf said the ECB should be able to cut interest rates at its next meeting in June if the trend in inflation persists.

US Stock Movers

UnitedHealth Group (UNH) is up more than +5% to lead gainers in the S&P 500 and Dow Jones Industrials after reporting Q1 revenue of $99.8 billion, above the consensus of $99.21 billion.  Other health insurers also rose on the news, with Humana (HUM) up +2% and Elevance Health (ELV) up more than +1%.

Netflix (NFLX) is up more than +2% to lead gainers in the Nasdaq 100 after Guggenheim Securities raised its price target on the stock to $700 from $600.

Morgan Stanley (MS) is up more than +3% after reporting Q1 wealth management net revenue of $6.88 billion, stronger than the consensus of $6.69 billion. 

Super Micro Computer (SMCI) is up more than +3% after Loop Capital Markets raised its price target on the stock to $1,500 from $600. 

Advanced Micro Devices (AMD) is up more than +2% after HSBC upgraded the stock to buy from hold with a price target of $225.

Live Nation Entertainment (LYV) is down more than -6% to lead losers in the S&P 500 after Bloomberg reported that the Department of Justice is preparing to file an antitrust complaint against the company over its Ticketmaster business.

Bank of America (BAC) is down more than -3% after reporting Q1 net charge-offs of $1.50 billion, higher than the consensus of $1.26 billion.

Apple (AAPL) is down more than -2% to lead losers in the Dow Jones Industrials, adding to Monday’s -2% slide after IDC reported the company shipped 50.1 million iPhones in Q1, below the consensus of 51.7 million. 

Tesla (TSLA) is down more than -2% after two of the company’s top executives announced they were leaving amid its largest-ever round of job cuts.

Northern Trust (NTRS) is down more than -3% after reporting Q1 EPS of 96 cents, weaker than the consensus of $1.42.

Johnson & Johnson (JNJ) is down more than -1% after reporting Q1 sales of $21.38 billion, below the consensus of $21.39 billion.

PNC Financial Services Group (PNC) is down more than -1% after reporting Q1 revenue of $5.1 billion, below the consensus of $5.2 billion.

Earnings Reports (4/16/2024)

Bank of America Corp (BAC), Bank of New York Mellon Corp/T (BK), JB Hunt Transport Services Inc (JBHT), Johnson & Johnson (JNJ), Morgan Stanley (MS), Northern Trust Corp (NTRS), Omnicom Group Inc (OMC), PNC Financial Services Group Inc (PNC), United Airlines Holdings Inc (UAL), UnitedHealth Group Inc (UNH).

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