Stocks Finish Lower on Hawkish Fed and Rising Bond Yields

The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.22%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.57%. 

US stock indexes gave up early gains on Thursday and settled mixed, with the S&P 500 and Nasdaq 100 posting 1-3/4 month lows.  Rising T-note yields on Thursday pressured stocks.  Hawkish Fed comments pushed bond yields higher and undercut stocks when NY Fed President Williams and Atlanta Fed President Bostic said the Fed is in no hurry to lower interest rates.  Also, weakness in chip stocks for the second session weighed on the overall market. 

Stocks found some support on Thursday’s mostly better-than-expected US economic reports, which bolstered the prospects for a soft landing.  Also, Thursday's better-than-expected quarterly earnings from Elevance Health boosted health insurance stocks and kept the Dow Jones Industrials in positive territory. 

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 this past weekend.

US weekly initial unemployment claims were unchanged at 212,000, showing a stronger labor market than expectations of an increase to 215,000.

The US Apr Philadelphia Fed business outlook survey unexpectedly rose +12.3 to a 2-year high of 15.5 versus expectations of a decline to 2.0.

US Mar existing home sales fell -4.3% m/m to 4.19 million, slightly weaker than expectations of 4.20 million.

US Mar leading indicators fell -0.3% m/m, weaker than expectations of -0.1% m/m.

NY Fed President Williams said there's "no urgency" to cut interest rates, and economic data will determine the timing of rate cuts.

Atlanta Fed President Bostic said, "Inflation is too high," and he doesn't think it will be appropriate to lower borrowing costs until toward the end of the year.

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 17% for the following meeting on June 11-12.

Overseas stock markets Thursday settled higher.  The Euro Stoxx 50 closed up +0.46%.  China's Shanghai Composite rose to a 6-month high and closed up +0.09%.  Japan's Nikkei Stock Index recovered from a 2-month low and closed up +0.31%.

Interest Rates

June 10-year T-notes (ZNM24) on Thursday closed down -14.5 ticks.  The 10-year T-note yield rose +5.2 bp to 4.639%. June T-notes came under pressure Thursday from stronger-than-expected US jobless claims and Philadelphia Fed reports. T-notes extended their losses on hawkish comments from NY Fed President Williams and Atlanta Fed President Bostic, who said the Fed is in no hurry to cut interest rates.

European government bond yields Thursday finished higher. The 10-year German bund yield rose +3.1 bp to 2.497%.  The 10-year UK gilt yield rose +1.0 bp to 4.272%.

In its monthly report, the Bundesbank updated its assessment of the German economy and said the German economy in Q1 may have seen a "slight increase" in growth, an improvement from March when they projected the economy contracted in Q1.

ECB Executive Board member de Guindos said if ECB officials have confidence in meeting the CPI target of 2%, then "it would be appropriate to reduce the current level of monetary policy restriction."

ECB Governing Council member Rehn said, "Provided that we are confident that inflation will continue converging to our 2% target in a sustained way, the time will be ripe in June for the ECB to start easing the monetary stance and to cut rates."

ECB Governing Council member Holzmann said there will likely be a majority for an ECB rate cut in June.

Eurozone Mar new car registrations fell -5.2% y/y, the biggest decline in 20 months.

Eurozone Feb construction output rose +1.8% m/m, the biggest increase in a year.

US Stock Movers

Las Vegas Sands (LVS) closed down more than -8% to lead losers in the S&P 500 despite reporting Q1 EPS above expectations after results at its Macau locations broadly missed consensus estimates.

Equifax (EFX) closed down more than -8% after reporting Q1 operating revenue of $1.39 billion, weaker than the consensus of $1.41 billion, and forecast full-year revenue of $5.67 billion-$5.77 billion, below the consensus of $5.80 billion. 

Snap-on Inc (SNA) closed down more than -7% after reporting Q1 net sales of $1.18 billion, below the consensus of $1.20 billion.

Tesla (TSLA) closed down more than -3% to lead losers in the Nasdaq 100 after Deutsche Banks downgraded the stock to hold from buy. 

Chip stocks were under pressure for a second day and weighed on technology stocks.  Micron Technology (MU) closed down more than -3% to lead losers in the Nasdaq 100.  Also, NXP Semiconductors NV (NXPI) closed down more than -3%.  In addition, ON Semiconductor (ON), Applied Materials (AMAT), and Lam Research (LRCX) closed down more than -2%.  Finally, ASML Holding NV (ASML), KLA Corp (KLAC), Marvel Technology (MRVL), Qualcomm (QCOM), and Texas Instruments (TXN) are down more than -1%. 

Autodesk (ADSK) closed down -2%, adding to Wednesday’s -5% plunge, after saying it won’t file its annual report within the 15-day extension period as it continues investigating free cash flow and non-GAAP operating margin practices. 

Genuine Parts Co (GPC) closed up more than +11% to lead gainers in the S&P 500 after reporting Q1 adjusted EPS of $2.22, better than the consensus of $2.17, and raising its full-year adjusted EPS estimate to $9.80-$9.95 from a previous estimate of $9.70-$9.90, above the consensus of $9.78. 

Elevance Health (ELV) closed up more than +3% after reporting Q1 adjusted EPS of $10.64, better than the consensus of $10.53, and raised its full-year adjusted EPS forecast to above $37.20 from a previous forecast of above $37.10, stronger than the consensus of $37.16.  Other health insurers rose on the news, with UnitedHealth Group (UNH) closing more than +2% to lead gainers in the Dow Jones Industrials, and Centene (CNC) closed more than +2%.

Discover Financial Services (DFS) closed up more than +3% after reporting Q1 net interest income of $3.49 billion, above the consensus of $3.40 billion.

Marsh & McLennan (MMC) closed up more than +2% after reporting Q1 adjusted EPS of $2.89, stronger than the consensus of $2.80. 

Meta Platforms (META) closed up more than +1% to lead gainers in the Nasdaq 100 after Moody’s Ratings upgraded the company’s senior unsecured debt rating to Aa3 from A1. 

Comerica (CMA) closed up more than 1% after reporting Q1 average deposits of $65.31 billion, above the consensus of $63.85 billion. 

Earnings Reports (4/19/2024)

American Express Co (AXP), Fifth Third Bancorp (FITB), Huntington Bancshares Inc/OH (HBAN), Procter & Gamble Co/The (PG), Regions Financial Corp (RF), Schlumberger NV (SLB).

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