Stocks Tumble on Tech Stock Weakness and Signs of Persistent Inflation

The S&P 500 Index ($SPX) (SPY) this morning is down -1.42%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.43%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.83%. 

US stock indexes this morning are sharply lower, led by weakness in technology stocks.  Meta Platforms is down more than -14% after forecasting Q2 revenue below consensus and raising its full-year total expenses estimate.  Also, IBM is down more than -8% after reporting lackluster Q1 revenue from its consulting division.  In addition, Caterpillar is down more than -8% after saying it expects sales for Q2 to be lower compared to last year. 

Losses in stocks accelerated after bond yields jumped on signs of persistent inflation and labor market strength when today’s US Q1 core PCE price index was revised higher and weekly jobless claims unexpectedly fell to a 2-month low, hawkish factors for Fed policy.

On the positive side, Tyler Technologies is up more than +8% after reporting stronger-than-expected Q1 adjusted EPS.  Also, Chipotle Mexican Grill is up more than +4% after reporting better-than-expected Q1 comparable sales.  Merck & Co is up more than +3% after reporting Q1 adjusted EPS above consensus and raising its full-year adjusted EPS estimate.

US weekly initial unemployment claims unexpectedly fell -5,000 to a 2-month low of 207,000, showing a stronger labor market than expectations of an increase to 215,000.

US Q1 GDP was revised downward to 1.6% (q/q annualized) from 3.4%, weaker than expectations of 2.5%, as Q1 personal consumption was revised lower to 2.5% from 3.3%, weaker than expectations of 3.0%.  The Q1 core PCE price index was revised upward to +3.7% from +2.0%, stronger than expectations of +3.4%

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

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down -1.48%.  China's Shanghai Composite closed up +0.27%.  Japan's Nikkei Stock Index closed down -2.16%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are down -16 ticks.  The 10-year T-note yield is up +8.3 bp at 4.725%.  T-notes prices today dropped to a 5-1/2 month low, and the 10-year T-note yield climbed to a 5-3/4 month high of 4.735%.  Signs of faster inflation and labor market strength weighed on T-note prices after today’s Q1 core PCE price index was revised higher, and weekly initial unemployment claims unexpectedly fell to a 2-month low, hawkish factors for Fed policy.  Also, supply pressures are undercutting T-note prices as the Treasury will auction $44 billion of 7-year T-notes to conclude this week’s $183 billion T-note auctions.

European government bond yields today are moving higher.  The 10-year German bund yield rose to a 4-3/4 month high of 2.618% and is up +2.6 bp at 2.615%.  The 10-year UK gilt yield rose to a 5-1/2 month high of 4.376% and is up +4.0 bp at 4.374%.

The German May GfK consumer confidence index rose +3.1 to a 2-year high of -24.2, stronger than expectations of -26.0.

ECB Governing Council member Muller said he is not in favor of cutting interest rates for a second straight meeting following an expected first cut in June.

US Stock Movers

Meta Platforms (META) is down more than -14% to lead losers in the S&P 500 and Nasdaq 100 after forecasting Q2 revenue of $36.5 billion-$39 billion, the midpoint of which was below the consensus of $38.24 billion, and raising its full-year total expenses estimate to $96 billion-$99 billion from a previous estimate of $94 billion-$99 billion, above the consensus of $96.87 billion. Other megacap technology stocks are falling on the news, with Amzon.com (AMZN), Microsoft (MSFT), and Alphabet (GOOGL) down more than -4%

Textron (TXT) is down more than -10% after reporting Q1 revenue of $3.14 billion, weaker than the consensus of $3.29 billion.

Southwest Airlines (LUV) is down more than -9% after reporting a Q1 adjusted loss of -36 cents a share, wider than the consensus of -31 cents. 

International Business Machines (IBM) is down more than -8% to lead losers in the Dow Jones Industrials after reporting Q1 revenue from its consulting division was unchanged y/y at $5.2 billion and said clients continue to tighten their spending owing to an uncertain economic environment.

Caterpillar (CAT) is down more than -7% after saying it expects sales for Q2 to be lower compared to last year. 

AO Smith (AOS) is down more than -6% after forecasting full-year net sales of $3.97 billion-$4.05 billion, the midpoint below the consensus of $4.02 billion.

ServiceNow (NOW) is down more than -6% after forecasting full-year subscription revenue of $10.56 billion-$10.58 billion, below the consensus of $10.59 billion. 

Tyler Technologies (TYL) is up more than +9% to lead gainers in the S&P 500 after reporting Q1 adjusted EPS of $2.20, stronger than the consensus of $2.04. 

Carrier Global (CARR) is up more than +5% after reporting Q1 adjusted EPS of 62 cents, above the consensus of 50 cents.

Teradyne (TER) is up more than +4% after reporting Q1 net revenue of $599.8 million, above the consensus of $566.3 million, and forecasting Q2 revenue of $665 million-$725 million, stronger than the consensus of $636.5 million. 

Chipotle Mexican Grill (CMG) is up more than +4% after reporting Q1 comparable sales rose +7%y/y, stronger than the consensus of +5.13% y/y.

Keurig Dr Pepper (KDP) is up more than +4% after reporting Q1 net sales of $3.47 billion, above the consensus of $3.41 billion. 

Merck & Co (MRK) is up more than +3% to lead gainers in the Dow Jones Industrials after reporting Q1 adjusted EPS of $2.07, stronger than the consensus of $1.86, and raising its full-year adjusted EPS estimate to $8.53-$8.65 from a previous estimate of $8.44-$8.59. 

Earnings Reports (4/25/2024)

A O Smith Corp (AOS), Allegion plc (ALLE), Alphabet Inc (GOOGL), Altria Group Inc (MO), American Airlines Group Inc (AAL), Arthur J Gallagher & Co (AJG), AvalonBay Communities Inc (AVB), Bristol-Myers Squibb Co (BMY), Capital One Financial Corp (COF), Carrier Global Corp (CARR), Caterpillar Inc (CAT), Cincinnati Financial Corp (CINF), CMS Energy Corp (CMS), Comcast Corp (CMCSA), Dexcom Inc (DXCM), Dover Corp (DOV), Dow Inc (DOW), DTE Energy Co (DTE), Eastman Chemical Co (EMN), Edwards Lifesciences Corp (EW), Fair Isaac Corp (FICO), FirstEnergy Corp (FE), GE Vernova Inc (GEV), Gilead Sciences Inc (GILD), Hartford Financial Services Group (HIG), Healthpeak Properties Inc (DOC), Hess Corp (HES), Honeywell International Inc (HON), Intel Corp (INTC), International Paper Co (IP), Juniper Networks Inc (JNPR), Keurig Dr Pepper Inc (KDP), KLA Corp (KLAC), L3Harris Technologies Inc (LHX), Laboratory Corp of America Holdings (LH), Merck & Co Inc (MRK), Microsoft Corp (MSFT), Mohawk Industries Inc (MHK), Nasdaq Inc (NDAQ), Newmont Corp (NEM), Northrop Grumman Corp (NOC), PG&E Corp (PCG), Pool Corp (POOL), Principal Financial Group Inc (PFG), ResMed Inc (RMD), Robert Half Inc (RHI), Royal Caribbean Cruises Ltd (RCL), S&P Global Inc (SPGI), Southwest Airlines Co (LUV), Textron Inc (TXT), T-Mobile US Inc (TMUS), Tractor Supply Co (TSCO), Union Pacific Corp (UNP), Valero Energy Corp (VLO), VeriSign Inc (VRSN), West Pharmaceutical Services Inc (WST), Western Digital Corp (WDC), Weyerhaeuser Co (WY), Willis Towers Watson PLC (WTW),WW Grainger Inc (GWW), Xcel Energy Inc (XEL).

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