Chip Stock Weakness and Tariff Angst Sink Stocks

The S&P 500 Index ($SPX) (SPY) Thursday closed down -1.59%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.45% and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.75%.  March E-mini S&P futures (ESH25) are down -1.56%, and March E-mini Nasdaq futures (NQH25) are down -2.70%. 

Stock indexes sold off Thursday, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 falling to 6-week lows.  Despite Nvidia reporting better-than-expected Q4 earnings, it slumped more than -8%, leading chip stocks lower due to concerns about gross profit margins and US tariffs.  The broader market also came under pressure after President Trump said that the proposed 25% tariffs on Canada and Mexico would go into effect on March 4, and China would likewise be charged an additional 10% tariff on that date.  Also, inflation pressures remain sticky after the Q4 core PCE price index was revised to a higher level.  In addition, US weekly jobless claims rose more than expected to a 2-1/2 month high and Jan pending home sales posted their biggest decline in 9 months.

Stocks added to their losses Thursday afternoon on hawkish Fed comments.  Cleveland Fed President Hammack said US interest rates are not "meaningfully restrictive" and should be held steady for some time as officials wait for evidence inflation is returning to the Fed's 2% target.  Also, Philadelphia Fed President Harker said, "The policy rate remains restrictive enough to continue putting downward pressure on inflation over the longer term, as we need it to, while not negatively impacting the rest of the economy."

Stocks found early support Thursday on signs of US economic strength after Q4 GDP was left unrevised, and after Jan capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose more than expected.

US Q4 GDP was left unrevised at +2.3% (q/q annualized).  The Q4 core PCE price index was revised upward to +2.7% from the previously reported +2.5%.

US Jan capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +0.8% m/m, stronger than expectations of +0.3% m/m.

US weekly initial unemployment claims rose +22,000 to a 2-1/2 month high of 242,000, showing a weaker labor market than expectations of 221,000.

US Jan pending home sales fell -4.6% m/m, weaker than expectations of -0.9% m/m and the biggest decline in 9 months.

Kansas City Fed President Schmid said the Fed may have to balance inflation risks against growth concerns when he said, "While the risks to inflation appear to be to the upside, discussions with contacts in my district, as well as some recent data, suggest that elevated uncertainty might weigh on growth."

The remainder of this week's US economic calendar is busy.  Friday's Jan PCE price index report, the Fed's preferred inflation measure, is expected to ease slightly to +2.5% y/y from December's +2.6%, and the core index is expected to ease to +2.6% y/y from December's +2.8%.  The expected Jan PCE reports of +2.5% nominal and +2.6% core would leave those measures at or above their 3-3/4 year lows posted in 2024 of +2.1% and +2.6%, respectively, and well above the Fed's +2% inflation target.

The markets are discounting the chances at 2% for a -25 bp rate cut at the next FOMC meeting on March 18-19.

Overseas stock markets on Thursday settled mixed.  The Euro Stoxx 50 closed down -1.00%.  China's Shanghai Composite Index climbed to an 8-week high and closed up +0.23%.  Japan's Nikkei Stock 225 closed up +0.30%.

Interest Rates

March 10-year T-notes (ZNH25) Thursday closed down -7.5 ticks.  The 10-year T-note yield rose +2.3 bp to 4.279%.  March T-notes were under pressure Thursday after President Trump said 25% tariffs on Canada and Mexico would go into effect on March 4, which could boost inflation and keep the Fed from cutting interest rates. Also, an upward revision to the Q4 core PCE price index signals stubborn inflation and is bearish for T-notes.  Hawkish comments from Cleveland Fed President Hammack and Philadelphia Fed President Harker undercut T-notes when they signaled support for keeping monetary policy steady.

Losses in T-notes were limited on carryover support from today's rally in 10-year German bunds to a 2-week high.  Also, US weekly jobless claims rose to a 2-1/2 month high and Jan pending homes sales fell more than expected, dovish factors for Fed policy.

European bond yields on Thursday were mixed.  The 10-year German bund yield fell to a 2-week low of 2.410% and finished down -2.0 bp to 2.413%.  The 10-year UK gilt yield rose +0.9 bp to 4.512%.

Eurozone Feb economic confidence rose +1.0 to a 5-month high of 96.3, stronger than expectations of 95.9.

The Eurozone Jan M3 money supply rose +3.6% y/y, weaker than expectations of +3.8% y/y.

Swaps are discounting the chances at 99% for a -25 bp rate cut by the ECB at the March 6 policy meeting.

US Stock Movers

Teleflex (TFX) closed down more than -21% to lead losers in the S&P 500 after forecasting 2025 adjusted EPS continuing operations of $13.95-$14.35, well below the consensus of $15.24.

Chip stocks retreated Thursday and weighed on the overall market.  Earnings results from Nvidia (NVDA) failed to impress, closing down more than -8% to lead losers in the Dow Jones Industrials. Also, Marvell Technology (MRVL), Applied Materials (AMAT), and Broadcom (AVGO) closed down more than -7%.  In addition, ON Semiconductor (ON), Lam Research (LRCX), and Micron Technology (MU) closed down more than -6%, and NXP Semiconductors NV (NXPI), Advanced Micro Devices (AMD), and GlobalFoundries (GFS) closed down more than -5%.

Viatris Inc (VTRS) closed down more than -15% after reporting a Q1 loss per share of -43 cents, a larger loss than the consensus of -28 cents.

Axon Enterprise (AXON) closed down more than -8% after Argus Research cut its price target on the stock to $700 from $800.

eBay (EBAY) closed down more than -8% after forecasting Q1 net revenue of $2.52 billion-$2.56 billion, weaker than the consensus of $2.60 billion. 

Pure Storage (PSTG) closed down more than -14% after forecasting 2026 adjusted operating income of $595 million, below the consensus of $604 million. 

Moderna (MRNA) closed down more than -7% after Bloomberg reported that US health officials are reevaluating a $590 million contract that the Biden administration awarded the company for bird flu shots. 

Salesforce (CRM) closed down more than -4% after reporting Q4 revenue of $9.99 billion, below the consensus of $10.04 billion, and forecast 2026 revenue of $40.5 billion-$40.9 billion, weaker than the consensus of $41.46 billion. 

Teladoc Health (TDOC) closed down more than -12% after forecasting 2025 revenue of $2.47 billion-$2.58 billion, the midpoint below the consensus of $2.54 billion. 

Invitations Homes (INVH) closed up more than +5% to lead gainers in the S&P 500 after reporting Q4 revenue of $659.1 million, stronger than the consensus of $651.1 million.

Warner Bros Discovery (WBD) closed up more than +4% to lead gainers in the Nasdaq 100 after reporting Q4 total subscribers of 116.90 million, above the consensus of 115.75 million.

Universal Health Services (UHS) closed up more than +3% to lead healthcare stocks higher after reporting Q4 adjusted EPS of $4.92, well above the consensus of $4.15.  Also, Molina Healthcare (MOH), Centene (CNC), and Humana (HUM) closed up more than +2%.  In addition, UnitedHealth Group (UNH) and Elevance Health (ELV) closed up more than +1%. 

Nutanix (NTNX) closed up more than +11% after reporting Q2 revenue of $654.7 million, above the consensus of $641.7 million, and raised its full-year revenue forecast to $2.50 billion-$2.52 billion from a previous estimate of $2.44 billion-$2.47 billion, stronger than the consensus of $2.46 billion. 

Snowflake (SNOW) closed up more than +5% after reporting Q4 revenue of $986.8 million, stronger than the consensus of $958 million, and forecast 2026 product revenue of $4.28 billion, above the consensus of $4.23 billion. 

Allstate (ALL) closed up more than +3% after boosting its quarterly dividend to $1.00 a share from 92 cents, higher than expectations of 95 cents.  The company also authorized a $1.5 billion stock buyback program. 

Papa John's International (PZZA) closed up more than +1% after reporting Q4 adjusted EPS of 63 cents, stronger than the consensus of 50 cents. 

Walgreens Boots Alliance (WBA) closed up more than +1% after the Financial Times reported that a potential take-private deal from Sycamore Partners would lead to a split of Walgreens's US and UK pharmacy businesses and its specialty pharmacy unit.

Earnings Reports (2/28/2025)

Apellis Pharmaceuticals Inc (APLS), New Fortress Energy Inc (NFE).