Stocks Settle Lower as Megacap Tech Stocks Routed

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -1.07%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.62%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.66%.  March E-mini S&P futures (ESH25) are down -1.06%, and March E-mini Nasdaq futures (NQH25) are down -1.65%. 

Stock indexes retreated Tuesday on concerns that the US economy is losing momentum due to US trade policies.  Weakness in the Magnificent Seven stocks and a slide in chip stocks led to a rout in megacap technology stocks Tuesday that weighed on the broader market.

Stocks remained under pressure Tuesday despite better-than-expected US economic news on Feb housing starts, building permits, and Feb manufacturing production.

US Feb housing starts rose +11.2% m/m to 1.501 million, stronger than expectations of 1.385 million.  Feb building permits, a proxy for future construction, fell -1.2% m/m to 1.456 million, a smaller decline than expectations of 1.453 million. 

The US Feb import price index ex-petroleum rose +0.4% m/m, stronger than expectations of +0.2% m/m. 

US Feb manufacturing production rose +0.9% m/m, stronger than expectations of +0.3% m/m and the biggest increase in a year.

Geopolitical risks in the Middle East are also undercutting stocks. Israel on Tuesday launched a series of airstrikes across Gaza, ending a two-month ceasefire with Hamas, and Israeli Prime Minister Netanyahu vowed to act "with increasing military strength" to free hostages and disarm Hamas.  Also, the US launched weekend strikes on Yemen's Houthi rebels.  US Defense Secretary Hegseth said strikes would be "unrelenting" until the group stops attacking vessels in the Red Sea. The Houthi rebels said they would respond by attacking US vessels in the Red Sea. 

According to the latest survey from Bank of America, investors cut their US stock holdings by 40 percentage points from the previous survey, the most on record, from 17% overweight in February to 23% underweight in March, while cash levels have risen to 4.1% from 3.5%, the biggest jump since 2020.

Stocks have been under pressure over the past two weeks due to fears that US tariffs will weaken economic growth and corporate earnings.  On March 4, President Trump imposed 25% tariffs on Canadian and Mexican goods and doubled the tariff on Chinese goods to 20% from 10%.  On Sunday, Mr. Trump reiterated that he would impose reciprocal tariffs and additional sector-specific tariffs on foreign nations on April 2. 

Market attention this week will focus on the results of the Tue-Wed FOMC meeting (expected no change to the 4.25%-4.50% federal funds target range).  The markets will also look at the Fed's economic projections and dot-plot for the future path of interest rates, along with post-meeting comments from Fed Chair Powell.

The markets are discounting the chances at 1% for a -25 bp rate cut at the Tue-Wed FOMC meeting.

Overseas stock markets on Tuesday settled higher.  The Euro Stoxx 50 climbed to a 1-week high and closed up +0.72%.  China's Shanghai Composite Index rose to a 3-month high and closed up +0.11%.  Japan's Nikkei Stock 225 rallied to a 2-1/2 week high and closed up +1.20%.

Interest Rates

June 10-year T-notes (ZNM25) Tuesday closed up +6 ticks.  The 10-year T-note yield fell -2.0 bp to 4.279%.  June T-notes Tuesday recovered from early losses and posted moderate gains as stocks retreated, which fueled safe-haven buying of T-notes.  Also, strong demand for the Treasury's $13 billion 20-year T-bond auction supported T-notes as the auction had a bid-to-cover ratio of 2.78, well above the 10-auction average of 2.53.

T-notes on Tuesday initially moved lower on stronger-than-expected US economic reports.  Feb housing starts, the Feb import price index ex-petroleum, and Feb manufacturing production all rose above expectations, weighing on T-notes.

European bond yields on Tuesday were mixed.  The 10-year German bund yield fell -0.8 bp to 2.810%.  The 10-year UK gilt yield rose +0.6 bp to 4.643%.

The German Mar ZEW survey expectations of economic growth rose +25.6 to a 3-year high of 51.6, stronger than expectations of 48.3.

On Tuesday, Germany's parliament passed a spending program that would usher in more expansive fiscal policy and boost economic growth.  The plan releases defense spending from the debt brake and creates a 500-billion-euro ($546 billion) fund to invest in Germany's infrastructure.

Swaps are discounting the chances at 55% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

US Stock Movers

Chip stocks moved lower Tuesday and were another bearish factor for the overall market.  Marvell Technology (MRVL) closed down more than -2%.  Also, Microchip Technology (MCHP), ON Semiconductor (ON), NXP Semiconductors NV (NXPI), Micron Technology (MU), ARM Holdings Plc (ARM), Applied Materials (AMAT),  Analog Devices (ADI), Qualcomm (QCOM), KLA Corp (KLAC), and Lam Research (LRCX) closed down more than -1%.  

The weakness of the Magnificent Seven stocks Tuesday weighed on the overall market.  Tesla (TSLA) closed down more than -5% after RBC Capital Markets cut its price target on the stock to $330 from $440.  Also, Nvidia (NVDA) closed down more than -3% to lead losers in the Dow Jones Industrials, and Meta Platforms (META) closed down more than -3%.  In addition, Alphabet (GOOGL) closed down more than -2%, and Amazon.com (AMZN) and Microsoft (MSFT) closed down more than -1%.  Finally, Apple (AAPL) closed down -0.61%.

Economic concerns undercut travel stocks on Tuesday.  Royal Caribbean Cruises Ltd (RCL) closed down more than -7%, and Norwegian Cruise Line Holdings (NCLH) closed down more than -4%.  Also, Carnival (CCL), United Airlines Holdings (UAL), Hilton Worldwide Holdings (HLT), and Marriott International (MAR) closed down more than -3%.  In addition, Delta Air Lines (DAL) and Booking Holdings (BKNG) closed down more than -2%. 

Bakkt Holdings (BKKT) closed down more than -27% after Bank of America and Webull Pay announced that they would not renew their commercial agreements with the company. 

Sarepta Therapeutics (SRPT) closed down more than -27% after a teenage boy treated with the company's gene therapy died of acute liver failure.

MicroStrategy (MSTR) closed down more than -3% after announcing plans to sell $500 million of dollar-denominated perpetual preferred stock.

 

Incyte (INCY) closed down more than -3% after Guggenheim Securities downgraded the stock to neutral from buy. 

Broadcom (AVGO) closed down more than -2% after The Information reported that Google plans to work with Broadcom rival MediaTek to help design and produce some of its artificial intelligence chips.   

Entergy (ETR) closed down more than -2% after offering $1.3 billion of shares of its common stock via Morgan Stanley, Bank of America Securities, JPMorgan Chase, and Mizuho Securities.

Defensive healthcare stocks moved higher on Tuesday due to the slump in the broader market.  Humana (HUM) closed up more than +2%.  Also, Cigna Group (CI), Cardinal Health (CAH), CVS Health Corp (CVS), UnitedHealth Group (UNH), and Elevance Health (ELV) closed up more than +1%. 

AngloGold (AU) closed up more than +3% to lead mining stocks higher Tuesday as the price of gold rose to a new record high. 

Willis Towers Watson Plc (WTW) closed up more than +2% after UBS upgraded the stock to buy from neutral with a price target of $395.

EQT Corp (EQT) closed up more than +1% after Stephens upgraded the stock to overweight from equal weight with a price target of $59. 

Earnings Reports (3/19/2025)

Five Below Inc (FIVE), General Mills Inc (GIS), Ollie's Bargain Outlet Holding (OLLI), Williams-Sonoma Inc (WSM).