Equity Markets Recover on Strength in Defensive Stocks and Energy Producers

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.55%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.00%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.02%.  June E-mini S&P futures (ESM25) are up +0.43%, and June E-mini Nasdaq futures (NQM25) are down -0.17%. 

Stock indexes on Monday settled mixed, with the Nasdaq 100 falling to a 6-1/2 month low.  Stock markets worldwide were under pressure Monday as concerns intensified about the impact of US tariffs on the global economy.  The US is set to launch reciprocal tariffs on Wednesday, and President Trump said on Sunday that he plans to impose tariffs on "all countries," curbing speculation that he could limit the initial scope of the tariffs.  The tariff worries have fueled risk-off sentiment in asset markets and sparked safe-haven buying of government debt and gold, which climbed to a new record high Monday. 

However, stocks recovered from their worst levels Monday, with the S&P 500 and Dow Jones Industrials pushing into positive territory as a rally in defensive stocks, such as food producers and utilities, lifted the overall market. Also, a +3% rally in WTI crude oil boosted energy stocks.  Stocks also found support on Monday's economic news that showed the US Mar MNI Chicago PMI unexpectedly rose to a 16-month high.  Stocks also have some underlying support as the 10-year T-note yield Monday fell to a 1-week low. 

Better-than-expected economic news from China also supported stocks after the China March manufacturing PMI rose +0.3 to 50.5, better than expectations of 50.4 and the strongest report in a year.  In addition, the China March non-manufacturing PMI rose +0.4 to 50.8, which was stronger than the expectations of 50.6.

The US Mar MNI Chicago PMI unexpectedly rose +2.1 to a 16-month high of 47.6, stronger than expectations of a decline to 45.0.

The US Dallas Fed Mar manufacturing activity outlook survey unexpectedly fell -8.0 to an 8-month low of -16.3, weaker than expectations of an increase to -5.0.

Richmond Fed President Barkin said it would take time before policymakers have a clearer idea on how President Trump's tariff policies might affect their interest rate decisions, and they would need confidence that inflation will move down before lowering interest rates again.

New York Fed President Williams said, "Monetary policy is moderately restrictive," and the Fed can keep that stance for "some time," as the impact that President Trump's tariffs will have on the economy is not yet clear.

Stocks have been under pressure over the past four 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 March 8, Mr. Trump reiterated that he would impose reciprocal tariffs and additional sector-specific tariffs on foreign nations on April 2.  Last Wednesday, President Trump signed a proclamation to implement a 25% tariff on US auto imports, effective April 3.  The tariffs will initially target vehicles fully assembled outside the US and, by May 3, will expand to include automobile parts made outside the US.  Mr. Trump said the tariffs were "permanent," and he was not interested in negotiating any exceptions.

Market attention this week will include Tuesday's US March ISM manufacturing index (expected -0.8 to 49.5).  On Wednesday, the March ADP employment change is expected to climb by +120,000.  On Thursday, the Mar ISM services index is expected to fall -0.5 to 53.0, and on Friday, March nonfarm payrolls are expected to increase by +138,000, and the March unemployment rate is expected unchanged at 4.1%.  Also, March average hourly earnings are expected +0.3% m/m and +4.0% y/y, unchanged from February.  Finally, on Friday, Fed Chair Powell is expected to speak to the Society for Advancing Business Editing and Writing Conference on the economic outlook.

The markets are discounting the chances at 19% for a -25 bp rate cut after the May 6-7 FOMC meeting.

Overseas stock markets on Monday settled lower.  The Euro Stoxx 50 fell to a 1-3/4 month low and closed down -1.56%.  China's Shanghai Composite Index slid to a 3-1/2 week low and closed down -0.46%.  Japan's Nikkei Stock 225 dropped to a 6-1/2 month low and closed down sharply by -4.05%.

Interest Rates

June 10-year T-notes (ZNM25) Monday closed up +0.5 of a tick.  The 10-year T-note yield fell -2.1 bp to 4.230%.  June T-notes Monday climbed to a 2-1/2 week high, and the 10-year T-note yield fell to a 1-week low of 4.182%.   T-notes moved higher Monday on the idea that US tariffs might drive the economy into recession, prompting the Fed to continue cutting interest rates. 

T-notes fell back from their best levels Monday after the US Mar MNI Chicago PMI unexpectedly rose to a 16-month high.  Also, a recovery in stocks from their worst levels on Monday reduced safe-haven demand for T-notes.  In addition, hawkish comments from New York Fed President Wiliams weighed on T-notes when he said, "Monetary policy is moderately restrictive," and the Fed can keep that stance for "some time."

European bond yields on Monday were mixed.  The 10-year German bund yield recovered from a 3-1/2 week low of 2.659% and finished up +1.0 bp to 2.738%.  The 10-year UK gilt yield fell to a 1-week low of 4.641% and finished down -2.0 bp to 4.675%.

German Mar CPI (EU harmonized) eased to +2.3% y/y from 2.6% y/y in Feb, weaker than expectations of +2.4% y/y and the slowest pace of increase in 6 months.

German Feb retail sales rose +0.8% m/m, stronger than expectations of unchanged m/m and the biggest increase in 5 months.

Swaps are discounting the chances at 73% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

US Stock Movers

Defensive utility stocks rose Monday.  As a result, Exelon Corp (EXC) closed up more than +3%, and American Electric Power (AEP) and Duke Energy (DUK) closed up more than +2%.  Also, Xcel Energy (XEL), Eversource Energy (ES), and Consolidated Edison (EIX) closed up more than +1%.

Defensive food producers and beverage stocks are moving higher today with weakness in the overall market.  Tyson Foods (TSN) closed up more than +2%.  Also, Coca-Cola (KO), General Mills (GIS), JM Smucker (SJM), Hormel Foods (HRL), and Monster Beverage (MNST) closed up more than +1%.

Monday's +3% rally in WTI crude oil to a 5-week high boosted energy producers and energy service providers.  ConocoPhillips (COP) and Bake Hughes (BKR) closed up more than +2%.  Also, Devon Energy (DVN), Diamondback Energy (FANG), Phillips 66 (PSX), Haliburton (HAL), Marathon Petroleum (MPC) and Occidental Petroleum (OXY) closed up more than +1%.

Weakness in the Magnificent Seven stocks on Monday was a bearish factor for the overall market.  Tesla (TSLA), Nvidia (NVDA), Amazon.com (AMZN), and more than -1%.  Also, Microsoft (MSFT) closed down -0,90% and Meta Platforms (META) closed down -0.07%.  However, Apple (AAPL) bucked the trend and closed up more than +1%, while Alphabet (GOOGL) closed up +0.11%. 

Chip makers were under pressure Monday and weighed on the broader market. ASML Holding NV (ASML), Micron Technology (MU), and Broadcom (AVGO) closed down more than -1%.  Also, ARM Holdings Plc (ARM) closed down -0.94%, Marvell Technology (MRVL) closed down -0.71%, ON Semiconductor closed down -0.61% and Microchip Technology (MCHP) closed down -0.60%. 

Travel and cruise stocks slid Monday after the CEO of Virgin Atlantic Airways warned of weakening US demand for travel to the UK as ticket sales on flights originating from the US have begun to flag in recent weeks.  As a result, MGM Resorts International (MGM) closed down more than -2%.  Also, Carnival (CCL), United Airlines Holdings (UAL), Royal Caribbean Cruises Ltd (RCL), Norwegian Cruise Line Holdings (NCLH), and Alaska Air Group (ALK) closed down more than -1%. 

Moderna (MRNA) closed down more than -8% Monday to lead losers in the S&P 500 and vaccine makers lower after Peter Marks, a top FDA regulator overseeing approvals and vaccines and biological drugs, resigned.

Innovative Industrial Properties (IIPR) closed down more than -15% after Compass Point Research & Trading LLC downgraded the stock to sell from neutral with a price target of $50.

Sarepta Therapeutics (SRPT) closed down more than -8% after RBC Capital Markets downgraded the stock to sector perform from outperform and cut its price target on the stock to $87 from $161.

Mr Cooper Group (COOP) closed up more than +15% after Rocket Companies acquired the company in an all-stock transaction valued at $9.4 billion.

Celsius Holdings (CELH) closed up more than +7% after Truist Securities upgraded the stock to buy from hold with a price target of $45. 

American International Group (AIG) closed up more than +4% after it authorized the repurchase of as much as $7.5 billion of its common stock.

Corteva (CTVA) closed up more than +3% after Argus Research upgraded the stock to buy from hold with a price target of $69.

Earnings Reports (4/1/2025)

Adverum Biotechnologies Inc (ADVM), Golden Matrix Group Inc (GMGI), Lifezone Metals Ltd (LZM), Cino Inc (NCNO), Novagold Resources Inc (NG), Sandisk Corp/DE (SNDK), Ultralife Corp (ULBI).