Stocks Plummet on Semiconductor Weakness and Powell Comments

The S&P 500 Index ($SPX) (SPY) Wednesday closed down -2.24%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.73%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -3.04%.  June E-mini S&P futures (ESM25) are down -2.12%, and June E-mini Nasdaq futures (NQM25) are down -2.83%. 

Stock indexes on Wednesday sold off sharply.  Semiconductor stocks plunged on Wednesday to lead the overall market lower.  Nvidia closed down more than -6% after the US government barred the sale of its H20 chips to China, with Nvidia saying the ban will cost it $5.5 billion in Q1 tied to inventory and commitments for the chips.  Also, ASML Holding NV closed down more than -7% after reporting that Q1 bookings were below consensus.  Stocks added to their losses Wednesday after the WTO cut its 2025 global trade estimates.

The rout in stocks deepened Wednesday afternoon as the indexes sold off further on remarks from Fed Chair Powell, who warned that trade tensions could spur inflation and slow growth, and that the Fed was in no hurry to cut interest rates.

Wednesday's US economic news was mostly better than expected and was a supportive factor for stocks.  Stocks also found some support from a Bloomberg report that said China wants to see a number of steps from the Trump administration before it will agree to trade talks, including showing more respect by reining in disparaging remarks by members of his cabinet.

US MBA mortgage applications fell -8.5% in the week ended April 11, with the purchase mortgage sub-index down -4.8% and the refinancing mortgage sub-index down -12.4%.  The average 30-year fixed rate mortgage rose +20 bp to 6.81% from 6.61% in the prior week.

US March retail sales rose +1.4% m/m, right on expectations and March retail sales ex-autos rose +0.5% m/m, stronger than expectations of +0.4% m/m.

US March manufacturing production rose +0.3% m/m, slightly stronger than expectations of +0.2% m/m.

The US Apr NAHB housing market index unexpectedly rose +1 to 40, stronger than expectations of a decline to 38.

The World Trade Organization (WTO) cut its 2025 global trade forecast to a -0.2% decline from a November forecast of up +3.0% and warned if the US pushes ahead with reciprocal tariffs, global trade will contract -1.5% this year. 

Cleveland Fed President Hammack said a "modestly restrictive" policy stance is appropriate, and there is a "strong case" for the Fed to hold interest rates steady to balance risks. 

Fed Chair Powell said the Trump administration's tariffs are even higher than the Fed's upside scenario, and the US economy will likely be "moving away" from both of the Fed's goals of full employment and stable prices for "probably for the balance of this year." He added, "For the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance."

Last Friday, President Trump said he would temporarily exempt consumer electronics from reciprocal tariffs and the baseline 10% global tariffs. However, a 20% tariff still applies to electronics shipped from China.  Last Wednesday, President Trump announced a 90-day pause on higher reciprocal tariffs on 56 nations but left the new 10% baseline tariff on virtually all nations in place.  Meanwhile, the EU last Thursday said it will delay for 90 days the implementation of 25% tariffs on 21 billion euros worth of US goods sent to Europe.

Stocks have been under pressure over the past five 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 April 2, President Trump signed a proclamation to implement a 25% tariff on US auto imports.  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.  On April 5, a 10% baseline tariff for virtually all nations took effect.  Last Friday, China raised tariffs on all US goods to 125% from 84% in retaliation for the US raising tariffs on Chinese goods to 145%. 

The US tariff turmoil has undercut the dollar and boosted gold.  The dollar index last Friday sank to a 3-year low, and gold prices soared to an all-time high Wednesday.  The markets are concerned about the effects of US trade policies, which have caused consumer confidence to plummet and have prompted many companies to suspend their capital spending plans, a negative factor for GDP growth.  Also, the dollar is facing a confidence crisis as the US weaponizes tariffs, diminishing the dollar's reserve-currency status and prompting some foreign investors to liquidate their dollar assets. 

The markets will focus on US trade policy news during this holiday-shortened week.  On Thursday, Mar housing starts are expected to fall -5.7% m/m to 1.416 million, and Mar building permits are expected -0.6% m/m to 1.450 million.

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

Q1 earnings reporting season began last Friday as big US banks reported their results.  According to data compiled by Bloomberg Intelligence, the market consensus is for Q1 year-over-year earnings growth of +6.7% for the S&P 500 stocks, down from expectations of +11.1% in early November.  Full-year 2025 corporate profits for the S&P 500 are seen rising +9.4%, down from the forecast of +12.5% in early January. 

Overseas stock markets on Wednesday settled mixed.  The Euro Stoxx 50 closed down -0.08%. China's Shanghai Composite rose to a 1-1/2 week high and closed up +0.26%. Japan's Nikkei Stock 225 closed down -1.01%.

Interest Rates

June 10-year T-notes (ZNM25) Wednesday closed up +11 ticks.  The 10-year T-note yield fell -7.0 bp to 4.263%.  June T-notes Wednesday recovered from early losses and settled moderately higher.  Short covering emerged in T-notes Wednesday after stocks plunged, sparking safe-haven buying of government debt.  T-notes added to their gains Wednesday afternoon on strong demand for the Treasury's $13 billion auction of 20-year T-bonds with a bid-to-cover ratio of 2.63, better than the 10-auction average of 2.59.  T-notes also had carryover support from rallies in European government bonds after UK March consumer prices rose less than expected.

T-note prices on Wednesday initially moved lower based on stronger-than-expected US economic news on retail sales, manufacturing production, and the NAHB housing market index.  Also, supply pressures weighed on T-notes as the Treasury auctioned $13 billion of 20-year T-bonds Wednesday. 

European bond yields Wednesday moved lower.  The 10-year German bund yield fell to a 1-week low of 2.479% and finished down -2.6 bp to 2.509%.  The 10-year UK gilt yield slid to a 1-week low of 4.571% and finished down -4.5 bp to 4.603%.

UK Mar CPI rose 2.6% y/y, weaker than expectations of +2.7% y/y. Mar core CPI rose +3.4% y/y, right on expectations.

Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at Thursday's policy meeting.

US Stock Movers

Chip stocks plunged on Wednesday and weighed on the broader market.  Advanced Micro Devices (AMD) closed down more than -7% to lead losers in the Nasdaq 100.  Also, ASML Holding NV (ASML) closed down more than -7% after reporting weaker-than-expected Q1 bookings.  Nvidia (NVDA) closed down more than -6% to lead losers in the Dow Jones Industrials after the US government banned it from selling its H20 chip to China.  In addition, GlobalFoundries (GFS) and KLA Corp (KLAC) closed down more than -5%, and Applied Materials (AMAT), Lam Research (LRCX), and ON Semiconductor Corp (ON) closed down more than -4%.  Finally, Intel (INTC), Broadcom (AVGO), and Texas Instruments (TXN) closed down more than -3%, and Marvell Technology (MRVL), ARM Holdings Plc (ARM), and NXP Semiconductors NV (NXPI) closed down more than -2%.

The Magnificent Seven stocks retreated Wednesday and pressured the broader market.  Tesla (TSLA) closed down more than -4%, and Apple (AAPL), Meta Platforms (META), and Microsoft (MSFT) closed down more than -3%.  Also, Amazon.com (AMZN) and Alphabet (GOOGL) closed down more than -2%.   

Wednesday's +1% rally in WTI crude oil lifted energy producers. APA Corp (APA) closed up more than +3% to lead gainers in the S&P 500, and Devon Energy (DVN) closed up more than +2%.  Also, Diamondback Energy (FANG) closed up more than +2% to lead gainers in the Nasdaq 100.  In addition, Occidental Petroleum (OXY), Marathon Petroleum (MPC), and Conoco Phillips (COP) closed up more than +2%, and Exxon Mobil (XOM) and Schlumberger (SLB) closed up more than +1%.

Interactive Brokers Group (IBKR) closed down more than -9% after reporting Q1 total net interest income of $770 million, below the consensus of $794.3 million. 

JB Hunt Transport Services (JBHT) closed down more than -7% to lead losers in the S&P 500 after reporting Q1 Final Mile Services revenue of $200.7 million, weaker than the consensus of $220 million. 

Omnicom Group (OMC) closed down more than -7% after reporting a Q1 operating profit of $452.6 million, weaker than the consensus of $485.1 million. 

AGCO Corp (AGCO) closed down more than -5% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $75. 

Abbott Laboratories (ABT) closed up more than +2% after reporting Q1 adjusted EPS of $1.09, stronger than the consensus of $1.07 and confirming its full-year guidance.

Travelers Cos (TRV) closed up more than +1% to lead gainers in the Dow Jones industrials after reporting Q1 core EPS of $1.91, well above the consensus of 74 cents.

Autoliv (ALV) closed up more than +4% after reporting Q1 adjusted EPS of $2.15, well above the consensus of $1.65. 

Newmont (NEM) closed up more than +2% after BMO Capital Markets reinstated coverage on the stock with a recommendation of outperform with a price target of $63.

Lockheed Martin (LMT) closed up more than +1% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $575.

Earnings Reports (4/17/2025)

American Express Co (AXP), Blackstone Inc (BX), Charles Schwab Corp/The (SCHW), DR Horton Inc (DHI), Fifth Third Bancorp (FITB), Huntington Bancshares Inc/OH (HBAN), KeyCorp (KEY), Las Vegas Sands Corp (LVS), Marsh & McLennan Cos Inc (MMC), Netflix Inc (NFLX), Regions Financial Corp (RF), Snap-on Inc (SNA), State Street Corp (STT), Truist Financial Corp (TFC), UnitedHealth Group Inc (UNH).