Stocks Sink on Hawkish Fed

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -0.97%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.42%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.17%.

U.S. stock indexes Wednesday closed moderately lower, with the S&P 500 and the Nasdaq 100 falling to  2-week lows, the Dow Jones Industrials dropping to a 2-1/2 week low.

Soaring T-note yields Wednesday undercut technology stocks and led U.S. stock indexes lower.  The 10-year T-note yield climbed to a 3-year high Wednesday at 2.656% on concern the Fed will be aggressive in its rate hike cycle following hawkish comments on Tuesday from Fed Governor Brainard.  Stocks maintained moderate losses Wednesday afternoon after the release of the hawkish minutes of the March 15-16 FOMC meeting. 

Negative carry-over Wednesday from a -2.38% decline in the Euro Stoxx 50 to a 3-week low also weighed on U.S. stocks.  Weak Eurozone economic data is bearish for European stocks after Eurozone Feb PPI rose a record +31.4% y/y (data from 1982), and German Feb factory orders fell -2.2% m/m, weaker than expectations of -0.3% m/m.

Also, the war in Ukraine shows no signs of ending and is weighing on European stocks.  NATO foreign ministers are meeting in Brussels as the U.S. and its allies coordinate a new round of sanctions against Russia.

Hawkish comments Wednesday from Philadelphia Fed President Harker were bearish for stocks when he said he's "acutely concerned" by inflation that is "far too high," and he's worried that inflation expectations may become unmoored.

Wednesday’s minutes of the March 15-16 FOMC meeting were bearish for stocks as the minutes stated that "many" Fed officials said one or more 50+ bp rate hikes might be warranted and that it should reduce the holdings in its balance sheet by $95 billion a month.

Today’s stock movers…

A jump in the 10-year T-note yield Wednesday to a 3-year high weighed on technology stocks and the overall market.  Datadog (DDOG) closed down more than -6% to lead losers in the Nasdaq 100.  Nvidia (NVDA) closed down by more than -5%, and Tesla (TSLA), Qualcomm (QCOM), and Atlassian Corp (TEAM) closed down by more than -4%.  In addition, Microsoft (MSFT), Meta Platforms (FB), Netflix (NFLX), Amazon.com (AMZN), and Adobe (ADBE) closed down by more than -3%. 

Travel and leisure stocks tumbled Wednesday on concern that soaring inflation will undercut consumer spending.   Norwegian Cruise Line Holdings (NCLH) closed down more than -7% Wednesday to lead losers in the S&P 500.  In addition, Penn National Gaming (PENN), Carnival (CCL), and Caesars Entertainment (CZR) closed down by more than -6%, and MGM Resorts International (MGM) and Marriott International (MAR) closed down by more than -4%. 

Homebuilders tumbled Wednesday after the 10-year T-note yield rose to a 3-year high.  Lennar (LEN) closed down by more than -4%, and DR Horton (DHI) and KB Homes (KBH) closed down by more than -3%.

Utility and healthcare stocks rallied Wednesday as the recent slump in equities has prompted investors to seek security in defensive stocks.  Exelon (EXC) closed up more than +4% to lead gainers in the Nasdaq 100.  Also, AbbVie (ABBV) and American Electric Power (AEP) closed up more than +3%.  In addition, UnitedHealth Group (UNH) closed up more than +2% to lead gainers in the Dow Jones Industrials.

Eli Lilly (LLY) closed up more than +4% Wednesday to lead gainers in the S&P 500 after Morgan Stanley named the stock a top pick with an overweight rating.

Across the markets…

June 10-year T-notes (ZNM22) on Wednesday fell by -7.5 ticks, and the 10-year T-note yield rose +5.8 bp to 2.605%.  Jun T-notes Wednesday sank to a 3-1/4 year nearest-futures low, and the 10-year T-note yield soared to a 3-year high of 2.656%. This week’s T-note selloff deepened after comments Tuesday from Fed Governor Brainard signaled the Fed might step up its pace of monetary policy tightening by swiftly reducing its balance sheet.  A jump in European government bond yields also weighed on T-note prices after the 10-year UK gilt yield Wednesday surged to a 6-year high of 1.755%.