Stocks Fall on Fed Rate Hike Concerns and Mixed Earnings

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -1.12%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.24%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.89%. 

U.S. stock indexes this morning are moderately lower, with the S&P 500 and Nasdaq 100 dropping to 2- week lows.  U.S. stock indexes are under pressure today on concern the Fed will be aggressive in tightening monetary policy after Fed Chair Powell on Thursday signaled support for a 50 bp rate hike next month.  Also, weakness in healthcare stocks is weighing on the overall market after HCA Healthcare said that rising labor costs are cutting into its earnings results.

Lower T-note yields this morning are supportive for stocks as the 10-year T-note yield is down -2.1 bp at 2.889% after initially climbing to 2.970% in overnight trade.  An unexpected increase in U.S. manufacturing activity is supportive for stocks after today’s data from S&P Global showed U.S. manufacturing activity expanded this month.  In addition, positive quarterly corporate earnings results are supportive for stocks, with 79% of the 98 S&P 500 companies that have reported earnings beating estimates. 

The U.S. Apr S&P Global manufacturing PMI unexpectedly rose +0.9 to a 7-month high of 59.7, stronger than expectations of a decline to 58.0.

Today’s stock movers…

Healthcare stocks are falling today after HCA Healthcare said that rising labor costs are cutting into its earnings results.  HCA Healthcare (HCA) is down more than -15% to lead losers in the S&P 500 after it cut guidance on full-year adjusted EPS to $16.40 to $17.60 from a previous estimate of $18.40 to $19.20.  Also, Community Health (CYH) is down more than -10%, and Universal Health Services (UHS) and Tenet Healthcare (THC) are down more than -8%.

Verizon Communications (VZ) is down more than -5% today to lead losers in the Dow Jones Industrials after it said it saw full-year adjusted EPS at the low end of the $5.40 to $5.55 range, compared to the consensus of $5.43.

Intuitive Surgical (ISRG) is down more than -10% today to lead losers in the Nasdaq 100 after it reported that 6.920 of its Da Vinci Surgical systems were installed in Q1, below the consensus of 6,946. 

Allstate (ALL) is down more than -5% today after it reported $227 million in catastrophe losses in March, which prompted Piper Sandler and Jeffries to lower their Q1 earnings estimates for the company. 

SVB Financial (SIVB) is up more than +9% today to lead gainers in the S&P 500 after reporting Q1 EPS of $7.92, well above the consensus of $5.59.

Kimberly-Clark (KMB) is up more than +8% today after it reported Q1 net sales of $5.10 billion, above the consensus of $4.91 billion, and raised its full-year organic sales estimate to up +4% to +6%, stronger than the consensus of up +3.79%.

United Air Lines Holdings (UAL) is up more than +4% today after JPMorgan Chase upgraded the stock to overweight from underweight.

U.S.-listed Chinese listed are moving higher today on hopes for more government stimulus after the PBOC vowed stronger support to the real economy and said it would ensure market and economic stability.  Pinduoduo (PDD) is up more than +7% to lead gainers in the Nasdaq 100.  Also, JD.com (JD) and NetEase (NTES) are up more than +6%, Alibaba Group Holding (BABA) is up more than +5%, and Baidu (BIDU) is up more than +3%.

Across the markets…

June 10-year T-notes (ZNM22) this morning are up +10 ticks, and the 10-year T-note yield is down -2.1 bp at 2.889%.  Jun T-note prices this morning recovered from a new 3-1/4 year nearest-futures low and moved higher as a slide in stocks sparked safe-haven demand for T-notes.  T-notes had dropped to a 3-1/4 year low in overnight trade on carry-over pressure from Thursday on hawkish comments from Fed Chair Powell, who said he favored “front-end loading” policy moves that suggest a 50 bp Fed rate hike in May. Also, hawkish ECB comments today pushed the 10-year German bund yield up to a 6-3/4 year high, which undercut T-note prices.  In addition, surging inflation expectations are undercutting T-note prices after the 10-year breakeven inflation rate climbed to a new record high today of 3.076%. 

The dollar index (DXY00) this morning is up +0.28% and climbed to a new 2-year high.  Stronger T-note yields today are supporting gains in the dollar.  Also, weakness in the Chinese yuan is boosting the dollar as the yuan today fell to an 8-3/4 month low against the dollar.  In addition, weakness in stocks today has boosted liquidity demand for the dollar.

EUR/USD (^EURUSD) this morning is down -0.22%.  EUR/USD today is moderately lower on long liquidation pressures ahead of Sunday’s presidential election in France.  Losses in the euro were limited by hawkish ECB comments today, along with stronger than expected Eurozone manufacturing and services data.

ECB Governing Council member Holzmann said it is crucial that ECB asset purchases come to an end as soon as possible in order to start "visible" interest rate increases.

The Eurozone Apr S&P Global manufacturing PMI fell -1.2 to 55.3, stronger than expectations of 54.9.

The Eurozone Apr S&P Global composite PMI unexpectedly rose +0.9 to a 7-month high of 55.8, stronger than expectations of a decline to 53.9.

USD/JPY (^USDJPY) this morning is down -0.12%.  USD/JPY today is slightly lower today as it consolidates just below Wednesday’s 19-3/4 year high.  Weakness in Japanese sticks today boosted the safe-haven demand for the yen after the Nikkei Stock Index fell -1.6%.  The yen also garnered support today on a report from TBS that said Japanese Finance Minister Suzuki and U.S. Treasury Secretary Yellen discussed the possibility of coordinated currency intervention during a meeting they had Thursday.  Losses in USD/JPY were limited as higher T-note yields weighed on the yen.

June gold (GCM22) this morning is down -9.1 (-0.47%), and May silver (SIK22) is down -0.291 (-1.18%).  Gold and silver this morning extended this week’s losses, with gold falling to a 2-week low and silver dropping to a 3-1/2 week low.  A rally in the dollar index to a new 2-year high today is weighing on precious metals.  Gold prices are also under pressure today on Thursday’s comments from fed Chair Powell that suggest the Fed might be aggressive in tightening monetary policy. However, gold still has support from safe-haven demand from the war in Ukraine and demand as an inflation hedge after the 10-year breakeven inflation rate jumped to a new record high today.