Stocks Walloped on Tough Talk from Fed Chair Powell

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed down -3.37%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -3.03%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -3.94%. 

Stocks on Friday sold off sharply, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 falling to 4-week lows.  Stocks plunged Friday after comments from Fed Chair Powell Friday squashed any speculation that the Fed will soon end its monetary tightening cycle.  Instead, he said that restoring inflation to the Fed’s 2% target is the central bank’s “overarching focus right now,” even though consumers and businesses will feel economic pain.  Also, a plunge in semiconductor stocks Friday weighed on the overall market.

On the positive side for stocks Friday was an easing of price pressures after economic news showed the July core PCE deflator, the Fed’s preferred inflation gauge, rose less than expected.  Also, U.S. consumer sentiment improved after the University of Michigan U.S. Aug consumer sentiment was revised higher.

Fed Chair Powell said history cautions against "prematurely" loosening monetary policy and that “restoring price stability will likely require maintaining a restrictive policy stance for some time.”  He added that the size of the Fed's September rate hike hinges on the "totality" of the economic data.

Cleveland Fed President Mester said the Fed is "all in" against inflation and may have to move interest rates above 4% and hold them there in 2023 to curb price pressures.

U.S. July personal spending rose +0.1% m/m, weaker than expectations of +0.5% m/m.  July personal income rose +0.2% m/m, weaker than expectations of +0.6% m/m.

The U.S. July PCE core deflator rose +0.1% m/m and +4.6% y/y, a smaller increase than expectations of +0.2% m/m and +4.7% y/y.

The University of Michigan Aug consumer sentiment was revised upward by +3.1 to 58.2, stronger than expectations of 55.5.

Today’s stock movers…

Semiconductor stocks sold off Friday.  Marvell Technology (MRVL) closed down more than -8%, and  Align Technology (ALGN) closed down more than -7%.  Also, Microchip Technology (MCHP), NXP Semiconductors (NXPI), and Advanced Micro Devices (AMD) closed down by more than -6%.  In addition, Qualcomm (QCOM), Broadcom (AVGO), Micron Technology (MU), Applied Materials (AMAT), Analog Devices (ADI), ASML Holding NV (ASML), and Lam Research (LRCX) closed down more than -5%.

3M Co (MMM) closed down more than -9% Friday to lead losers in the S&P 500 and Dow Jones Industrials after U.S. Bankruptcy Judge Graham said the company could not use bankruptcy to halt 230,000 lawsuits against it for selling faulty combat earplugs that damaged the hearing of veterans who used them. 

Nvidia (NVDA) closed down more than -9% Friday to lead losers in the Nasdaq 100 after 17 analysts cut price targets on the stock by an average of 8.7% since the company reported quarterly earnings on Wednesday. 

Dell Technologies (DELL) closed down by more than -9% Friday after the company forecast Q3 revenue of $23.8 billion-$25.0 billion, weaker than the consensus of $26.4 billion, and COO Whitten said Dell “observed more cautious consumer behavior as the quarter progressed.”  Dell’s results weighed on other stocks in the computer hardware sector, with HP Inc (HPQ) closing down more than -8% and Hewlett Packard Enterprises (HPE) closing down more than -7%.

Electronic Arts (EA) closed up more than +3% Friday to lead gainers in the S&P 500 and Nasdaq 100 after a column in USA Today said Amazon.com could announce as soon as today an offer to acquire the company.

Molina Healthcare (MOH) closed up more than +3% Friday after the company was awarded a Los Angeles County Medi-Cal contract.

Workday (WDAY) closed up more than +2% Friday after reporting Q2 revenue of $1.54 billion, stronger than the consensus of $1.52 billion, and forecast 2023 subscription revenue of $5.54 billion-$5.56 billion, above the consensus of $5.54 billion.

Across the markets…

Sep 10-year T-notes (ZNU22) on Friday closed down -6.5 ticks, and the 10-year T-note yield rose +0.6 bp to 3.032%.  Sep T-notes Friday gave up an early advance and turned lower on a jump in European government bond yields.  The 10-year German bund yield rose to a 1-3/4 month high Friday at 1.437% and weighed on T-note prices after Reuters reported that the ECB is discussing raising interest rates by 75 bp at next month’s policy meeting.  T-notes maintained moderate losses on hawkish comments from Fed Chair Powell.  T-notes Friday morning initially moved higher after U.S. economic reports showed July personal spending and the July core PCE deflator rose less than expected. 

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