The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.11%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.21%. 

Stock indexes on Wednesday settled mixed, with the Dow Jones Industrials falling to a 2-week low.  Stocks recovered from early losses Wednesday after bond yields fell back from early highs after the US Mar ISM services index unexpectedly declined.  Also, price pressures eased after the Mar ISM services price paid sub-index fell more than expected to a 4-year low.  Stocks and bonds also garnered support on dovish comments Wednesday from Fed Chair Powell, who reiterated that it would likely be appropriate for the Fed to lower interest rates “at some point this year.” 

Stocks on Wednesday initially were under pressure after the 10-year T-note yield jumped to a 4-month high after the stronger-than-expected Mar ADP employment report reinforced the view that interest rates will remain higher for longer. 

The US Mar ISM services index unexpectedly fell -1.2 to 51.4, weaker than expectations of an increase to 52.8.  The Mar ISM services price paid sub-index fell -5.2 to a 4-year low of 53.4, weaker than expectations of 58.4.

The US Mar ADP employment change rose +184,000, stronger than expectations of +150,000.  Also, Feb ADP was revised upward to +155,000 from the previously reported +140,000.

US weekly MBA mortgage applications fell -0.6% in the week ended March 29.  The purchase mortgage sub-index fell -0.1%, and the refinancing mortgage sub-index fell -1.6%.  The average 30-year fixed rate mortgage fell -2 bp to 6.91% from 6.93% in the prior week. 

Atlanta Fed President Bostic said due to the bumpy nature of inflation progress, "it will likely be appropriate for us to lower interest rates at the end of this year, in the fourth quarter."

Fed Chair Powell said, "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably toward 2%. If the economy evolves broadly as we expect, most FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year."

The markets are discounting the chances for a -25 bp rate cut at 7% for the next FOMC meeting on April 30-May 1 and 64% for the following meeting on June 11-12.

Overseas stock markets on Wednesday settled mixed.  The Euro Stoxx 50 closed up +0.54%.  China's Shanghai Composite closed down -0.18%.  Japan's Nikkei Stock Index fell to a 2-week low and closed down -0.97%.

Interest Rates

June 10-year T-notes (ZNM24) on Wednesday closed up +2.5 ticks.  The 10-year T-note yield rose +0.2 bp to 4.351%.  June T-note prices today recovered from a 2-week nearest-futures low, and the 10-year T-note yield climbed to a 4-month high of 4.427%.

T-notes recovered from early losses Wednesday after the US Mar ISM services index unexpectedly declined and the Mar ISM services prices paid sub-index fell more than expected to a 4-year low, dovish factors for Fed policy.  Also, dovish comments from Fed Chair Powell sparked short-covering in T-notes when he said it would be appropriate for the Fed to cut interest rates “at some point this year.”

T-notes Wednesday initially moved lower on the stronger-than-expected Mar ADP employment report, which was hawkish for Fed policy.  Also, an increase in inflation expectations weighed on T-note prices after the 10-year breakeven inflation rate Wednesday climbed to a 4-3/4 month high of 2.378%.   

European government bond yields Wednesday finished lower. The 10-year German bund yield fell -0.4 bp to 2.395%.  The 10-year UK gilt yield fell -2.8 bp to 4.056%.

Eurozone Mar CPI eased to 2.4% y/y from 2.6% y/y in Feb, better than expectations of 2.5% y/y.  Mar core CPI eased to 2.9% y/y from 3.1% y/y in Feb, better than expectations of 3.0% y/y and the slowest pace of increase in 2 years.

The Eurozone Feb unemployment rate was unchanged at a record low of 6.5%, higher than expectations of a decline to 6.4%.

ECB Governing Council member Holzmann said, "An ECB rate cut in April is not on my radar.  In June, if the data allows it, a decision will be made."

US Stock Movers

Paramount Global (PARA) closed up more than +14% to lead gainers in the S&P 500 after Shari Redstone, the controlling shareholder of Paramount, reached a tentative agreement to sell her stake in the company to Skydance Media.  

NRG Energy (NRG) closed up more than +4% after it entered into a pact to buy back $251 million in 2.75% convertible senior notes from holders due 2048.

Strength in chip stocks led the technology sector higher on Wednesday. Micron Technology (MU) closed up more than +4% to lead gainers in the Nasdaq 100.  Also, Western Digital (WDC) closed up more than +4%.  In addition, ASML Holding NV (ASML), Broadcom (AVGO), NXP Semiconductors (NXPI), Lam Research (LRCX), Advanced Micro Devices (AMD), and Qualcomm (QCOM) closed up more than +1%. 

Ford Motor (F) closed up more than +2% after reporting its Q1 US auto sales rose 7% on strong demand for its gas-electric hybrid vehicles.

Booking Holdings (BKNG) closed up more than +1% after B Riley initiated coverage of the stock with a buy recommendation and a price target of $4,400.

Dave & Buster’s Entertainment (PLAY) closed up more than +9% after reporting Q4 Ebitda of $151.8 million, above the consensus of $145 million, and announced an additional $100 million share buyback program. 

Cal-Maine Foods (CALM) closed up more than +3% after reporting Q3 net sales of $703.1 million, stronger than the consensus of $692.5 million. 

United Parcel Service (UPS) closed up more than +1% after Redburn upgraded the stock to buy from neutral with a price target of $180. 

Ulta Beauty (ULTA) closed down more than -15% to lead losers in the S&P 500 after the company said at JPMorgan’s retail round up investor conference that external data points reflect a slowdown to start the year. Other beauty retailers fell on the news, with Elf Beauty (ELF) closing down more than -12%, Coty (COTY) closing down more than -6%, and Estee Lauder (EL) closing down more than -4%. 

Intel (INTC) closed down more than -8% to lead losers in the Dow Jones Industrials and Nasdaq 100 after it said losses have deepened at its factory business and the unit may not reach a break-even point for several years. 

Five Below (FIVE) closed down more than -4% after Gordon Haskett downgraded the stock to accumulate from buy. 

Walt Disney (DIS) closed down more than -3% after shareholders voted to elect all of CEO Iger’s choices for the board, rejecting activist investor Peltz’s bid for a board seat. 

Food product makers were under pressure Wednesday to weigh on the overall market.  Campbell Soup (CPB) closed down more than -3%.  Also, Hershey (HSY), JM Smucker (SJM), McCormick & Co (MKC), and General Mills (GIS) closed down more than -2%.

Wolfspeed (WOLF) closed down more than -2% after Wells Fargo Securities downgraded the stock to equal weight from overweight. 

PepsiCo (PEP) closed down more than -1% after Argus Research downgraded the stock to hold from buy, citing the potential impact of weight-loss drugs. 

Earnings Reports (4/4/2024)

Conagra Brands Inc (CAG), Lamb Weston Holdings Inc (LW), NET Lease Office Properties (NLOP), and RPM International Inc (RPM).

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